CAVCO Public Notice 2016-03 – Call for Comments

Eligible Platforms Which Can Be Used to Meet the "Shown in Canada" Requirement of the Canadian Film or Video Production Tax Credit

Purpose

1. The purpose of this public notice is to seek written comments on a proposed policy to allow audio-visual productions whose distribution is exclusively via online platforms (including through mobile video services) to be eligible for the Canadian Film or Video Production Tax Credit (CPTC).
2. The audio-visual environment is rapidly changing and Canadians have an increasing number of ways to access film and video productions. Canadian audiences can now view a wide range of content directly through digital and mobile devices. Productions appearing on these platforms can already access the CPTC if they are also shown on television (including licensed video-on-demand (VOD) services), in movie theatres or on DVD. However, productions that exclusively target online and mobile platforms to reach Canadians are becoming increasingly common and are currently not eligible for the CPTC.
3. This public notice explains how online-only productions can be incorporated into the CPTC program with the objective of better aligning the CPTC with the digital marketplace and supporting the growth and global success of the Canadian audio-visual production industry.

Relevant Clauses of the Income Tax Regulations

4. The relevant clauses in the Regulations are as follows:

   "1106(1) "excluded production" means a film or video production, of a particular corporation that is a prescribed taxable Canadian corporation, (a) in respect of which…

   • (iv) there is not an agreement in writing, for consideration at fair market value, to have the production shown in Canada within the two-year period that begins at the earliest time after the production was completed that it is commercially exploitable,
     1. with a corporation that is a Canadian and is a distributor of film or video productions, or
     2. with a corporation that holds a broadcasting license issued by the Canadian Radio-television and Telecommunications Commission [CRTC] for television markets, or
   • (v) distribution is made in Canada within the two-year period that begins at the earliest time after the production was completed that it is commercially exploitable by a person that is not a Canadian."

Proposed Policy

5. To be certified under the CPTC, an audio-visual production must have an agreement in writing with either a CRTC-licensed broadcaster or a Canadian distributor ^{Footnote 1} to have the production shown in Canada within the first two years that the production becomes available for commercial exploitation. CAVCO calls this the "two-year clause". At the present time, having a production "shown in Canada" is generally interpreted to mean that it is broadcast on television (including licensed VOD services), shown in a movie theatre, or distributed on DVD.
6. It is proposed that this interpretation be adapted to include online video services that meet the criteria presented in the points that follow.
7. The requirement to have an agreement in writing with either (A) a Canadian distributor or (B) a CRTC-licensed broadcaster, as currently stipulated in the Regulations, will not change.
8. Productions must still be linear, non-interactive "film or video productions". Websites, games, mobile apps, and other products that are not film or video productions will continue to be ineligible.
9. The "shown in Canada" concept must continue to be respected in any regulatory interpretation that includes new platforms. This is to ensure that Canadians have a legitimate opportunity to view CPTC-supported productions.
10. Proposed interpretation of the two clauses follows:

1106(1)(a)(iv)(B) – CRTC-licensed Broadcaster

11. The production can be shown on any platform (e.g. TV, VOD, online, including mobile services) offered by a CRTC-licensed broadcaster, if the producer has an agreement in writing, for consideration at fair market value, from that broadcaster to show the production in Canada within two years of the production being completed and commercially exploitable.

1106(1)(a)(iv)(A) – Canadian Distributor

12. The production can be shown on any platform (e.g. TV, VOD, theatres, DVD) or on any acceptable online video service (including mobile), if the producer has an agreement in writing, for consideration at fair market value, with a Canadian distributor to have the production shown in Canada within two years of the production being completed and commercially exploitable.
13. If the primary exhibition market (the market being used to meet the "two-year clause") is online, the applicant will be required to provide the agreement it has with a Canadian distributor as well as a duly executed exhibition agreement between the distributor and the entity showing the production (i.e. online service provider). Video services that allow users to upload content without any exhibition agreement will not be acceptable.
14. Online video services considered acceptable for the purpose of the "two-year clause" must:
    • be an actual video service that carries other pre-screened or pre-qualified content (e.g. not a stand-alone website for the production); and, 
    • be readily available to Canadians (easy to access and not geo-blocked in Canada); and,
    • have Canada as a part of its target audience (be a place where Canadians would likely go to look for content, as opposed to a service primarily intended for foreign territories); and,
    • can demonstrate a reasonably-sized established audience.

Policy Review

15. This policy and the details of its implementation will be reviewed on a regular and ongoing basis. Since this new policy does not involve any modifications to the Regulations, changes to this policy that remain within the scope of the current Regulations can be made quickly should it become clear that any element of the policy is not functioning as intended, or if changes in technology or consumer behaviour render any of the provisions obsolete.

Cross-Platform Projects

16. Where a production has unique audio-visual content on more than one platform (e.g. television episodes and online webisodes that in no way duplicate the content shown on television) the content being shown on each platform needs to be certified separately. Producers will need to submit two applications for certification, one for each platform. There must not be any duplication of costs being claimed in each application.

Provision of DVDs for a Part A CPTC Application

17. All applicants to the CPTC using "online" as their primary exhibition market will need to provide a DVD copy of the production (or of at least one episode, if a series) with their Part A application. This is to ensure that the production itself is eligible and that there are no obvious issues that could lead to the revocation of a certificate at the Part B stage.

Coming Into Force

18. When the final public notice is published, CAVCO will establish a coming into force date.

Call for Comments

19. CAVCO requests written comments on this policy. All comments must be received by CAVCO by May 18, 2016. Submissions must include the name of the person or organization providing comments. Paragraphs should be numbered. All comments received will be given due consideration.
20. Please submit your comments by email at PCH.bcpac-cavco.PCH@canada.ca to the attention of the Director, CAVCO.
21. Any questions about this public notice can be sent to CAVCO by email (PCH.bcpac-cavco.PCH@canada.ca) or you may call us toll-free at 1-888-433-2200 (Teletypewriter toll-free: 1-888-997-3123).

Annex A – Questions and Answers (Q&A)

• 1. Under the new policy, what types of audio-visual productions are eligible for the CPTC?

  There is no change with respect to the types of audio-visual productions eligible for the CPTC. Generally speaking, it should be possible to show any production certified under the CPTC on any of the eligible platforms. In other words, eligible productions will continue to be linear and non-interactive in the sense that no viewer intervention is required to progress the storyline. Viewer involvement outside of the context of the audio-visual product itself is fine (including voting or other activities taking place after each episode that will affect the subsequent episode), but expenses related to these activities are not eligible in the calculation of the tax credit.

• 2. Couldn’t CPTC eligibility requirements be expanded to allow other types of productions to be eligible? (e.g., a video game, a software application)

  The expansion of eligible platforms for having a production shown in Canada contemplated in this proposal is possible as it is within the parameters of the Income Tax Act and Regulations.

• 3. What are some examples of productions/projects that are NOT eligible under the policy?

  The following would all be ineligible: websites, interactive projects, games, podcasts, video blogs (vlogs), software applications.

• 4. My audio-visual production is eligible on its own, but we also have additional elements that are interactive, including a game and a social media campaign. Is my production still eligible?

  The audio-visual production itself is; however, additional elements are not, and must not be included in the budget for the audio-visual production.

• 5. Does this policy apply to official treaty co-productions?

  If the production is eligible to be certified as an official treaty co-production, then this policy will apply.

• 6. What is an acceptable online video service?

  CAVCO will need to review online video services on a case-by-case basis to determine whether they are acceptable. Given the need to ensure that Canadians have a legitimate opportunity to see CPTC-supported productions, the parameters for eligibility will be that the online video service:

  • carries other video content;
  • is easy for Canadians to find;
  • is not geo-blocked to Canada;
  • includes Canada as a part of its target audience (i.e. is not primarily intended for a foreign audience, such that Canadians would not be likely to go there looking for content);
  • pre-screens or pre-qualifies the content available on the site and enters into a formal agreement with a copyright owner to be able to show their content; and
  • can demonstrate a reasonably-sized established audience.
• 7. What are some concrete examples of online video services that would be eligible?

  All online services of CRTC-licensed broadcasters are eligible (e.g., ICI Tou.tv, CTV GO). The following are some examples of other online video services that, based on information currently available to CAVCO, and subject to CAVCO approval of any exhibition agreement, could be considered acceptable online video services:

  • Shomi
  • CraveTV
  • Club illico
  • Netflix Canada
  • iTunes Canada
  • Cineplex digital downloads
  • SnagFilms
  • MyDamnChannel
  • CinemaNow
• 8. Can I execute an agreement with an acceptable online video service directly instead of going through a distributor?

  License agreements can be signed directly with CRTC-licensed broadcasters to meet the two-year clause (1106(1)(a)(iv)). For any other online video service, the producer must have an agreement with a Canadian distributor who in turn has an exhibition agreement with the service provider for the production to be shown within two years.

• 9. If I have an agreement that has been accepted by CAVCO for the purpose of meeting the two-year clause, can I still show my production online on other platforms (e.g. on my own website)?

  Yes, as long as no other agreement precludes you from doing so.

• 10. What is fair market value?

  The Canada Revenue Agency, in a Summary Policy dated October 25, 2002 (CSP-F02) defines "fair market value" as "the highest price, expressed in dollars, that a property would bring in an open and unrestricted market, between a willing buyer and a willing seller who are both knowledgeable, informed, and prudent, and who are acting independently of each other."

• 11. Why can’t it be left open for producers to distribute their productions in whatever way they see fit?

  The provisions in the Regulations specifying that productions supported by the CPTC must be shown in Canada within two years of being commercially exploitable, and must be linked to a regulated Canadian broadcaster or a Canadian distributor, are there to ensure that these productions have a reasonable chance of being seen by Canadians. The new policy was written within the parameters of the Regulations.