Entertainment and Media Tax Clip: Ontario enhances Production Services Tax Credit — Additional details released (September 17, 2009)

During this year’s Toronto International Film Festival, the Ontario government revealed details on changes announced in June 2009 to the Ontario Production Services Tax Credit (OPSTC). The OPSTC is a 25% refundable tax credit available to domestic and foreign-based production companies that produce film and television productions in Ontario.

Under a proposal, for expenditures incurred after June 30, 2009, the credit can be claimed on ‘qualifying production expenditures,’ not just "qualifying Ontario labour." Additional details on this proposal were released on September 10, 2009, in the Ministry of Finance Bulletin: Proposed Enhancements to the Ontario Production Services Tax Credit (OPSTC).

The Bulletin explains that a corporation's ‘qualifying production expenditure’ for an eligible production is calculated as follows:

¹The expenditure must be:

• Reasonable and directly attributable to an eligible production
• Incurred by the corporation in the current or previous taxation year
• Related to services rendered or property used in Ontario for the stages of production from the final script stage to the end of the post-production stage
• Paid in the year or within 60 days after the end of the year (amounts incurred in the previous year that were paid within 60 days after the end of the previous year are excluded)

Eligible wage expenditure

To qualify as an ‘eligible wage expenditure,’ the wages must be paid to the corporation’s employees who were Ontario-based individuals at the time the payments were made. Also included are fees paid to organizations such as the Alliance of Canadian Cinema, Television and Radio Artists (ACTRA) in respect of a production for Ontario-based individuals.

Eligible service contract expenditures

An "eligible service contract expenditure" must be paid to an Ontario-based individual (who is not an employee of the corporation), a taxable Canadian corporation or a partnership that carries on a business in Ontario through a permanent establishment, which rendered the services in Ontario by Ontario-based individuals. Eligible service contract amounts include on-set police services costs, but exclude meals and entertainment (other than on-set catering), living expenses (hotels, etc.) and travel if any portion of the travel is outside Ontario.

Eligible tangible property expenditure

An ‘eligible tangible property expenditure’ is incurred by the corporation to acquire or rent tangible property in Ontario (e.g., equipment, studio rentals and computer software) used in an eligible production. It does not include financing and banking costs, insurance premiums and the cost of completion bonds and story rights. The expenditure must be paid to a person who:

• Carries on a business in Ontario through a permanent establishment
• Is an Ontario-based individual at the time the amount is paid who is not an employee of the corporation
• Has a taxable Canadian corporation whose primary source of active business income is derived from selling or renting tangible property

For depreciable tangible property, only the portion of the Ontario capital cost allowance (CCA) for the property for the taxation year under the Income Tax Act (Canada) that relates to the use of the property in Ontario in the year to complete an eligible production would be an eligible tangible property expenditure.

Excluded items

A corporation’s qualifying production expenditure excludes:

• Remuneration determined by reference to profits or revenues
• Scientific research and experimental development expenditures
• Non-production costs (e.g., advertising, marketing, promotion, market research)
• Amounts relating to another film or video production
• Alcoholic beverages

PricewaterhouseCoopers Comments

Film and video producers will welcome this change. Industry research estimates that film and television production in Ontario generates $2 billion annually for the province's economy. This and other recent enhancements intend to help Ontario continue to attract film and television productions and keep Ontario's tax credits competitive with those offered by other provinces.