The Canadian Film or Video Production Tax Credit can help to offset labour expenses for qualifying corporations. Designed to reward companies that make Canadian programming, this tax credit is refundable. It can lower tax owed and potentially lead to a refund. If you have clients in the film production industry or if you work for a production company, you need to know about this valuable tax credit.
Value of the Credit
The CPTC is worth 25 percent of eligible labour expenses. For example, with $100,000 of qualifying labour expenses, the credit is worth $25,000. But the credit cannot exceed 15 percent of total production costs.
To illustrate, imagine you have $200,000 in qualifying labour costs, making your potential CPTC $50,000, but your total production costs are only $300,000. In this case, the maximum credit you can claim is $45,000, which is $300,000 x 15 percent.
To apply, you must also pay an application fee of 0.30 percent of your eligible production costs. For example, if production costs are $300,000, the application fee is $900. The minimum application fee is $200.
Calculating Production Costs
Production costs include development, story rights, wages for creative staff, rental space, sets, props, and production equipment. These costs can also include post-production expenses such as editing, editing equipment, sound effects, and similar costs. You cannot include marketing, promotion, and distribution expenses when calculating your production costs.
If you received any assistance, such as tax credits or deductions, grants, and allowances, you cannot include that in your production costs either. Similarly, if you have a forgivable loan where payment is contingent on the film’s monetary success, the Canada Revenue Agency considers that to be assistance, and you must subtract those amounts from your production costs as well.
Eligibility for the CPTC
To qualify, the corporation must own the copyright for the film. Additionally, the company must be a qualified corporation permanently established in Canada and primarily focused on making Canadian films or videos. Prescribed labour-sponsored venture capital corporations and tax-exempt corporations cannot apply for this credit. On top of that, you must obtain a certificate from the Canadian Audio-Visual Certification Office verifying that your film is truly a Canadian production. Eligible productions can include live action films, animated productions, sporting events, and foreign or Canadian programs dubbed into English, French, or a native Canadian language.
Applying for Certification
The production does not need to be complete when you apply for certification, but you must have started some principal photography, essential creative staff must be under contract, and your budget must be established. If those elements are in place, you can apply for certification online using My CRTC Account. The application process may vary slightly depending on the type of production or film.
Applying for the CPTC
Once you have your certification, you can apply for the tax credit. Submit Form T1131 (Canadian Film or Video Production Tax Credit) along with your T2 (Corporation Income Tax Return). If you file a paper return, you can mail everything together to the address on your T2. If you submit your tax return electronically, you should mail a copy of your certificate to the Film Services Unit. There are five different FSUs, and you need to use the one assigned to your area. If you are claiming the CPTC for multiple productions, you need to file a separate Form T1131 for each production.
What to Expect
When you apply for the CPTC, your application is assessed for risk, and it may be subject to an audit. If you completed the forms correctly and included the certificate, the CRA should review your return within 60 days as long as your return is not flagged for an audit. If you have to go through an audit, the process usually takes up to 120 days.
If the CRA audits your CPTC application, you may need to attend a meeting with a representative from the CRA. To back up your claim, you need to share all the information from your application to the Canadian Audio-Visual Certification Office. You also need to show any receipts, records, or documents related to production and labour costs. If relevant, you need to show agreements or contracts between your business and any corporations or agencies involved in the financing or distribution of the film. You may also need to show the auditor contracts from actors, directors, producers, and other staff members.
The Film or Video Production Services Tax Credit
The Film or Video Production Services Tax Credit is a similar credit, but if you claim the PSTC, you cannot claim the CPTC. The PSTC is worth 16 percent of qualifying labour expenses, making this credit potentially less valuable than the CPTC. Both Canadian and foreign corporations can apply, but you must have more than 50 percent of your activities taking place permanently in Canada. Additionally, you must own the copyright for the production or contract directly for the copyright owner. If your business or your client doesn’t qualify for the CPTC, you may want to check out this credit instead.
To reduce your tax liability, you need to claim credits and deductions on your return. The CPTC is just one of the CRA’s many tax credits. As an accountant, you need to stay abreast of different credits and let your clients know which ones may help them the most.