Entertainment Law - Tax Credits in Canada PDF

Entertainm ent Law Alicia Ramdeo  Available Tax Credits in Canada/Ontario  Canadian Content Tax Credits: Canadian Film or Video Production Tax Credit (CPTC) & Ontario Film & Television Tax Credit (OFTTC)  Service Tax Credits: Film or Video Production Servic...

Entertainm ent Law Alicia Ramdeo  Available Tax Credits in Canada/Ontario  Canadian Content Tax Credits: Canadian Film or Video Production Tax Credit (CPTC) & Ontario Film & Television Tax Credit (OFTTC)  Service Tax Credits: Film or Video Production Services Tax Credit (Fed PSTC) & Ontario Production Services Tax Credit (OPSTC)  Other - Ontario Computer Animation & Special Effects Tax Credit (OCASE), Treaty Co-Productions & The Canada Revenue Agency  Canadian Film or Video Production Tax Credit (CPTC) Details:  Everything you need to know is in the Guideline: Note: https://www.canada.ca/en/canadian-heritage/servi Eligible Production Cost = (Total Production ces/funding/cavco-tax-credits/canadian-film-video Cost less deferrals less ineligible cost less -production/application-guidelines.html#a5 assistance) x 60%  Labour Based – up to 25% of Qualified Labour Expenditure (QLE); What is assistance ?  Administered by Canadian Audio Visual Production financing received from public or Certification Office (CAVCO); private Canadian or foreign sources, in the  QLE is the lower of Net Labor Expenditures form of grants, subsidies, provincial tax and the Eligible Production Costs credits, forgivable loans or similar types of funding Categories of Eligible Salaries or wages Labour Sole Proprietors Taxable Canadian Corporations (i.e. “Multishare” Corps – typically only 65% eligible) Loanout Corporations Partnerships (typically only 65% eligible)  Canadian Film or Video Production Tax Credit (CPTC) Eligibility Criteria  Qualified Corporation  ProdCo or prescribed person controls initial licensing (for 25 years).  Production company (ProdCo) or prescribed person owns copyright for  Meets “shown in Canada” requirement 25 years after production is complete within 2 years of completion (Fair  Eligible production genre Market Value agreement with Canadian Distributor, CRTC Licenced broadcaster  Minimum of 6 key creative points or other acceptable online platform)  Meets Canadian Producer Control  Canadian distribution rights held by requirements Canadian entity for two years following  Meets certification deadlines the completion of the Production  Meets 75% Canadian Cost  ProdCo receives acceptable share of net requirement revenues (25%)  Qualified Corporation What does sections 26-28 of the Investment Canada Act say?  Qualified Corporation “Canadian” means:  Canadian-controlled taxable a. a Canadian citizen; Canadian corporation (based on b. a permanent resident within the meaning of subsection sections 26-28 of the Investment 2(1) of the Immigration and Refugee Protection Act who has been ordinarily resident in CanadaFootnote8 for not Canada Act). more than one year after the time at which he or she first became eligible to apply for Canadian citizenship;  Activities consist primarily of Footnote9 carrying on a Canadian film or c. a Canadian government, whether federal, provincial or video production business, through local, or an agency thereof; or a permanent establishment in d. an entity that is Canadian-controlled, as determined Canada under subsection 26(1) or (2) and in respect of which there has been no determination made under any of subsections 26(2.1), (2.11) and (2.31), or declaration made under subsection 26(2.2) or (2.32). Minimum of Six (6) Key Creative Points  Minimum of 6 key creative points  Must be Canadian citizens or Permanent Residents (immigration definition, not tax resident)  Require CAVCO personnel numbers  Two-step lead performer determination process: Identify all lead performers considering Time on Screen, Remuneration & Billing  Rank lead performers from Step 1 list by remuneration to determine First and Second Leads  Documentaries can be eligible if they receive fewer than 6 points BUT all the key creative points must be allocated to Canadians  Generally, all key creative positions must be occupied by Canadians for Productions funded by CMF or Telefilm  Can still have a fully CANCON Production if certain key creative positions are unoccupied eg. Production without a second lead could be a “9 out of 9” production.  Canadian Producer Control  All Producer roles must be held by Canadians unless exemptions granted for non-Canadians In Class Exercise:  Producer, Coproducer and Line Producer MUST be Canadian Go to the Crew Agreement from Week 6 and identify at  Producer = central decision maker, responsible for acquisition of project least 3 clauses that relate to and exercises control over tax credit requirements. development after underlying rights secured  Creative aspects and Expenditures  Production Financing  Exploitation  Canadian Film or Video Production Tax Credit (CPTC) Certification Deadlines Must file CAVCO A + B or AB application CAVCO A = based on budget CAVCO B = based on actual cost No CAVCO A deadline CAVCO B submission deadline: 24 months from first tax yearend following principal photography Can be extended by 18 months to 42 months if a wavier is filed Additional 12 months COVID extension (must have incurred eligible labour in 2020 or 2021) Must be certified within 6 months of submission deadline  A note on copyright ownership Only the ProdCo or a Prescribed Person can own the copyright within 25 years of completion (refer to section 3.03 of Guidelines for definition of Prescribed Person). Essentially, must ensure that non- Canadians do not own copyright ! Ideally, ProdCo owns copyright to Production (tax liability issues otherwise)  Ontario Film and Television Tax Credit (OFTTC) It is a Labour-based tax provincial credit equal to 35% of eligible Ontario labour expenditures; Administered by Ontario Creates https://www.ontariocreates.ca/tax-incentives/ofttc/ofttc-guidelines 10% “Regional” bonus increased tax credit rate to 45%; 5% First-Time Production Bonus on first $240K of costs (caps out at $12K); Same types of labour as CPTC but individuals must be resident in Ontario at the end of the calendar year prior to the commencement of principal photography; Unlike the CPTC, no “Eligible Production Cost” cap but assistance still grinds the labour base. https://www.canada.ca/en/revenue-agency/services/tax/businesses/topics/corporations/provincial- territorial-corporation-tax/ontario-provincial-corporation-tax/ontario-refundable-media-tax-credits/ ontario-film-television-tax-credit.html  OFTTC Eligible Production Generally, must meet the same requirements as the CPTC plus the following:  85% of principal photography days must be in Ontario (documentaries are exempt)  95% of cost of post-production work must be carried out in Ontario  75% of final costs are Ontario-based  Must be “Shown in Ontario” within 2 years of completion  Individual Controlling Producer must be an Ontario resident (for the past two years prior to production)  Must include an Ontario Creates screen credit in the end credits acknowledging tax credit support (new requirement for all production with principal photography dates after Aug 24, 2023)  Unlike CPTC, Talk Shows are ineligible  OFTTC Certification Deadlines Same as CAVCO except the Part A is referred to as the “Certificate of Eligibility” and the Part B the “Letter of Confirmation”  Production Services Tax Credit (PSTC)  Typically, this route is taken by US Studios who hire Canadian/Ontario Producers to produce a production that they control on their behalf.  -Sometimes Productions controlled by Canadian/Ontario Producers apply for service tax credits when they can’t meet some of the CANCON eligibility criteria  There is both a Fed and Ontario PSTC  In Class Exercise – Lets name a few!  PSTC ELIGIBILITY CRITERIA The applicant is the copyright hold or contracts directly with the copyright holder The Production does not fall under an excluded genre The Production meets the budget thresholds:  $1M for a film  $200K per episode if the runtime is over 30 min  $100K per episode if the runtime is under 30 min The applicant is an Eligible Production Corporation:  Taxable Canadian Corporation or Foreign-owned Corporation  Permanent establishment in Canada (Fed PSTC) and Ontario (OPSTC)  Primarily engaged in a film or video production business  Must include an Ontario Creates screen credit in the end (no Federal Screen credit requirement)  Fed PSTC What is it? How much is it worth ? How else is it different? Qualified Canadian Two major differences This is a Federal between Fed PSTC Labour Expenditure and CPTC eligible Tax Credit for x 16% labour: Only labour performed in Canada Qualified Canadian by Canadian Labour Expenditure Pop Qiz – what is is residents is eligible for Ontario? for the Fed PSTC on productions that Only labour do not meet the Qualified Canadian performed after the CANCON Labour Expenditure final script stage is eligible (i.e. no requirements. is essentially total development labour) Canadian Labour Expenditure less Assistance  Resources CPTC https://www.canada.ca/en/canadian-heritage/services/funding/cavco-tax-credits/canadian-film-video-production/ap plication-guidelines.html OFTTC https://www.canada.ca/en/revenue-agency/services/tax/businesses/topics/corporations/provincial-territorial-corpora tion-tax/ontario-provincial-corporation-tax/ontario-refundable-media-tax-credits/ontario-film-television-tax-credit.ht ml https://www.ontariocreates.ca/tax-incentives/ofttc Federal PSTC https://www.canada.ca/en/canadian-heritage/services/funding/cavco-tax-credits/film-video-production- services.html OPSTC https://www.ontariocreates.ca/tax-incentives/opstc OCASE https://www.ontariocreates.ca/tax-incentives/ocase WORLDWIDE