September 10, 2009
Overview
On June 29, 2009 the Ontario government announced proposed enhancements to the Ontario Production Services Tax Credit (OPSTC). The proposed enhancements are part of the government’s plan to support growth and job creation in Ontario’s economy, including the film and television industry.
This Backgrounder is intended to provide additional details with respect to the June 29, 2009 announcement. It is not intended as a substitute for any relevant legislation or regulations. Subject to approval of the legislature, the proposed enhancements to the OPSTC described in this Backgrounder would be implemented through amendments to the Taxation Act, 2007. Legislative amendments to implement these enhancements should be consulted when available.
In addition, the OPSTC is administered on behalf of Ontario by the Canada Revenue Agency (CRA) and the interpretation of key concepts is therefore under the administrative responsibility of the CRA.
Current calculation of OPSTC
The OPSTC is a refundable tax credit for qualifying Ontario labour expenditures incurred by an Ontario-based corporation with respect to eligible foreign and domestic film and TV productions that are not claimed under the Ontario Film and Television Tax Credit.
The tax credit rate on qualified Ontario labour expenditures is 25 per cent for expenditures incurred by a qualifying corporation after December 31, 2007.
Generally, qualifying Ontario labour expenditures are expenditures for salaries, wages and qualifying remuneration paid to Ontario-based individuals. Ontario-based individuals are individuals resident in Ontario at the end of the calendar year immediately before the calendar year in which principal photography for the production commences.
An eligible production must meet a minimum production cost and must not be in an excluded genre. As well, applicants must also have a certificate from the Ontario Media and Development Corporation (OMDC) in order to be considered an eligible production.
Proposed enhancements to OPSTC
The proposed enhancements would expand the expenditures that qualify for the OPSTC. The tax credit rate of 25 per cent would be applied to the “qualifying production expenditure” incurred after June 30, 2009 in respect of an eligible production.
Qualifying production expenditure
A corporation’s “qualifying production expenditure” in respect of an eligible production would generally be the amount by which the sum of the following amounts incurred by the corporation in respect of the production in the taxation year exceeds relevant government and non-government assistance received in respect of the production:
- eligible wage expenditure,
- eligible service contract expenditure, and
- eligible tangible property expenditure.
Eligible wage expenditure
A corporation’s eligible wage expenditure for a taxation year in respect of an eligible production would generally include employee salary and wages that are:
- reasonable in the circumstances;
- directly attributable to the eligible production;
- incurred by the corporation in the taxation year or the previous taxation year;
- related to services rendered in Ontario for the stages of production from the final script stage to the end of the post-production stage; and
- paid by the corporation in the year or within 60 days after the end of the year to the corporation’s employees who were Ontario-based individuals at the time the payments were made (amounts incurred in the previous year that were paid within 60 days after the end of the previous year are excluded).
An eligible wage expenditure would also include the fees a qualifying corporation must pay to organizations such as the Alliance of Canadian Cinema, Television and Radio Artists (ACTRA) in respect of the production for Ontario-based individuals.
Eligible service contract expenditure
A corporation’s eligible service contract expenditure would include amounts that are paid to qualifying third parties that are:
- reasonable in the circumstances;
- directly attributable to the eligible production;
- incurred by the corporation in the year or the previous year;
- related to services rendered in Ontario in the year or the previous year to the corporation for the stages of production from the final script stage to the end of the post-production stage; and
- paid by the corporation 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) to a person or partnership that carries on a business in Ontario through a permanent establishment and that is:
- an Ontario-based individual at the time the amount is paid and who is not an employee of the corporation, provided the services are rendered in Ontario in respect of the production by the individual or the individual’s employees at a time when they were Ontario-based individuals,
- another corporation that is a taxable Canadian corporation, provided the services are rendered in Ontario in respect of the production by the corporation’s employees at a time when they were Ontario-based individuals, or
- a partnership, provided the services are rendered in Ontario in respect of the production by an Ontario-based individual who is a member of the partnership or the partnership’s employees at a time when they were Ontario-based individuals.
Eligible service contract amounts would include the cost of on-set police services.
Eligible service contract amounts would not include: (i) travel where any portion is outside of Ontario; (ii) meals and entertainment (other than on-set catering); and (iii) living expenses (hotels, etc.).
Eligible tangible property expenditure
A corporation’s eligible tangible property expenditure would include all or a portion of an amount incurred by the corporation for the acquisition or rental, in Ontario, of tangible property used in the eligible production provided:
- The property is used in Ontario in a manner that is directly attributable to the eligible production;
- The property is used during the stages of production, from the final script stage to the end of the post-production stage;
- The expenditure is incurred in Ontario in the taxation year or the previous taxation year;
- The expenditure is paid by the corporation 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);
- The expenditure is reasonable in the circumstances; and
- The expenditure is paid to a person that carries on a business in Ontario through a permanent establishment and that is
- an Ontario-based individual at the time the amount is paid and who is not an employee of the corporation, or
- a taxable Canadian corporation, and
- the corporation’s primary source of active business income is derived from selling or renting tangible property.
Under the proposed enhancements, generally, tangible property would have its ordinary meaning, i.e., physical property that can be touched. Eligible tangible property expenditures would include items such as equipment, studio rentals and computer software. Examples of expenditures that would not qualify for the OPSTC include financing and banking costs, insurance premiums, the cost of completion bonds and story rights.
For depreciable tangible property that is acquired by the qualifying corporation and meets all of the above proposed criteria, the corporation’s eligible tangible property expenditure for the year would include 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 in the course of completing the eligible production.
Excluded items
As under the current rules, a corporation’s qualifying production expenditure would not include remuneration determined by reference to profits or revenues, an amount to which section 37 of the Federal Act applies nor, for greater certainty, an amount that is not a production cost (e.g., an amount in respect of advertising, marketing, promotion, market research) or an amount related in any way to another film or video production.
A corporation’s qualifying production expenditure would not include alcoholic beverages.
Government and non-government assistance
A corporation’s qualifying production expenditure would be reduced by the amount of any relevant government or non-government assistance in a manner that is similar to the current rules.
Inflation of tax credit claims
The proposed enhancements would include a provision to ensure that transactions involving persons or partnerships that are not at arm’s length with a qualifying corporation are not used to inflate the amount of the qualifying corporation’s OPSTC for a taxation year.
Proposed effective date
The proposed enhancements would apply to expenditures incurred after June 30, 2009.
