Confusion On Financing Front

The film financing picture in Canada is fuzzy and growing darker.

Few expect the Ontario Film Development Corp. to escape the zealous ax-wielding of Premier Mike Harris beyond next spring. Although Quebec and Nova Scotia have well-established assistance programs that remain intact, the federal government has slashed the budget of Telefilm Canada, closed foreign offices and replaced the familiar tax shelter program, which enabled producers to raise upfront financing from private investors, with a back-end loaded refundable tax credit.

Many Canadian production companies depend on the tax shelter to provide 10% to 12% of financing for Canadian productions. The federal government agreed to allow the tax shelter and new tax credit systems to run in tandem this year to give the industry time to adapt, but with the shelter about to end, the government did not issue any regulations or guidelines regarding the workings of the new tax credit until last week, leaving little time for industry members to understand and absorb the impact of the new regulations.

The banks have allowed producers to borrow money on the strength of uncompleted tax shelter contracts, but they have warned they will not be able to do likewise next year.

Not only is the end of the capital cost allowance tax shelter a blow to many producers, but several entertainment companies, including Alliance Communications Corp. and Paragon, have developed lucrative tax shelter brokering divisions that clearly will be in jeopardy.

Alliance Equicap has long been a top performing Alliance unit, contributing a quarter of the company’s profit. Executive VP George Burger says its business will be undiminished for the fiscal year ending March 31, but beyond that, it’s difficult to predict.

The fate of other important cultural institutions, namely Telefilm Canada, the National Film Board and the Canadian Broadcasting Corp., may rest in the hands of Pierre Juneau, a former CBC president who is conducting an inquiry for the government. Dismissing recent speculation about the content of his report, he says he will not recommend that Telefilm be dismantled.

The financing situation is especially bleak in Ontario where the Ontario Film Development Corp. had its 1995 $17.6 million budget slashed by a third earlier this year. There are fears it may not survive the next round of government cuts. The Ontario Film Investment Program, which distributes cash rebates to Ontario investors in Canadian-content film and television productions, had its $10.3 million budget frozen.

OFDC president Diane Chabot expects the worst. “Frozen is a euphemism for gone,” she told Variety.

As government support diminishes, the private sector appears to be picking up some of the slack. The Cable Production Fund, which siphons off half of a special levy cable subscribers pay to support capital expenditures, will distribute $34.5 million in its first year, 80% of it for children’s programming and dramas.

“The Cable Production Fund has been a welcome addition to the financing landscape in Canada,” says Michael Hirsh, chairman of Nelvana Ltd.

Jon Slan, chairman of Paragon Entertainment Group, puts it more succinctly: “Any trough is a welcome place to feed.”

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