CAVCO Public Notice 2022-03

Gatineau, August 16, 2022

Temporary Extensions to Timelines Used for the Federal Audiovisual Tax Credit Programs

Purpose

1. The purpose of this public notice is to highlight temporary extensions for various timelines used for the purpose of the Canadian Film or Video Production Tax Credit (CPTC) and the Film or Video Production Services Tax Credit (PSTC) programs, and to explain how applicants to the Canadian Audio-Visual Certification Office (CAVCO) can make use of these extensions.

Background

2. The CPTC is co-administered by the Canada Revenue Agency (CRA) and CAVCO under the legislative framework of section 125.4 of the Income Tax Act (Act) and section 1106 of the Income Tax Regulations (Regulations). The PSTC is co-administered by the CRA and CAVCO pursuant to section 125.5 of the Act and section 9300 of the Regulations.
3. In recognition of the effect that the COVID-19 pandemic has had on the audiovisual production sector in Canada, the 2021 Federal Budget proposed amendments to the Act and Regulations, to create temporary 12-month extensions to various timelines applicable to the CPTC or PSTC.
4. The Budget Implementation Act, 2022, No.1 has received royal assent, and these provisions are now in effect.

Qualifying for the extensions

5. The extended timelines apply to any film or video production for which a corporation has incurred a “labour expenditure” (CPTC) or a “Canadian labour expenditure” (PSTC) during the corporation’s taxation year ending in 2020 or 2021 (hereafter an “eligible production”).

Explanation of changes

6. The changes apply to the following elements of the CPTC and PSTC programs:
   • Production commencement time (CPTC)
   • Agreement in writing to have the production shown in Canada (CPTC)
   • Application for a certificate of completion (CPTC)
   • Budget thresholds for an accredited production (PSTC)
7. A summary of the extended timelines, and the specific information that applicants need to submit to CAVCO to use an extension, is included below. The complete text of the amendments is included as an annex to this notice.

Production commencement time (CPTC)

8. For the purpose of the definition “labour expenditure” in subsection 125.4(1) of the Act, labour expenses on a production must be incurred by a qualified corporation after the “production commencement time.” This is defined as the time that is the latest of the following:
   • The time at which the qualified corporation or its parent company first incurs script labour expenses.
   • The time at which the qualified corporation or its parent company acquires rights to a property on which a production is based.
   • Two years before the date on which principal photography for the production begins.
   
   See section 7.03-7.04 of CAVCO’s CPTC guidelines for general information on this requirement.
9. Under the new subsection 125.4(1.1), the two-year period referred to above will instead be a three-year period for all eligible productions.
10. To make use of this extension, eligible applicants must include, as part of their CAVCO application, a document that includes the following wording:

    With respect to the production [production name] produced by [production company name], I attest to the fact that during the production company’s taxation year ending in 2020 or 2021, the company incurred an amount that falls under the definition of “labour expenditure” in subsection 125.4(1) of the Income Tax Act.

    The production company wishes to extend from 2 years to 3 years the period described in sub-paragraph (b)(iii) of the definition of “production commencement time” in subsection 125.4 (1) of the Act.

11. Applicants can create this document themselves; a one-page document including the above text will suffice.

Agreement in writing to have the production shown in Canada (CPTC)

12. Under subparagraph (a)(iv) of the definition “excluded production” in subsection 1106(1) of the Regulations, there must be a written agreement with a Canadian distributor or with a CRTC-licensed broadcaster to show the production in Canada within the 2-year period that begins when the production is completed and commercially exploitable. See sections 8.02 to 8.07 of the CPTC guidelines for general information on this requirement.
13. The new subsection 1106(1.2) extends this 2-year period to a 3-year period for all eligible productions.
14. To make use of this extension, eligible applicants must include, as part of their CAVCO application, a document that includes the following wording:

    With respect to the production [production name] produced by [production company name], I attest to the fact that during the production company’s taxation year ending in 2020 or 2021, the company incurred an amount that falls under the definition of “labour expenditure” in subsection 125.4(1) of the Income Tax Act.

    The production company wishes to extend the timeline to have the production shown in Canada by an additional 12 months. In other words, the company will provide an agreement in writing, with a Canadian distributor or a CRTC-licensed broadcaster, to have the production shown in Canada within three years of the production being completed and commercially exploitable, as opposed to the usual two-year period.

15. Applicants can create this document themselves; a one-page document including the above text will suffice.

Application for a certificate of completion (CPTC)

16. Under the definition “application for a certificate of completion” in subsection 1106(1) of the Regulations, an application for this certificate (also known as the “Part B certificate”) must be filed with CAVCO within 24 months of the production company’s first taxation year end following the start of principal photography. Subsection 1106(1) also allows for the production’s application deadline to be extended by 18 months (in other words, to 42 months from that first taxation year-end) if valid waivers are filed with the CRA for both the first and second taxation years ending after principal photography began.
17. The new subsection 1106(1.1) provides a further extension to the application deadline by an additional 12 months (to 54 months from the first taxation year-end) for all eligible productions if, in addition to the two waivers noted above, a valid waiver is also filed for the third taxation year ending after principal photography began.
18. Applicants intending to submit their Part B application (or combined “Part A/B application”) past the 42-month deadline but before the 54-month deadline must contact CAVCO as soon as they know that they will require this extension. CAVCO will send them an official form through which the applicant will attest to the fact that:
    • during the production company’s taxation year ending in 2020 or their taxation year ending in 2021, the company incurred an amount that falls under the definition of “labour expenditure” in the Income Tax Act;
    • the company is making use of the extended “54-month deadline” for submitting the Part B application for their production; and
    • for each of the relevant three taxation years, the company has either
      • filed a valid waiver, or
      • not filed a waiver, because the year has not been assessed yet by the CRA.
19. Applicants must return the form to CAVCO, who, after confirming the taxation year end dates and ensuring that all required waivers have been received by the CRA, will unlock the Part B application (or Part A/B application) so it can be submitted.
20. As always, an applicant is responsible for ensuring that the Part B application deadline for their production is met, and that each required waiver is filed with the CRA within the normal reassessment period for the relevant taxation year (see paragraphs 16 and 17, above). A failure to file even one required waiver with the CRA during the normal assessment period for a taxation year (after which time the waiver can no longer be filed) will result in a previously issued Part A certificate being revoked, or a Part A/B application being denied. The CRA will refuse any tax credit claim for the production and reassess the corporation’s tax returns for any tax credit previously allowed.
21. Subparagraph (a) of the definition “excluded production” in subsection 1106(1) of the Regulations requires that a Part B certificate be issued within 6 months of a production’s application deadline. If an applicant is using the “54-month” application deadline, the 60-month mark will therefore be the final date by which CAVCO must issue the Part B certificate. An applicant must respond to all requests for information or clarification from CAVCO in a timely manner, so that CAVCO’s analysis can be completed, and a certificate issued, by this final deadline. If a certificate is not issued by this final deadline, the previously issued Part A certificate will be revoked, or a Part A/B application will be denied.
22. CAVCO will continue to issue its usual courtesy reminder notices of Part B application deadlines; these notices are issued at the 22-month, 24-month, 40-month, and 41-month marks based on dates submitted in the Part A application. No reminder notices will be issued past these dates, even if a production could potentially benefit from the 12-month extension.
23. Once the 42-month Part B application deadline for a production has passed, an applicant will receive an advance notice of denial or revocation for the file, along with a copy of the CAVCO form referred to above, if the information in the file indicates that the applicant may qualify for the 12-month extension. The applicant will have the opportunity to respond to the advance notice including, where applicable, by completing the CAVCO form to indicate that they meet the conditions outlined above in paragraph 18.
24. If the applicant confirms they are not eligible to use, or do not want to use, the 54-month deadline, they will be sent a final notice of denial or revocation.
25. For more information on CAVCO application and certification deadlines, and the requirements for filing waivers, see section 1.09 of the CPTC guidelines.

Budget thresholds for an accredited production (PSTC)

26. Under subsection 9300(1) of the Regulations, for a production to be an “accredited production”, the total expenditures incurred for it must exceed the applicable budget threshold within the 24-month period after principal photography of the production begins. See section 4.03 of the PSTC guidelines for general information on this requirement.
27. The new subsection 9300(1.1) extends the 24-month period to a 36-month period for all eligible productions.
28. To make use of this extension, applicants must include, as part of their application to CAVCO, a document that includes the following wording:

    With respect to the production [production name] owned by [copyright owner name], I attest to the fact that one or more eligible production corporations incurred an amount during their taxation years ending in 2020 or in 2021 that falls under the definition of “Canadian labour expenditure” in subsection 125.5(1) of the Income Tax Act.

    The applicant [applicant name] wishes to extend the period to meet the relevant required minimum expenditure threshold for the production from 24 months after principal photography commences by an additional 12 months, to 36 months after principal photography begins.

29. Applicants can create this document themselves; a one-page document including the above text will suffice.

For more information

30. Anyone with questions about this public notice can contact CAVCO by email at bcpac-cavco@pch.gc.ca or telephone at 1-888-433-2200 (Teletypewriter toll-free: 1-888-997-3123).

Annex

Amendments under the Budget Implementation Act, 2022, No.1 related to the CPTC and PSTC

…

13. Section 125.4 of the [Income Tax] Act is amended by adding the following after subsection (1):

COVID-19 — Production Commencement Time

(1.1) The reference to “two years” in subparagraph (b)(iii) of the definition production commencement time in subsection (1) is to be read as a reference to “three years” in respect of film or video productions for which the labour expenditure of the corporation in respect of the production for the taxation year ending in 2020 or 2021 was greater than nil.

…

39. Section 1106 of the [Income Tax] Regulations is amended by adding the following after subsection (1):

COVID-19 — Application for a Certificate of Completion

(1.1) In respect of applications filed with the Minister of Canadian Heritage in respect of film or video productions for which the labour expenditure of the corporation in respect of the production for the taxation years ending in 2020 or 2021 was greater than nil, the definition application for a certificate of completion in subsection (1) is to be read as follows:

application for a certificate of completion, in respect of a film or video production, means an application by a prescribed taxable Canadian corporation in respect of the production, filed with the Minister of Canadian Heritage before the day (in this Division referred to as “the production’s application deadline”) that is the later of

(a) the day that is 24 months after the end of the corporation’s taxation year in which the production’s principal photography began,

(b) the day that is 18 months after the day referred to in paragraph (a), if the corporation has filed, with the Canada Revenue Agency, and provided to the Minister of Canadian Heritage a copy of, a waiver described in subparagraph 152(4)(a)(ii) of the Act, within the normal reassessment period for the corporation in respect of the first and second taxation years ending after the production’s principal photography began, or

(c) the day that is 12 months after the day referred to in paragraph (b), if the corporation has filed, with the Canada Revenue Agency, and provided to the Minister of Canadian Heritage a copy of, a waiver described in subparagraph 152(4)(a)(ii) of the Act, within the normal reassessment period for the corporation in respect of the first, second and third taxation years ending after the production’s principal photography began.

COVID-19 — Excluded Production

(1.2) The reference to “2-year period” in subparagraph (a)(iv) of the definition excluded production in subsection (1) is to be read as a reference to “three-year period” in respect of film or video productions for which the labour expenditure of the corporation in respect of the production for the taxation years ending in 2020 or 2021 was greater than nil.

…

43. Section 9300 of the [Income Tax] Regulations is amended by adding the following after subsection (1):

(1.1) The references to “24 months” in paragraphs 9300(1)(a) and (b) are to be read as references to “36 months” in respect of film or video productions for which the Canadian labour expenditure of the corporation in respect of the production for the taxation years ending in 2020 or 2021 was greater than nil.