Wednesday, January 23, 2013

FIlm Tax Credits - how much should be subsidize the business?

BC is offering a very good tax credits as the Production Services Tax Credits (PSTC) for foreign film companies and I think we should not be offering what is already on offer let alone increase them.  For a change I agree with Bill Tieleman on an issue.

The PSTC is a refundable corporate income tax credit. When filing tax returns, production corporations may claim a specified percentage of the labour costs incurred in making film, television, digital animation or visual effects productions. The credits are applied to reduce tax payable, and any remaining balance is paid to the corporation.

What this means is that 33% of the the costs spent on local labour can be claimed as a tax credit that is refundable.   Meanwhile BC has the lowest corporate income tax rates going.

So if a film production company spends $4,000,000 on production, of which $1,000,000 is local labour, they get a $333,333 tax credit.   Now if the taxable income at the end of the day was $500,000, the tax owing on that is $50,000 but you have a $333,333 tax credit meaning that at the end of the year you not only keep your profits, the government of BC cuts you a cheque for $283,333.

So all those BC people working on productions effectively pay personal income taxes to subsidize their employer.

If you film outside of Metro Vancouver your subsidy goes up with another 6% for the Fraser Valley, Whistler and Capital Regional District and then even 6% more for filming in the rest of BC.   If you film in Nanaimo you get a a 45% tax credit for BC labour.   There is also a 16% federal tax credit.

Effectively we are paying US producers to come to BC and film here and not getting much benefit to our economy.   The $1,100,000,000 film industry in BC gets an annual subsidy of $285,000,000.    This for only about 3,000 full time jobs, or close to $100,000 a job.  

The benefits are even more if you at a domestic production.  If you were to make a 13 episode 1/2 hour comedy TV show in Nanaimo you would qualify for a 53.5% tax credit on labour.   Assuming you use all Canadian actors in the program you could get to 40% of your costs being labour.   At $75,000 an episode that is effectively $1,000,000 for the series and a tax credit of $214,000 which would most likely be all paid out to you.   If you secure $40,000 per episode funding from a development fund, you end up with $734,000 for a TV series that cost $1,000,000 to make, this is before you broadcast it.

Honestly I am amazed that local TV stations like CHEK in Victoria or CFJC in Kamloops are not producing cheap TV shows for the tax credits and funding available.  It strikes me as a legitmate model to pursue.

Long term we are better off not offering special deals to specific industries and let each industry rise and fall based on an equal playing field.

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