Quebec Axes Tax Shelter For Filmmakers

Quebec’s film and television tax shelter is dead. In a controversial but expected move, Quebec Finance Minister Gerard D. Levesque axed the tax shelter which provided up to 166% write-off for investors in certified Quebec productions.

The tax shelter system – which cost the Quebec government up to $C60 million annually – has been replaced with a new tax credit system (effective Jan. 1) which will cost the provincial government not a penny over $C30 million annually, per a finance ministry document.

Under the new system, production companies can claim a tax credit of 40% of production salaries, or up to 18% of the total budget, per production, at the end of the year. Numerous insiders agreed that the 40% will amount to 15% to 18% of the total production budget, a drop from the 20% to 25% production companies expected from the now defunct tax shelter. However, while the percentage declined, an increased number of producers and smaller production companies will likely benefit from the new rules. “It’s more universal,” per Bernard Boucher of the Institute of Quebec Cinema. Every company is eligible if their production is certified as a Quebec oeuvre.

Boucher also hailed part two of the new system, whereby investors now will be allowed to invest directly in a production company via SPEQ (Societes de Placement Dans l’Entreprise Quebecoise) whose mandate now includes film and television “enterprises.”

“That is good,” per producer Rene Malo, topper of Les Productions Malofilms. “That’s the idea I was trying to sell them for the last six years. Now the investor will go with companies that are making money.”

“SPEQ [investments] could end up giving production houses more money than the tax credit,” per entertainment attorney John Buchanan, who noted that a lack of details on SPEQ has left the industry in a state of “flux.”

Part three of the new system includes an “intermediary tax credit” to be administered by SOGIC, although no details were announced and industryites await SOGIC’s rules, also expected within a couple of months. And part four of the new plan caps government investment in all “variety and magazine format” shows at $C2 million.

Abuse of the tax shelter and millions of dollars going into the hands “of financiers and beneficiaries,” per the government document, was the reason for the changes, which have been met with fierce criticism from such producers as Rock Demers.

The b.o. success of Demers’ children’s film series, “Tales For All,” had put him in a privileged position with investors who liked the financial returns they were making on his films. “For people who were producing films that brought back a return to investors, [the new system] is a disadvantage,” he said, adding that “people who were not producing commercial films are happy. [The new tax credit] is a new 15% for them. And that’s the majority of producers,” he said.

In short, the new system handicaps producers whose films actually made money and attracted long-term investors, per Demers. Demers said he got 30% to 60% of his budgets from private investors. “Now the maximum I can get is 18%. This is very bad news.”

Another major beef came from Malo (producer, “Scanners II” and “Scanners III”), who said new and tougher criteria to gain classification as a “certified Quebec production” has “made it practically impossible for films to be produced in English.”

The new point system, also controlled by SOGIC, stipulates that only one of the major participants in the production (writer, director and top two thesps) can be a non-Quebecer. (Under the old system, two top players could be non-Quebecers.) Also, 75% of funds spent on actors must now go to Quebec actors. “In a roundabout way, they’re making it practically impossible to produce in English,” Malo said.

The new tax-credit system will be in effect for five years, although the 40% figure will be reviewed in three years. (Previous Quebec tax shelters fluctuated from 150% in 1983, to 100% in 1986, to 133% in 1987, to 166%% in 1988, to anywhere from 30% to 166 2/3% in 1990.)

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