Law Times

Page 12 July 27, 2015 • Law Times www.lawtimesnews.com Budgetary matters lawyers optimistic about film activity despite credit cuts By yamri Taddese Law Times T oronto likes to think of itself as Hollywood North. Alongside the inconvenience of downtown road closures for filming projects comes the ex- citement of seeing parts of the city dotted with props such as New York's yellow cabs and U.S. Postal Service mailboxes. And despite a recent reduc- tion of the Ontario production services tax credit, a refund- able credit available to qualify- ing Canadian and foreign film productions on eligible expen- ditures, entertainment lawyers say producers will continue to travel north thanks to a weak Canadian dollar. According to the Ontario government, a lower dollar is "making Ontario an increasing- ly attractive location for produc- tions and is increasing foreign investment in the film and tele- vision sector." "Foreign productions have benefited significantly from the drop in the Canadian dollar rel- ative to the U.S. dollar because their Ontario production costs are paid in Canadian dollars," the government said in a budget report this year. "For example, when the Ca- nadian dollar fell by seven per cent to $0.94 US in December 2013, foreign production activity in Ontario rose by 35 per cent to $504 million in 2014 (from $373 million in 2013)." That's why the province is now seeing "a reduced need" for supporting film productions through tax credits. As a result, it has cut the production servic- es credit to 21.5 per cent from 25 per cent. The government is also slashing the Ontario computer animation and special effects tax credit to 18 per cent from 20 per cent for expenditures in- curred after April 23, 2015. But will reduced tax credits mean less incentive for foreign producers to come to Ontario in the future? Entertainment law- yers say it's not a big worry. "It may be too early to tell what the ultimate impact may be," says Stephen Selznick, a partner at Cassels Brock & Blackwell LLP. "My personal view is it shouldn't make too much dif- ference on the production services, the foreign-produc- ers-coming-to-Canada side of productions," he says. Selznick says credit ad- justments like this happen from time to time and notes they're budgetary in nature. Most producers will take the benefit of the combined federal-provincial credit giv- ing them the 16-per-cent fed- eral amount in addition to the Ontario one, says Selznick. "When they choose be- tween Ontario and other ju- risdictions in which to pro- duce, there's a fair amount of competition among the provinces and Ontario still is, I guess, the destination of preference of a lot of produc- ers," adds Selznick. "Not to say there aren't qual- ified professionals and labour and computer animation and special effects people all across the country, but there's a high preponderance in the Ontario area and in the Toronto area spe- cifically." Other provinces, such as Quebec, have adjusted their credits downward for budgetary reasons, says Selznick, noting Ontario still looks good by com- parison. After the reductions, Ontario is still ahead of Que- bec by more than a percentage point, he notes. "Relatively speaking, if you're coming to Canada, I'm not sure we're going to see tremendous changes on volume of produc- tion," he says. Even without the tax credit, the drop in the Canadian dollar means producers get much more for their money here, he notes, adding it will make up at least for what they lose in the reduction of the tax credit. "On a straight comparison, we might be less competitive than we were before," says Ken Dhaliwal, a media and entertainment lawyer at Dentons Canada LLP. "But I think the thing that keeps us in the game and the thing that keeps us competitive is we have a very strong infra- structure and we have a very good process in that the tax credits are very secure," he adds. In some American jurisdic- tions, applying late for tax cred- its could mean missing out on benefits, says Dhaliwal, whereas Ontario's process is stable and familiar to people. "As long as our dollar stays where it is or goes down, it just makes us more competitive," he says. "Being competitive is a bas- ket of goods; it's not just dollars," he adds. Dhaliwal says he has so far heard of just one production proj- ect that was eyeing Ontario but picked another jurisdiction due to the reduced tax credit. "I'm still very positive," he adds. Goodmans LLP partner Carolyn Stamegna, whose busi- ness law practice focuses on the film and television industry, says while the tax reduction may present difficulties for produc- ers, she doesn't believe it will result in reduced work f low for lawyers. "Jurisdiction shopping has always existed. Just about every state in the United States has some form of incentive; every jurisdiction here has some form of incentive. So the jurisdiction shopping will always happen," says Stamegna. "With every project, the pro- ducers with their accountants and their line producers have to evaluate what the maximum yield is for tax credit from every jurisdiction that they think is appropriate or a potential loca- tion for their production," she adds. "So I don't see this in particu- lar meaning that for us as law- yers we're going to have a mean- ingfully less f low of activity." But changing the tax credit regime abruptly can be diffi- cult because producers straddle production years, according to Selznick. That's why, he says, after some coaxing from the in- dustry, Ontario is implementing a transition period. Between April 2015 and Au- gust 2016, there will be a tran- sitional provision for producers who can show the province they have a substantial commitment to production in Ontario. For those producers, the former tax credit would apply, says Sel- znick. "That's where I think pro- ducers probably need to speak to lawyers," he says. "The transition provisions probably need a lawyer to make sure your package is as present- able as possible to demonstrate really to the minister and to people at the [Ontario Media Development Corp.] that you're substantially committed and the production has a significant economic benefit to Ontario." In order to qualify for the higher tax credit during the transition period, producers would have to show they've entered into at least one writ- ten agreement for the services of a producer, a director, a key cast member or a production or post-production crew. They may also show an agreement with a studio located in On- tario or one that demonstrates, "in the opinion of the minister of tourism, culture, and sport, that the corporation has made a significant commitment to pro- duction activities in Ontario." The transition period is a saving grace, according to Dhaliwal, who says the change came without notice to the in- dustry and could have been a major "misstep." "If you have changes every year, that really takes away from the confidence people have," he says. "That really does change things in terms of how people feel about the competitive na- ture of the jurisdiction. That lack of consultation or warning, my sense is that throws people off and can be as damaging as the decrease in the dollars." The abrupt changes can also be difficult for lawyers, he notes. "If we don't have notice of this change ahead of time, it be- comes difficult," he says. "The jurisdictions that are most competitive are where peo- ple are working together and, if there are going to be changes, they talk about the changes." LT FOCUS September 8, 2015 | Four Seasons Hotel Toronto Emcee Gail J. Cohen, Editor in Chief, Canadian Lawyer/ Law Times 6 p.m. – Cocktail Reception 7 p.m. – Gala Dinner and Awards Presentation Seating is limited | Business Attire For Table Sales and Sponsorship inquiries, please contact CarswellMedia.Sales@thomsonreuters.com or call 416-649-8841. Platinum Sponsor Bronze Sponsor For further information please visit www.innovatio-awards.com Media Sponsor CLII1723-2015 Invitation Print ad 5.8125x6.625.indd 1 2015-06-18 4:17 PM 'Relatively speaking, if you're coming to Canada, I'm not sure we're going to see tremendous changes on volume of production,' says Stephen Selznick. With insightful commentary and a humorous look at Ottawa politics, veteran journalist Richard Cleroux keeps you up to date with The Hill every other week in Law Times

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