Canadian Film or Video Production Tax Credit
Prepared by Andersen in Canada, Montréal Partner Patrick Coutu and Tax Manager Divya Katyal with support from Lisa Chea.
Extension of timelines for Film or Video Production Services Tax Credit
In the Budget 2021, the government of Canada proposed to extend the timelines for eligibility and compliance for the Canadian Film or Video Production Tax Credit (CPTC) and Film or Video Production Services Tax Credit (PSTC). This was further proposed in the draft legislation released on February 4, 2022 for comment (https://ca.andersen.com/blog/draft-legislation-canada-federal-budget-2021/).
For both the CPTC and the PSTC, the time period to meet the requirements is extended by an additional 12 months. This is due to address the hardships faced by the industry to work on the projects because of restrictions and limitation owning to Covid-19.
The revised timelines are as below:
- 36 months to incur qualifying expenditures before the date that principal photography begins (the “production commencement time”)
- 36 months to file an application for certificate of completion following the end of the tax year in which principal photography began
- 36 months to meet aggregate expenditure thresholds for qualification as an “accredited production”
For both credits, taxpayers need to file a waiver with the CRA and the Canadian Audio Visual Certification Office (CAVCO) to extend the assessment limitation period in order to consider the additional 12 months.
This extension is for all production for which eligible expenditures were incurred in taxation years ending in 2020 or 2021.
Section 125.4 of the Income Tax Act (“ITA”) and Section 1106 of the Income Tax Regulations
1. Canadian Film or Video Production Tax Credit (CPTC)
The CPTC is a 25% refundable tax credit on qualified labour expenditures that is available for productions that are certified by CAVCO (Canadian Audio-Visual Certification Office) as “Canadian film or video production”. To be eligible to claim this credit, the following Canadian-content requirements must be met:
- Canadian producer: The Canadian producer must be acting as the central decision maker from the development stage until the production is ready for commercial exploitation.
- Canadian production: The production must usually earn a minimum of 6 points out of 10 based on the key creative functions performed by Canadians and must qualify for certification under an eligible program category.
- Canadian expenditures: 75% must be services provided to or by individuals who are Canadian and at least 75% of post-production work must be incurred for services provided in Canada by Canadians or Canadian companies.
Who can apply?
- To claim this credit, the entity must be a prescribed taxable Canadian corporation that is controlled by Canadians.
- The primary activities must be conduction a Canadian film or video production business through a permanent establishment in Canada (a “qualified corporation” as defined in subsection 125.4(1)) of the ITA.
Some productions are ineligible for the certification as Canadian programs, such as news, reality TV, production soliciting funds, infomercials, productions containing more than 50% of non-Canadian stock footage (except documentaries) and others.
Qualified Canadian labour expenditures
The qualified labour expenditures include the salaries and wages that are directly related to production and all services provided by consultants that are:
- Reasonable in the circumstances
- Included in the cost/capital cost of the Canadian film
- Paid in the tax year or no later than 60 days after the end of the tax year
The qualified labour expenditure considered for this credit cannot exceed 60% of the total cost of the production for the year (net of any tax assistance). Consequently, the tax credits are limited to 15% of the cost of production (60% of the 25% credit).
Payments made by subsidiary to parent corporations
The system permits eligibility of the labour expenditures of a wholly owned subsidiary to its parent corporation, provided the subsidiary reimburses the parent for these expenses within 60 days from the year end.
To claim the credits
Form T1131 is required to be filed with the corporation’s income tax return (T2), with a copy of the Canadian Film or Video Production Certificate (Part A) or, if available, the Certificate of Completion (Part B) issued by CAVCO per Canadian production.
2. Film or Video Production Services Tax Credit (PSTC)
The PSTC is a 16% refundable tax credit on qualified Canadian labour expenditure incurred by producers of films/television that do not meet the Canadian-content requirements for the CPTC.
To qualify as an accredited production eligible for the PSTC credit, the film/video/series must meet the following cost minimums:
Film or video production (including feature films):
- Total cost must be greater than $1,000,000 for the 36 month period following the date the principal filming or taping began
Television series (must be more than one episode or a pilot for a television series)
- $100,000 for an episode shorter than 30 minutes; or
- $200,000 for any other episode
Who can apply?
- Taxable Canadian corporation or foreign-owned corporation;
- More than 50% of the business activities must be dedicated to the permanent establishment in Canada of a film or video production business, or a film or video production services business; and
- The production corporation must be the owner of the copyright in the accredited production, throughout the period during which the production is produced in Canada.
Qualified Canadian labour expenditure
- These expenditures must be incurred by the eligible production corporation for the production stages of the property, from the final script to the post-production stage;
- Must be paid to persons who were resident in Canada at the moment of the payment or for services rendered in Canada;
- Must be directly attributable to the film or video production and reasonable in the circumstances; and
- paid in the year, or maximum no later than 60 days after the end of the year.
Other elements to consider
- If you claimed a PSTC for a production, you cannot claim the CPTC for the same production.
- There is no limit on the amount of PSTC that you can receive for a production.
To Claim the credits
Form T1177 is required to be filed with the corporation’s income tax return (T2), with a copy of the accredited film or video production certificate (Accreditation Certificate) issued by CAVCO for each accredited production.
To summarize both the credits:
|Tax credit||25% refundable tax credit on qualified labour expenditures||16% refundable tax credit on qualified Canadian labour expenditure|
|Who can apply?||Only qualified corporation which are prescribed taxable Canadian corporations with PE’s in Canada throughout a given taxation year, in the video production business||Taxable Canadian or foreign-owned corporation in the video production business|
|Qualified Canadian labour expenditure||Limited to 60% of the net production (production cost net of assistance)||No limit|
|Complete claim||Form T1131 (with the tax return), copy of the Production Certificate (part A) or Certificate of Completion (Part B)||Form T1177 (with the tax return) with a copy of the Accreditation Certificate|
In additional to the above, there are several other provincial credits available such as Ontario Film & Television Tax Credit (OFTTC).
For additional details, feel free to reach to us at email@example.com for any further clarifications or assistance in this regard.