Navigating Canadian tax incentives takes resourcefulness

"Trailer Park Boys: Countdown to Liquor Day"

Imagination one of the keys to success up North

Canadian producer Michael Mosca is used to standing on film sets with one eye on his watch and another on his director.

But his mind was on more than budgets in early July while watching Darrell J. Roodt direct Jennifer Hudson as Nelson Mandela's wife in the upcoming "Winnie," which shot on location in South Africa.

"We had a watch on us because we were running a little late, and we had to eventually stop," Mosca recalls.

Shooting next to the Orlando football stadium in Soweto at the height of this summer's World Cup soccer competition, the first inkling of trouble was a distinctive droning sound that regularly reached cast and crew on set.

As the nearby World Cup match got under way, the stadium suddenly echoed with a sound akin to a giant swarm of bees.

"Once that starts, you can't shoot anymore," Mosca recalls of the dreaded vuevelzelas, the omnipresent plastic horns that enthusiastic global soccer fans seemingly couldn't get enough of.

But the Sisyphean feat to get Mosca's latest film in the can was complicated by more than just annoying sound problems. The film has two producers -- one Canadian and the other South African -- who had to work together to make "Winnie" happen as an international co-production.

"That's So Weird"

South African producer Andre Pieterse of MaAfrika Films, who had already completed the script for "Winnie" along with Roodt, approached Mosca after recent Oscar winner Hudson boarded the project the budget was pushed to more than $10 million. In need of more financing to keep the project moving forward, Pieterse realized he needed a co-production partner.

Enter Mosca, who was to bring with him the Canadian side of the co-production equation, including local government subsidies and other soft money financing to make up 25% of the film's projected $13.5 million budget.

With "Winnie" to be shot entirely in South Africa, Mosca contributed a Canadian director of photography, cast -- including Wendy Crewson and Elias Koteas -- and technical crew. The Canadian/South African co-production was also to be posted in Canada.

So how exactly does it save money to pay for a North American cast and crew to shoot halfway around the world?

Mosca factored in Canadian tax credits, a distribution advance from D Films, as well as financing from the Harold Greenberg Fund and SODEQ, Quebec's film financier.

But he also bet on a big slice of financing from Telefilm Canada, the federal government's film financier. And when that fell through, Mosca and Pieterse scrambled to make up the shortfall with a sizable minimum guarantee from a foreign sales agent.

It was a close call.

Yet, here in a nutshell is the Canuck indie film and TV producer in action. With an improviser's resourcefulness, Canadian producers forever manage to punch above their weight by cobbling together financing in ever-dwindling dollar amounts from an ever-greater variety of sources. And they do so within a global economy that is less than forgiving at the moment.

"Canadian producers have traditionally accessed a variety of financing for productions," says Sheila de La Varende, director of national and international business development at Telefilm Canada. "In terms of public funding, you get money from Telefilm Canada, from the Canadian Media Fund and from tax credits."

What's more, the Canadians remain forever aggressive in forming relationships with international producers to create official co-productions, or co-ventures with U.S. partners, to get their projects off the ground and into the world market.

Now, after more than a generation of pioneering and reshaping the international co-production and film tax credit models -- as well as working with Hollywood sharks and European auteurs -- the Canadian producer has become a savvy, resourceful movie-making machine.

"Canada was very innovative when most of the co-production agreements were signed," de la Varende says. "And we still are very sought-after partners on the international stage."

But while "Winnie" is a Canadian co-production ripe for international sale, the theatrical comedy "Trailer Park Boys: Countdown to Liquor Day" is a Canadian film through and through.

The film's producers, Mike Volpe and Barrie Dunn, did better than Mosca and Pieterse at securing coin from Telefilm Canada for their $6.6 million budget because the film is the second feature in the "Trailer Park Boys" franchise that included a popular TV series.

"The people who took a risk the first time did well, and wanted to come back for the second time," Volpe insists.

So much so that after the original "Trailer Park Boys: The Movie" grossed an impressive $4 million at the Canadian box office, Telefilm invested $3.4 million into the sequel thanks to a a reserve fund for producers like Volpe and Dunn who manage to gross more than $500,000 nationwide.

"It's a box office reward," Volpe says of Telefilm's repayable equity loan. "Telefilm is rewarding producers for box office performance."

But Volpe still had to get creative: He and Dunn filled out the budget for "Trailer Park Boys 2" when indie distributor Alliance Films picked up the Canadian rights to the comedy and Film Nova Scotia -- the provincial film investor -- provided generous tax credits based on local labor costs, including an equity investment for the film to shoot in and around Dartmouth, across the bay from Halifax.

As if that weren't enough, Volpe and Dunn also took advantage of federal tax credits to complement Nova Scotia tax credits.

It's much the same in Canadian TV production, where tapping production funds, tax breaks or other soft money to get projects off the ground is the norm.

Take "That's So Weird," a sketch comedy series from indie producer Halifax Film for YTV, Canada's cable kids channel.

The series features seven young sketch comedy players who operate their own tiny cable TV network, So Weird TV, in a high school setting.

Tracey Jardine, vp primetime production, says financing the series meant coming up with a budget, securing a broadcast license fee from YTV and then applying for coin from the Canada Media Fund, the main source of public subsidies for indie producers here.

To fill out the gap, Halifax Film also secured investment from the Shaw Rocket Fund, an equity fund controlled by western Canadian cable giant Shaw Communications, a major domestic broadcaster. Other Canadian cable and satellite TV operators with broadcast arms have similar private sector funds investing in local content.

"That's So Weird" also tapped provincial and federal tax credits. And Halifax Film secured a distribution advance from parent DHX Media, whose international distribution arm Decode Enterprises stepped in to handle worldwide sales.

Halifax Film maintains a balancing act to satisfy the primetime needs of YTV in the Canadian market, while also assuring the kids series has foreign sales potential.

Jardine says the Canadian market stands in marked contrast to Hollywood, where producers tend to access one source of financing and jump into production.

"We're two very different systems," Jardine says. "In Canada, we have to do much more, come up with a variety of financing models and access varied pools of financing. There's a number of people we have to impress with our projects, in order to have them financed."

A quick guide to the various rebates, incentives and tax credits throughout Canada

Canada's pioneering film tax credits were once used to siphon Hollywood location shoots across the border. But recent one-upmanship to keep Los Angeles producers from shooting in Louisiana or New Mexico has led Canadian provinces to hike up their tax incentives to stay competitive. Here's a snapshot of the latest film and TV, digital media and animation incentives in Canada.

Canadian Production Services Film Tax Credit: Rebates 16% of qualified Canadian labor.

British Columbia Production Services Film Tax Credit: Rebates 33% of qualified local labor spend for location shoots that start after March 1, 2010. Rebate of 25% if principal photography started before March 1, 2010.

Ontario Production Services Film
Tax Credit: Rebates 25% of local Ontario production spend.

Quebec Production Services Film
Tax Credit: Rebates 25% of local Quebec production spend.

Alberta Film Development Program
Rebates 20%-29% of local production costs, depending on foreign participation and Alberta ownership. Maximum $5 million.

Manitoba Film Production
Tax Credit: Thirty% all-spend tax credit, or offset up to 65% of local labor costs on projects that start location shooting after March 1, 2010.

Nova Scotia Film Industry
Tax Credit: Rebates 50% of local labor costs for shoots in Halifax, or 60% of labor costs for projects shot elsewhere in the province.

Saskatchewan Film Employment
Tax Credit: Rebates 45% of local labor costs, or a maximum 22.5% of overall production costs. Added incentives to shoot outside Regina and Saskatoon, or hire Saskatchewan crew members and technicians in below-the-line positions.

Digital Tax Credits
Canadian provinces have also started combining traditional film and TV tax credits with new rebates for computer-generated special effects or animation to get, in the case of Quebec, the effective tax credit for visiting producers up to a potential 41.2%. British Columbia also introduced a new 17.5% interactive digital media tax credit for video game development to support Pixar, Electronic Arts and other major video game developers that have set up shop in Vancouver. And Ontario introduced a computer animation and special effects tax credit, which rebates 20% of labor costs on local green screen work or 2D- to 3D-conversions, for example.