Canada extends pic tax-shelter program

TORONTO — Canada’s federal government has extended a tax shelter scheme that puts extra dollars in U.S. producers’ pockets, but plans to replace it in November with a program that might be less lucrative.

The 4-year-old production services tax shelter program, due to expire today, will continue until Oct. 31, but then Ottawa intends to introduce a new incentive plan — either a grant, rebate or tax credit — based on a production’s labor costs.

A tax credit would be a boon for Canadian service producers, who front for U.S. companies shooting in Canada. But the major studios — Disney, Warner Bros. and Viacom all have produced in Canada — could be left out in the cold.

Walt Disney Studios head of physical production Bruce Hendricks was here meeting with Canadian officials to try and extend the tax shelter.

Hendricks could not be reached for comment about the extension.

End of financing niche

The expiration of the old program also would spell the end of the specialized financing niche carved out by investment dealers Monarch Entertainment of Vancouver and Alliance Equicap, the financial arm of Alliance Communications Corp. of Toronto.

These single-interest brokerage houses put together limited partnerships that are sold to investors who get a 10-year tax deferral from Revenue Canada. The producer gets the cash the limited partnership raises, which amounts to about 8% of a production’s expenditures. Under the existing rules, 75% of those expenditures must be paid to Canadians.

Initially, the tax shelter program was set to shut down in December, but intense lobbying by the industry stayed the government’s hand.

Lobbying resumed over the past few weeks as production industry trade unions, brokers and even provincial governments trooped to Ottawa and demanded meetings with Finance Minister Paul Martin and Revenue Minister Herb Dhaliwal.

They got half a loaf. The Finance Dept. said Thursday it will introduce a new program that will apply to “eligible” labor expenses incurred after October, but wouldn’t reveal the mechanics of the program being considered.

“This program will help Vancouver and Toronto remain major North American film production centers,” Dhaliwal said. “It will be a more efficient way to attract foreign film production to Canada than the privately promoted foreign film production service tax shelters that were popular in the past.”

Finance officials promised to consult with the industry to determine the most efficient incentive.

“What’s important is the government’s commitment to an ongoing new program,” said Matthew O’Connor, president of Pacific Pictures of Vancouver, B.C. “Over the long-term it will be very good for service production work across the country, especially in British Columbia, where about 85% of production is foreign-based.”

Foreign film production accounted for more than C$800 million ($584 million) worth of spending in Canada last year. Service productions and Canadian content productions combined generated roughly C$3 billion ($2.2 billion) in economic activity.

“The government’s thinking is quite astute,” said Tom Berry, president of Allegro Films of Montreal. “It’s obviously a very efficient way to create employment in an industry that exports a lot.”

Canadian studies suggest that more than half of every dollar spent in production goes to pay wages.

The new program will yield benefits equal to the tax shelter at a third of the cost, he said. “It’s a no-brainer. The amount that Revenue Canada ends up collecting is far in excess of any tax costs or incentive for the production.”

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