Canadian Film or Video Production Tax Credit - Guidelines

These guidelines have been prepared to assist producers in completing the application form for a Canadian Film or Video Production Certificate (Part A) or a Certificate of Completion (Part B). The relevant sections of the Income Tax Act and Regulations take precedence over these guidelines.

Introduction

The rules that apply for the purpose of computing the Canadian Film or Video Production Tax Credit are set out in section 125.4 of the Income Tax Act (the "Act"). A Canadian film or video production is a production which meets the requirements of section 1106 of the draft Income Tax Regulations (the "Regulations").

Generally, the tax credit is available at a rate of 25 per cent of "the eligible labour costs of a Canadian-controlled production corporation which produces Canadian film or video productions". For productions, which development commences on or after November 14, 2003, or the first eligible labour expenditures are incurred on or after January 1, 2004, the qualified labour expenditure may not exceed 60 per cent of the cost of the production net of assistance. As well, a production corporation may elect that the new 60 per cent rate applies to productions for which labour expenditures were first incurred in a corporate taxation year that includes November 14, 2003. All other productions are subject to the former 48 per cent cap. The tax credit may be calculated by multiplying the qualified labour expenditure by 25 per cent. The tax credit therefore cannot exceed 15 per cent of the cost of production net of assistance.

The total cost of production will be reduced by any assistance received (or to be received) as defined in paragraph 12(1)(x) of the Act. Production costs and labour expenditures are also limited to those amounts which have been incurred in respect of the property owned by the corporation. Ownership may be shared only in cases where there is a Canadian co-production or a treaty co-production. For Canadian coproductions, however, CAVCO will issue a single certificate with respect to the production. It is therefore incumbent on each co-producer to claim the relative portion of the tax credit in computing its income. Labour expenditures must be directly attributable to the corporation's Canadian film or video production, incurred for the production of the property from the production commencement time to the end of the post-production stage, reasonable in the circumstances and included in the cost to the corporation.

An additional capital cost allowance, up to the cost of the certified production (net of the credit and assistance), and to the extent of film income, may also be available to some production corporations.

Co-productions between Canada and another country are eligible for the tax credit program only when co-produced under an official treaty. They are, however, exempted from certain requirements of the Regulations.

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