Proposed Changes to Revenue Canada Taxation Policy and

Heritage Canada's Federal Production Services Tax Credit

The Economic Development Committee recommends that:

(1)Revenue Canada be requested to continue its current practices with respect to treatment of foreign personnel and tax waiver periods;

(2)Heritage Canada be requested to maintain the Federal Production Services tax Credits at its current level;

(3)the Minister of Heritage be requested to clarify the position of the Federal Government and respond to the concerns of the Toronto film, and television industry;

(4)the Mayor and the Chair of the Economic Development Committee be requested to meet with the federal Ministers of Finance, Heritage and Transport to advise them of the serious economic consequences that the implementation of the proposed changes to the tax administration would have on the film and television industry in the City of Toronto; and

(5)Council's action in this respect be forwarded to the appropriate Ministers and members of Parliament, and that appropriate City staff be directed to follow-up as appropriate.

The Economic Development Committee submits the following report (January 5, 1999) from the Commissioner of Economic Development, Culture and Tourism:

Purpose:

To influence Federal Government policy and maintain Canada and Toronto's competitive advantage in the film and television industry.

Funding Sources, Financial Implications and Impact Statement:

None

Recommendations:

(1)That the Economic Development Committee request Revenue Canada continue their current practices with respect to treatment of foreign personnel and tax waiver periods;

(2)that the Economic Development Committee request that Heritage Canada maintain the Federal Production Services Tax Credit at its' current level;

(3)that this report be forwarded to the relevant Ministers and members of Parliament and staff be directed to follow up as is appropriate; and

(4)that the Minister of Heritage be requested to clarify the position of the Federal government and respond to the concerns of the Toronto film and television industry.

Council Reference/Background/History:

Three recent developments at the Federal level in tax administration will have serious consequences for the film and television industry in Toronto, if implemented.

Foreign Actors required to File Tax Returns

Effective January 1999 Revenue Canada plans to enforce a requirement for non-resident actors to file Canadian tax returns. Traditionally, actors have only been required to remit 15 percent of their income as withholding tax, and have not been asked to file tax returns. In addition to having to file a Canadian tax return the standard graduated rate will be withheld for any foreign actor whose stay in Canada exceeds a six month period.

The changes in the application of the tax rules will make it more difficult to hire non-resident actors, a vital ingredient in foreign and also in many Canadian productions. Should an actor now even agree to work in Canada, it will likely be under the condition that the Producer indemnify them for any difference in taxes, which will cause budgets to rise, ultimately making Canada and Toronto less competitive. We have reason to believe that actors who are most in demand may decide against shooting in Canada, due to the additional tax complications and expense. Many high-paid talent have the power to pull the production elsewhere.

The Toronto Film and Television Office is aware of one recent example of this having occurred with a production initially slated to be filmed in Toronto which was not because the star refused to be involved with possible foreign tax complications. This cost the city approximately $18 million in production spending and the Federal government their tax revenue. This measure is set to be enacted this month.

Tax Waiver Period Reduced for Non-resident Non-actor Personnel

Revenue Canada is proposing the reduction of the tax waiver period for non-resident non-actor personnel from the current six months to a maximum of 120 days. Non-residents who have worked in Canada within the last three years will have this period further reduced. This means that, with the exception of a non-resident working on a TV movie in Canada for the first time in over three years, all others will be required to have tax withheld at 15 percent. Graduated rates will apply to those who are here for more than six months, and tax returns may also be required. This poses a further disincentive to filming in Canada.

Elimination of tax credits for foreign producers

There is a move afoot within the Department of Heritage to eliminate the federal production services tax credit for foreign producers. The federal production services tax credit was implemented just over one year ago and it is a major attraction for foreign production. Most provinces, noting the success of the federal program have since implemented a tax credit of their own. Across this country the Federal tax credit has spurred the growth in filming and has led to the employment and training of thousands of Canadians. These newly skilled workers are helping to build our indigenous film industry. To eliminate the tax credit program at this early stage will hurt rather than assist Canadian film production. It will also make Canada less competitive in this highly competitive and mobile industry.

Conclusions:

Close to $800 million dollars of film production, not including television commercials, occurred in Ontario alone in 1998. Almost half of this business was generated by foreign productions producing films in Ontario. The vast majority of these were produced in Toronto employing Toronto residents and relying on Toronto-based services.

Any one of the above three measures on their own would be an impediment to foreign production. Together, they may prove disastrous.

We need immediate action. It is essential that the relevant politicians are contacted to advise them of the economic disaster to the film and television industry that will result if even one of the above-noted policies are put into effect.

Contact Name:

Rhonda Silverstone

Manager, Toronto Film and Television Office

Tel.: 392-1333