Corporate > AG Deal Diary > Canadian Tax Credits: Lights, Credit, Axing!
26 May '16

As of October 1, 2016, British Columbia (B.C.) will reduce tax credits available to film and television productions. Basic production service tax credits will be reduced from 33 percent to 28 percent, and tax credits offered to digital productions, animation and visual effects work will be reduced from 17.5 percent to 16 percent. This change to the incentive structure has caused some concern among B.C. residents, fearful that foreign filmmakers (and the jobs they have created) may leave B.C. in favor of cheaper venues.

The Opening Credits

Canada was at the forefront of the movement to create film incentives through tax credits. In 1997, Canada’s federal government initiated the Production Services Tax Credit program. This program provided a refundable federal tax credit that was “equal to 16 % of the qualifying labour paid to Canadian residents during the making of a qualified production, net of any ‘assistance,’ which includes the various provincial tax incentives.”

Following the creation of Canada’s federal film incentive program, some of the provincial governments created additional tax incentive programs. These additional incentive programs included labor-based, as well as “spend-based,” tax programs. B.C. was the first province to introduce these additional tax incentives, but its tax incentives remained stagnant, while those offered in Ontario and Quebec increased.

As Ontario rose to prominence as a serious competitor for foreign film productions, the B.C. film industry started campaigning for the introduction of more competitive film incentives, and it even became part of the New Democrat Party (NDP) platform in the 2013 provincial elections. Although the NDP lost its bid, the falling value of the Canadian dollar helped B.C. return as a favorable shooting location. B.C. became home to the production of many large films (including Deadpool, Tomorrowland, and The Twilight Saga), as well as popular television series (including Once Upon a Time, The Flash, and Man in the Iron Castle).

Why Now?

B.C critics of film tax credits claim that the incentive program is costing the province too much money. B.C. has no cap on how the amount of tax credits generated within a given year, so the boom in B.C. production also meant a boom in redemption of tax credits.

An Alternative Ending?

Two factors may indicate whether these tax reductions will be long lasting: (1) the strength of the Canadian dollar and (2) the success of the film industry in neighboring provinces. Three years ago, the campaign for increased tax credits was undermined by the falling value of the Canadian dollar. If the Canadian dollar begins to recover, one of the effects would be an increased cost of production for foreign productions in Canada, and, in turn, this would create an incentive to reverse the tax reductions. Alternatively, if Ontario and Quebec gain film business at the expense of B.C., B.C.’s film industry will put pressure on the government to reverse its stance. Neither of these factors are within the direct control of the B.C. government, and a potential reverse would not be immediate.