Vol. 150, No. 21 — October 19, 2016

Registration

SOR/2016-262 September 30, 2016

INCOME TAX ACT

Regulations Amending the Income Tax Regulations (Film and Video Productions, 2016)

P.C. 2016-855 September 30, 2016

His Excellency the Governor General in Council, on the recommendation of the Minister of Finance, pursuant to section 221 (see footnote a) of the Income Tax Act (see footnote b), makes the annexed Regulations Amending the Income Tax Regulations (Film and Video Productions, 2016).

Regulations Amending the Income Tax Regulations (Film and Video Productions, 2016)

Amendment

1 Subparagraph (b)(ii) of the definition excluded production in subsection 1106(1) of the Income Tax Regulations (see footnote 1) is repealed.

Application

2 Section 1 applies in respect of film or video productions for which principal photography begins after February 16, 2016.

REGULATORY IMPACT ANALYSIS STATEMENT

(This statement is not part of the Regulations.)

Executive summary

Issues: Talk shows were previously listed in the Income Tax Regulations (the Regulations) as one of the 11 production genres ineligible to receive the Canadian Film or Video Production Tax Credit (CFVPTC). Talk shows were originally listed as an ineligible genre for the credit because they were largely produced in-house by broadcasters, and the main objective of the CFVPTC was to support an independent (non-broadcaster) production sector. However, some talk shows are produced by independent production corporations and given that talk shows are of cultural value to Canadians, the Minister of Canadian Heritage, who is responsible for the cultural policy behind the credit, has recommended that talk shows become eligible for the CFVPTC.

Description: The amendment to the Regulations changes the definition of “excluded production” for the purposes of the CFVPTC by removing the reference to “talk shows,” for productions for which the principal photography starts after February 16, 2016. Given that a broader range of Canadian film and video production would be eligible for the tax credit, this amendment is relieving in nature.

Cost-benefit statement: The Department of Canadian Heritage has estimated that this change will increase the cost of the credit by $33 million per year ongoing. This is based on available data for Canadian talk shows and represents the minimum expected impact of allowing talk shows to become eligible for the CFVPTC, as new talk shows may emerge and apply for the credit. The costs to the Government of Canada are a direct benefit to Canadian film and video production companies, and rendering talk shows eligible for the CFVPTC will support a broader range of Canadian content productions.

“One-for-One” Rule and small business lens: The proposed amendment to the Regulations is not expected to impose new administrative or compliance costs on business, including small businesses. Therefore, the “One-for-One” Rule and the small business lens do not apply.

Background

The Canadian Film or Video Production Tax Credit (CFVPTC) is an incentive program administered through the tax system aimed at assisting Canadian film producers in creating films or video productions with high Canadian cultural content, and encouraging the development of an active domestic independent production sector.

The credit is equal to 25% of the eligible labour costs of a Canadian-controlled production corporation in respect of productions that have sufficient Canadian content. The maximum amount of qualifying Canadian labour costs is equal to 60% of the total cost of a production, net of any assistance, such that the credit can cover up to 15% of total production costs. The program is co-administered by the Canadian Audio-Visual Certification Office (CAVCO) of the Department of Canadian Heritage and the Canada Revenue Agency (CRA).

The Minister of Canadian Heritage is responsible for certifying whether a film or video production meets certain prescribed Canadian-content rules. While most of the rules concerning the CFVPTC are contained in section 125.4 of the Income Tax Act, section 1106 of the Income Tax Regulations (the Regulations) addresses the cultural content and ownership criteria to be applied by the Minister of Canadian Heritage in determining whether a production may be certified as a “Canadian film or video production” that is eligible for the CFVPTC. This amendment only affects the type of production genres eligible for the CFVPTC.

The genres that typically qualify for the CFVPTC (though they are not listed in the Regulations) include dramas, documentaries, children’s and educational programs, variety and lifestyle/human interest programs. There are 11 production genres ineligible to receive the CFVPTC, which are specifically listed in the definition “excluded productions” in section 1106(1) of the Regulations (e.g. a sports event or activity, a gala presentation or an awards show, reality television), which, prior to this amendment, included talk shows.

Issues

Talk shows were previously listed in the Regulations as one of the 11 production genres ineligible to receive the CFVPTC because they were largely produced in-house by broadcasters, and the main objective of the CFVPTC is to support an independent (non-broadcaster) production sector. However, given that some talk shows are actually produced by independent production corporations and are of cultural value to Canadians, the Minister of Canadian Heritage, who is responsible for developing the cultural policy applicable to the CFVPTC, has recommended that talk shows become eligible for the CFVPTC.

Objectives

The objective of this amendment is to allow talk shows to be eligible for the CFVPTC. This provides certainty for stakeholders on the eligibility of talk shows for the CFVPTC, and will support a broader range of Canadian content productions.

Description

The amendment to the Regulations changes the definition of “excluded production” for the purposes of the CFVPTC by removing the reference to “talk shows,” for productions for which the principal photography starts after February 16, 2016. Given that a broader range of Canadian film and video productions would be eligible for the CFVPTC, this amendment is relieving in nature.

Regulatory and non-regulatory options considered

Talk shows were previously listed in the Regulations as one of the 11 production genres ineligible to receive the CFVPTC. The only option available to render talk shows eligible for the CFVPTC was to amend the Regulations.

Benefits and costs

The Department of Canadian Heritage has estimated that this amendment will increase the cost of the credit by $33 million per year ongoing. This is based on available data for Canadian talk shows and represents the minimum expected impact of allowing talk shows to become eligible for the CFVPTC, as new talk shows may emerge and apply for the credit. The cost of this change will be funded from the Consolidated Revenue Fund by reducing the amount of federal tax collected by CRA or increasing the tax refunds paid by CRA.

Talk show production companies will be able to claim the credit for productions for which the principal photography starts after February 16, 2016. To the extent that this change may contribute to an increase in the number of Canadian talk shows, there may be more competition among talk shows for broadcasting time and audiences.

The costs to the Government of Canada are a direct benefit to Canadian film and video production companies. The qualitative benefits associated with rendering talk shows eligible for the CFVPTC are that the credit will support a broader range of Canadian content productions, and that there is potential for consumers to have more choice of talk shows.

“One-for-One” Rule

The amendment to the Regulations is not expected to impose new administrative costs on business. Therefore, the “One-for-One” Rule does not apply.

Small business lens

The amendment to the Regulations is not expected to impose new administrative or compliance costs on small business. Therefore, the small business lens does not apply.

Consultation

No formal consultations have been undertaken in association with this amendment to the Regulations.

However, on February 18, 2016, CAVCO published a public notice on the Department of Canadian Heritage’s Web site (see footnote 2), which sought comment and feedback on the definitions of genres, more broadly, from the general public and, particularly, from the Canadian film and video production industry.

While these publications were not specifically about talk shows and concerned the whole list of ineligible genres, certain stakeholders have taken the opportunity to comment on the eligibility and definition of talk shows. The comment period ended on May 18, 2016, and the Department of Canadian Heritage is currently in the process of reviewing the submissions received in response to these publications.

Rationale

In order to allow talk shows to qualify for the CFVPTC, an amendment to the Regulations is required. This measure is relieving in nature, in that it allows talk shows to qualify for the CFVPTC. Benefits to productions would mainly flow to Canadian independent producers.

Implementation, enforcement and service standards

The amendment applies retroactively, as permitted under the Income Tax Act, to film or video productions for which principal photography starts after February 16, 2016.

The amendment is subject to the existing reporting and compliance mechanisms available under the Income Tax Act. These mechanisms allow the Minister of National Revenue to assess and reassess tax payable, conduct audits and seize relevant records and documents.

Contact

Venetia Putureanu
Tax Legislation Division
Department of Finance
90 Elgin Street
Ottawa, Ontario
K1A 0G5
Telephone: 613-369-3664