Nova Scotia’s Minister of Finance Diana Whalen hinted in the weeks leading up to yesterday’s budget announcement that the provincial government was planning on amending Nova Scotia’s Film Industry Tax Credit.
As the tax credit has played a large role in fostering Nova Scotia’s film industry since its inception in 1993, proponents of the tax credit (including the Trailer Park Boys and Snoop Dogg) were quick to band together and articulate their support for the current regime.
Despite the strong social media campaign arranged by the film industry, the provincial government decided to proceed with some changes to the current regime. So what was actually changed?
Prior to yesterday’s budget, the Film Industry Tax Credit was a fully refundable tax credit for costs directly related to the production of films in Nova Scotia. A company was eligible for the credit if it was an eligible corporation, producing an eligible film, with eligible salaries, as defined in the Regulations. In brief, these terms mean:
- An eligible corporation had to be a taxable Canadian corporation, primarily carrying on business in film or video production. The corporation had to have a permanent establishment and at least 25% of the salaries and wages of the corporation had to be “eligible salaries”.
- An eligible film was one which was a commercial venture and intended for a “television, cinema, videotape or non-theatrical production” with a subject matter of “drama, variety, performing arts, an animated or informational series, a documentary or music programming”. There were certain restrictions which included news, weather, talk shows, and reality television.
- Eligible salaries had to be reasonable in the circumstances; included in the cost of the eligible film; directly attributable to the production of the eligible film; and must have been incurred and paid within a prescribed time period.
For productions that commenced principal photography after November 30, 2010, the credit fully refunded an amount equivalent to 50% of the company’s eligible salaries. The credit was increased by 10% for productions that shot at least 50% of production days outside Halifax but still within Nova Scotia. Finally, the credit could also be increased by a further 5% for companies that had commenced production on at least two prior films within the last 24 months (known as the “frequent filmer credit”). Therefore, the maximum refundable tax credit available to companies that produced films in Nova Scotia was 65% of eligible salaries.
Yesterday’s budget announcement has significantly changed the tax credit regime for film productions in Nova Scotia.
Primarily, the tax credit is no longer 100% refundable. The refundable portion of the tax credit has been decreased to 25%, meaning that a company will only receive a refund equivalent to 25% of its eligible salaries. The remaining 75% of the tax credit is now non-refundable, meaning that it will only operate to reduce any Nova Scotia taxes owing by eligible corporations. There has been no indication that any changes have been made or are anticipated to the eligibility criteria to be able to access the tax credit.
The changes will take effect July 1, 2015 and will not impact companies that commenced principal photography prior to that date. However, given that most films in Nova Scotia are produced by companies incorporated solely for the purpose of that production, you can expect to see this having a significant impact very soon.
One item which has not been highlighted in the coverage of these changes is that the reduction in benefits available under Nova Scotia’s provincial tax credit regime may be partially offset by the increased ability of producers to access federal film tax credits offered by CAVCO. Under the federal regime, any funding that is deemed assistance (i.e. benefits under Nova Scotia’s film tax credit regime) are deducted from the total production cost which is used in calculating the tax credit available.