The Canadian federal government encourages film producers to employ the services of Canadians with its offering of the Film or Video Production Services Tax Credit. If your client is in the production industry, it may be entitled to a refundable tax credit.
Your client must be an eligible production corporation that has a permanent establishment in Canada. The business must primarily be a film or video production business or production services company. To receive the credit, your client must complete Form T1177 (Film or Video Production Services Tax Credit).
The federal government has outlined a few types of businesses that are specifically excluded from receiving the Film or Video Production Services Tax Credit. Your client must not be a prescribed labour-sponsored venture capitalist or tax-exempt corporation, or controlled by at least one tax-exempt individual. For your client to receive the tax credit, it must own the copyright to the film for which the tax credit is being claimed. Alternatively, your client must have contracted directly with the owner of the copyright. In this second situation, your client is allowed to capture the tax credit if the owner of the tax credit is not an eligible production corporation.
The Film or Video Production Service Tax Credit is a refundable tax credit. It’s not capped at your client’s income tax liability; it can reduce your client’s income tax below $0 and result in a refundable balance. The tax benefit is 16 percent of qualified Canadian labour expenses regarding an accredited production. Your client must have paid the labour expenses for services rendered in Canada by Canadian residents. Be aware a special tax rule prevents your client from claiming both the Canadian Film or Video Production Tax Credit and the Canadian Film or Video Production Service Tax Credit for the same production.
Types of Productions
The Canadian government has placed rules on what types of productions qualify for the tax credit. Your client must receive an accreditation certificate from the Canadian Audio Visual Certification Office. The production must meet certain cost thresholds and be on a select list of genres outlined in the Canadian Income Tax Regulations code.
Types of Labour Expenditures
The first step in determining the credit amount is to review the qualified Canadian labour expenditures. These expenses must have been reasonable expenses for a video production business directly attributable to the production incurred after October 1997 and incurred from the final script stage to the postproduction stage. The expenses must have been paid in the year they were incurred. Alternatively, your client could have paid these expenses within the first 60 days of the subsequent calendar year. Common examples of qualified expenses include salaries, wages, remuneration, and reimbursements.
How to Apply
Your client must complete an online application through the Canadian Audio-Visual Certification Office (CAVCO) to be eligible for the tax credit. The online submission calls for corporate information, financial information such as budgets and final cost reports, and production details such as target markets, running time, and synopsis. Have your clients ready to present the ownership history of the copyright, official designee affidavit if applicable, and an application fee.
If your client is in the film or video production industry, it may be eligible for the Film or Video Production Services Tax Credit. This refundable credit may reimburse your clients approximately one-sixth of their labour expenses. Begin by registering with CAVCO, and complete the appropriate tax form to claim the credit.