Does your client produce video for a Canadian audience? Or have a Canadian film production company? If so, they might qualify for the Canadian Film or Video Production Tax Credit (CPTC) offered by the Canada Revenue Agency (CRA) to offset labour costs. This tax credit is designed to encourage Canadian programming by Canadian-controlled companies, and can reduce the amount of tax your clients owe — and since it’s refundable, it may even get them a tax refund.
How Much is the Canadian Film or Video Production Tax Credit?
When your clients spend money to make a film in Canada, part of those video production costs go for labour. The CPTC allows you to claim a credit for 25% of these labour costs, as long as they meet the qualifications. That means if your client spends $100,000 on qualifying labour expenses, they can get a credit of $25,000. You can claim the credit for labour costs that make up a maximum of 60% of the total production costs at the end of the year, minus assistance funds such as grants, forgivable loans, or subsidies. The total credit may not exceed 15% of the total production costs.
Let’s say one of your video production clients spends $300,000 to produce a TV show. The CRA allows them to take the CPTC on labour costs up to 60% of that budget, or $180,000. If they spend $150,000 on labour, you can calculate the credit using that amount. To figure it out, simply take 25% of $150,000 to get a CPTC of $37,500. But what happens if the labour costs rise to $200,000, a higher amount than the 60% cap? In that case, you can’t take the credit on the full amount. Instead, you simply calculate the 25% credit on the maximum amount of $180,000, which equals $45,000. In this example, your client can’t claim a tax credit on the remaining $20,000 in labour costs.
What Canada Video Production Costs Qualify for the Credit?
Before you can apply for the CPTC on behalf of a client, you need to know the total production costs. These costs might include:
- Story rights
- Wages for creative staff
- Rental space
- Production equipment
Post-production expenses, including the money the client spends on editing and sound effects, also qualify. The CRA doesn’t allow you to include the money the client pays for marketing, promotion, or distribution.
Which Production Companies are Eligible for the CPTC?
Before your accounting client can qualify for the CPTC, their company must:
- Own the copyright for the film
- Be a qualified corporation permanently established in Canada
- Make primarily Canadian films or videos
Prescribed labour-sponsored venture capital corporations and tax-exempt corporations don’t qualify for the credit. The same applies if one or more of the people who run your client’s company have tax-exempt status.
How does the CRA know a production is Canadian?
Your client needs to apply for a Canadian Program Certification from the Canadian Audio-Visual Certification Office (CAVCO). Officials examine the film and verify that it’s Canadian-owned and Canada-focused. Keep in mind, not all Canadian productions qualify for the credit. Some eligible types include:
- Live action films
- Animated productions
- Sporting events
- Foreign or Canadian programs dubbed into English, French, or a native Canadian language
Applying for Canadian Program Certification
If you hope to help a client qualify for the CPTC, it’s a good idea to apply for CAVCO certification on time. You can apply as soon as the movie has started principal photography. In addition, the client must have an established budget and signed contracts for important creative staff. Once you have these elements place, you can apply for certification online.
Applying for the CPTC
Once you have the client’s CAVCO certification, you can claim the tax credit. To do so, simply complete and submit Form T1131, Canadian Film or Video Production Tax Credit, along with a copy of the certification, when you submit the company’s T2 Corporation Income Tax Return. If you file the T2 on paper, you can mail everything to the address on the T2. If you file the T2 online, though, you should mail a copy of your certificate to the Film Services Unit for the client’s area. Keep in mind, if you claim the CPTC for multiple productions from a single client, you need to file a separate Form T1131 for each production.
If the CRA audits your CPTC application, expect to help your client through the audit. Usually, this includes a meeting with a CRA representative. During that meeting, you can back up the CPTC claim by providing:
- The information from your CAVCO certificate application
- Receipts, records, and documents related to your production and labour costs
- Agreements or contracts between your business and any corporations or agencies involved in financing or distributing your film
- Contracts for actors, directors, producers, and other staff members
How Does the Film or Video Production Services Tax Credit Affect the CPTC?
The Film or Video Production Services Tax Credit (PSTC) is a different, refundable tax credit for Canadian film production companies. It’s available to both Canadian and foreign companies that do 50% of their business permanently in Canada. To be eligible, your client’s company should own the copyright or contract the rights directly from the current copyright owner.
As you advise clients on which credit to take, you should note that the PSTC is worth up to 16% of qualifying labour expenses — which means that has considerably less value than the CPTC. If you claim the PSTC, you can’t also claim the CPTC. However, if your client doesn’t qualify for the CPTC, the PSTC can be a great alternative.
When you handle accounting for Canadian film production companies, you often deal with high costs and taxes. The CPTC offers one way to reduce owed taxes, making it easier for your client to produce video for Canadian audiences. Do you want to streamline your tax process to keep clients happy? Accelerate your year-end adjustment process and start saving time on corporate returns with QuickBooks Online Accountant. Sign up for free.