Cash-Strapped Ontario Reins in Digital Media Tax Incentive

Illustration by Kagan McLeod

The local industry is hoping the threat of lost Hollywood productions will keep the province from tampering with the foreign film tax credit to balance its books.

Canadians have long touted their film tax credits to Hollywood as predictable, stable and generous, in contrast to incentives being reduced or repealed in rival U.S. locales.

But that pledge could be tested in the coming weeks as a cash-strapped Ontario government puts its film, TV and digital tax credits under a microscope to find $30 million in budgetary savings in each of the next two years.

Ontario has a 25 percent all-spend film tax credit for foreign producers. But the Ontario finance ministry is looking across the provincial economy to collect more tax dollars to close a widening spending gap.

To get there, Ontario has decided to restrict the Ontario Interactive Digital Media Tax Credit to pure-play interactive digital content. That would exclude other domestic media players like newspapers and broadcasters that claim the digital tax credit for websites they create, for example.

The major studios and Los Angeles film and TV producers will not be impacted by changes to tax breaks for digital product. "Tightening the loopholes for the digital tax credit might be core to the solution," Ira Levy, partner and executive producer at Toronto-based Breakthrough Entertainment, told The Hollywood Reporter on Wednesday while attending the Prime Time conference of indie producers in Ottawa.

But the savings sought by the Ontario government may not stop there. And that has Toronto-based producers in last-ditch lobbying efforts to limit the damage to keep luring Hollywood productions to the province.

The provincial finance ministry is understood to be eyeing the Ontario film and television tax credit, a key source of soft money for local producers. Specifically, Ontario is considering following the federal film tax credit and reducing the value of a domestic production by the amount of subsidies it taps from the Canada Media Fund and Telefilm Canada, for example.

That so-called grinding of the Ontario film and TV tax credit for domestic producers stands to greatly reduce the benefits of the tax break they receive. But to reduce that impact on domestic producers, sources close to the negotiations with the Ontario finance ministry indicate foreign, mostly U.S. producers, may be expected to share in the pain by seeing their own Ontario production services tax credit trimmed back.

While no decisions have been made, according to sources, options up for discussion include restricting some production expenses foreign producers may claim as a refund on what is now an all-spend tax credit. Or Ontario could cut as little as half a point on the value of the foreign tax credit, now at 25 percent.

The Ontario Media Development Corp., which administers Ontario film and digital tax credits on behalf of the policy-making finance ministry, declined comment on the current talks around the tax credits as the industry grapples with spending reduction targets from the finance ministry.

At present, the message from industry players is it's business-as-usual when it comes to foreign producers in the province after they already experienced a sudden 20 percent in new savings following the plunge in the value of the Canadian dollar.

The strategy is to keep the major studios and other American producers shuttling between Los Angeles and Toronto, and elsewhere in the province. "The reason they keep coming is our tax credit is stable and so easy to understand," Breakthrough's Levy argued, before adding that carving off bits of the film tax credit for foreign producers will have them looking to go elsewhere.

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