Canadian Film or Video Production Tax Credit (CPTC) Guidelines - Introduction

In order to be eligible for the Canadian Film or Video Production Tax Credit, a production must be certified by the Canadian Audio-Visual Certification Office ("CAVCO") as a "Canadian film or video production". A Canadian film or video production means a film or video production, other than an "excluded production"[4], produced by a prescribed taxable Canadian corporation[5] and that is either a treaty co-production or a film or video production that meets the requirements of the Regulations.[6]

A production must be completed (answer print or video master) within two (2) years after the end of the taxation year in which the principal photography began. Furthermore, a "Certificate of Completion"[7] (Part B) must be issued by the Minister of Canadian Heritage within 30 months after the end of the corporation's taxation year in which the production's principal photography began. This certificate will certify that the production was completed within the period described above. If a production does not meet these prescribed time frames, it will become an excluded production. Consequently, no tax credit will be allowed.

Co-productions between Canada and another country are eligible for the tax credit program only when co-produced under an official treaty. Treaty co-productions must comply with the requirements outlined in the Regulations unless otherwise specified. Telefilm Canada continues to be responsible for the certification of treaty co-productions. However, in order to obtain a certificate to access the tax credit program, the producer must apply directly to CAVCO. A Telefilm Canada Advance Ruling must be submitted by the producer with an application for a Canadian film or video production certificate (Part A). At the Certificate of Completion (Part B) stage, Telefilm Canada will send its final recommendation directly to CAVCO.

1. Definition of the term "Canadian"

The term "Canadian" is defined as a person who is, at all relevant times, a Canadian citizen as defined in the Citizenship Act, a permanent resident within the meaning assigned by the Immigration and Refugee Protection Act (2001), or a corporation that is Canadian-controlled, as determined for the purposes of sections 26 to 28 of the Investment Canada Act.[8]

"Canadian at all relevant times" means that an individual must be Canadian at the time he or she begins his or her duties in relation to the production and during the entire course of the filming or taping and post-production. An individual cannot acquire permanent resident status in order to qualify as "Canadian" at any point during a production; such status must be confirmed before the individual begins engaging in any activity related to the production.


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2. Definition of the term "producer"

The term "producer"[9] is defined as an individual:

  1. who controls and is the central decision maker in respect of the production; and

  2. who is directly responsible for the acquisition of the production story or screenplay and the development, creative and financial control and exploitation of the production; and

  3. who is identified in the production as being the producer of the production.

All the positions related to the producer function must be held by Canadians, unless a request for an exemption for a foreign courtesy credit has been granted by CAVCO. However, no exemption will be granted for the functions of line producer, co-producer or production manager; these positions must be held by Canadians and CAVCO will seek to ensure that all persons to whom they report are Canadians.

3. Exemption for a foreign courtesy credit for a producer-related position

An exemption for a foreign courtesy credit may only be granted to the extent that the functions of a non-Canadian individual in no way interfere with the financial and creative authority of the Canadian Producer and either relate to the arranging of foreign distribution or financing, or the provision of services to the production under the strict supervision and control of the Producer. An affidavit must be filed on CAVCO's approved form before these individuals begin their duties.

CAVCO Producer Control Guidelines (attached as Appendix I) describes the policy with respect to this matter.

4. Ownership and Distribution

To be considered as a Canadian film or video production, a production must meet the conditions set out below[10]. However, treaty co-productions are exempt from the conditions mentioned in paragraph i).

  1. The prescribed taxable Canadian corporation or another prescribed taxable Canadian corporation related to the corporation[11]:

    1. is, except in a Canadian co-production, the exclusive worldwide copyright owner in the production for all commercial exploitation purposes for the twenty-five year[12] period that begins at the first time the production has been completed and is commercially exploitable. A production is deemed to be completed on the date of acceptance of the answer print (film) or master (video),

    2. controls the initial licensing of commercial exploitation, and

    3. retains a share of revenues, that is acceptable to the Minister of Canadian Heritage, from the exploitation of the production in non-Canadian markets. (A specific policy to that effect is currently under consultation with industry associations).
  2. There must be an agreement in writing for consideration at the fair market value with

    1. a corporation that is a Canadian and is a distributor of film or video productions, or

    2. a corporation that holds a broadcasting licence issued by the Canadian Radio-television and Telecommunications Commission (CRTC) for television markets, to have the production shown in Canada within the two-year period that begins at the first time the production has been completed and is commercially exploitable.

      If a distribution is made in Canada within that two-year period by a person who is not a Canadian, the production will be deemed an "excluded production".

Producers must also submit copies of all distribution or broadcast agreements. At least one of the Canadian agreements (the broadcast agreement in the case of a television program) must contain a commitment to show or broadcast the production in Canada within the period indicated above. Distribution agreements should also contain a clause to the effect that the distributor is a Canadian company, within the meaning prescribed by Regulation.


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5. Ineligible genres of production

The following genres of production are not eligible for the tax credit program[13]:

  1. news, current events or public affairs programming, or a programme that includes weather or market reports;
  2. talk show;
  3. production in respect of a game, questionnaire or contest (other than a production directed primarily at minors);
  4. sports event or activity;
  5. gala presentation or an awards show;
  6. production that solicits funds;
  7. reality television;
  8. pornography;
  9. advertising;
  10. production produced primarily for industrial, corporate or institutional purposes;
  11. production, other than a documentary, all or substantially all of which consists of stock footage.

CAVCO is currently drafting criteria in order to define some of the above-named genres of production.

6. Creative services

  1. Non-animated productions (live action)

    To be recognized as a Canadian production, a live action production must be allotted a total of at least six (6) points according tothe following scale:

    (Points are allotted if the individual(s) who rendered the service is/are Canadian).

    Points
    Director 2 points
    Screenwriter [14] 2 points
    Lead performer for whose services the highest remuneration was payable 1 point
    Lead performer for whose services the second highest remuneration was payable 1 point
    Director of photography* 1 point
    Art director** 1 point
    Music composer*** 1 point
    Picture editor* 1 point

    * For video productions, the equivalents to DOP are either "technical director" or "lighting director" and the equivalent to picture editor is "off-line editor".

    ** "Art director" refers to the head of the art department. In some cases, this individual may have the title of "production designer".

    *** The point for music composer is allotted only if the music created for the production is an original work.

    In addition, a production must obtain two of the four points allotted for the director and the screenwriter (one of the two positions must be filled by a Canadian). A production must also obtain one of the two points allotted for lead performers (one of these two positions must also be filled by a Canadian).

    In the case of a documentary production not involving performers or other functions such as art director or music composer, a production may meet the creative services criteria even if the production has not been allotted the minimum six points required. However, all the filled creative positions must be occupied by Canadians.

  2. Animation productions

    To be recognized as a Canadian production, an animation production must be allotted a total of at least six (6) points according to the following scale[15]:

    (Points are allotted if the individual(s) who rendered the service is/are Canadian).

    Points
    Director 1 point
    Screenwriter and storyboard supervisor 1 point
    Lead voice for which the highest or second highest remuneration was payable 1 point
    Design supervisor (art director) 1 point
    Camera operator where the camera operation is done in Canada 1 point
    Music composer* 1 point
    Picture editor 1 point

    (The following points will be allotted if the place where the work is performed is in Canada**).

    Points
    Layout and background 1 point
    Key animation 1 point
    Assistant animation and in-betweening 1 point

    * The point for the function of music composer is allotted only if the music created for the production is an original work.

    ** At Part B, an affidavit will be required attesting that the functions were performed in Canada.

    Furthermore, for the production to be considered Canadian, the following conditions must be fulfilled: either the director, or the screenwriter and storyboard supervisor must be Canadian; the lead voice for which the highest or second highest remuneration was payable must be Canadian; and the key animation must be done in Canada.

  3. General rules

    No points will be allotted for a Canadian who shares the functions of a key creative position with one or more non-Canadians (see also the definition of screenwriter below). Where the functions of a position are carried out by more than one person, only the number of points provided for in the Regulations will be allotted, regardless of the number of individuals named in the credits for this position. In the case of a television series or a collection of films, each of the episodes in the series or each of the films in the collection must meet the requirements of the Regulations.

  4. Lead performer and screenwriter

    1. Lead performer

      CAVCO will use three criteria to determine which individuals are in effect the lead performers in non-animated productions[16]: (i) remuneration (including all types of benefits, residuals, travel and living expenses, etc.), (ii) billing and (iii) time on screen.
      In the case of an animation production[17], CAVCO will determine which individual is in effect the lead voice on the basis of remuneration received (including benefits, residuals, travel and living expenses, etc.) and length of time that the individual's voice is heard in the production.
      An actor or actress is an individual engaged to speak lines of dialogue or mime a scene, or whose performance consists in interpreting a character, even where there is no dialogue. When there is no actor or actress, an individual who performs one of the following functions may be considered equivalent to the lead performer: dancer, singer, specialty act performer, host (a performer who introduces or links segments of a program), narrator (a performer engaged to perform narrative material), off-camera performer (a performer other than the narrator engaged to perform a role in a dramatic work off-camera), or the actor who performs or reads the voice of a character in a film or animated production. Guests on a magazine program, or the subjects of biographical documentaries, are not considered performers for certification purposes.

    2. Screenwriter

      In order to obtain points for the position of screenwriter[18], a production must meet one of the following conditions:

      1. Each individual involved in the preparation of the screenplay for the production must be Canadian. This means that all the individuals engaged in developing the screenplay, from the outline or treatment through the various drafts (including consultants and story editors) and dialogue polishes to the final shooting script, must be Canadian.

      2. The principal screenwriter is a Canadian individual and the screenplay for the production is based on a work authored by a Canadian and the work is published in Canada.

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7. Canadian expenditures

In order to qualify as a Canadian film or video production, a production must meet the following requirements in respect of Canadian expenditures:

  1. Not less than 75 per cent of the total of all costs for services provided in respect of producing the production (other than excluded costs) was payable to, and in respect of services provided to or by individuals who are, Canadians[19].

    Excluded costs are:

    1. costs determined by reference to the amount of income from the production;

    2. remuneration payable to, or in respect of, the producer or key creative services personnel. Only the fees paid to a Canadian producer or coproducer are excluded. All other fees paid to producer-related positions are calculated as services. In the case of an animation production, the costs associated with positions which entitle the production to a point based on the place where the work is done are not considered to be excluded costs;

    3. amounts payable in respect of insurance, financing, brokerage, legal and accounting fees, and similar amounts; and

    4. costs relating to the post-production stage.


  2. In addition, not less than 75 per cent of the total of all costs incurred for postproduction of the production, including laboratory work, sound re-recording, sound editing and picture editing (other than costs determined by reference to the amount of income from the production and remuneration payable to the producer and key creative services personnel) was incurred in respect of services provided in Canada.[20]

CAVCO's Breakdown of Costs form (form No. 6 for live action productions or form No. 7 for animation productions) must be submitted with the application for the Certificate of Completion (Part B). In the case of a television series or a collection of films, although only one Breakdown of Costs form is required, each of the episodes in the series or each of the films in the collection must meet the requirements of the Regulations. In certain cases, CAVCO may ask that a Breakdown of Costs form be completed for each episode.

Notes

  • [4] Subsection 1106(1) of the Regulations, under the definition of "Excluded Production".
  • [5] See note 3) above.
  • [6] A "Canadian Film or Video Production" is defined in subsection 1106(3) of the Regulations. See also subsections 1106(4) about "Creative Services", 1106(5) about "Lead Performer/Screenwriter" and 1106(6) about "Documentary Production".
  • [7] As defined in subparagraph 1106(1)(a)(i) of the Regulations, under the definition of "Excluded Production".
  • [8] See note 1) above.
  • [9] Subsection 1106(1) of the Regulations, under the definition of "Producer".
  • [10] Subparagraphs 1106(1)(a)(ii), (iii) and (iv) of the Regulations, under the definition of "Excluded Production".
  • [11] IMPORTANT. Please note that, in order to claim a tax credit, the corporation must be the owner of the copyright in the production, and have incurred the labour expenditure. Once the tax credit has been claimed, the copyright may then be assigned to a related prescribed taxable Canadian corporation.
  • [12] This clause applies to the 1995 and subsequent taxation years except that the reference to the "twenty-five year period" in that clause shall be read as a "five-year period" in the case of a film or video production for which a Canadian film or video production certificate is obtained before1997.
  • [13] Paragraph 1106(1)(b) of the Regulations, under the definition of an "Excluded Production".
  • [14] See the definition of Screenwriter under "Creative Services" in paragraph 1106(5)(c) of the Regulations.
  • [15] Subparagraph 1106(4)(a)(ii), (iii) and (iv) of the Regulations. See also paragraph 1106(4)(c).
  • [16] Paragraph 1106(5)(a) of the Regulations.
  • [17] Paragraph 1106(5)(a) of the Regulations.
  • [18] Paragraph 1106(5)(b) of the Regulations.
  • [19] Subparagraph 1106(3)(b)(iii) of the Regulations. The expression "by individuals" will likely be replaced by "to or by individuals" in a proposed amendment to the draft regulations.
  • [20] Paragraph 1106(3)(iv) of the Regulations.

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