CAVCO Public Notice 2022-01 – Call for Comments

Gatineau, January 26, 2022

Change to the treatment of stock footage costs when calculating the breakdown of costs for Canadian film or video production tax credit applications

Purpose

1. The purpose of this public notice is to seek written comments on a proposed modification to how stock footage costs are categorized when determining whether minimum Canadian cost requirements are met for the purpose of the Canadian Film or Video Production Tax Credit (CPTC) program.
2. The proposed change is in response to longstanding obstacles with respect to documentary productions being able to maintain “Canadian services” costs above the required 75% threshold. While the impetus for this change is documentary-related, it is intended to apply to all productions.

Background

3. As part of the legislative framework encouraging the creation of Canadian film and television and the development of an active domestic production sector, subparagraph 1106(4)(b)(iii) of the Income Tax Regulations (Regulations) requires that for a production to be eligible for the CPTC, at least 75% of certain prescribed costs in respect of producing the production must be payable for services provided to or by Canadians. This percentage is calculated when an applicant completes the Breakdown of Costs section of an application for a certificate of completion (“Part B application”).
4. Over the years, documentary producers have repeatedly raised the issue of documentary productions being at an unfair disadvantage with respect to this requirement, due specifically to how stock footage and key creative costs are categorized.
5. Documentaries (and some other types of productions) often need to use non-Canadian stock footage, either because of their subject matter or because of the generally more limited availability of stock footage from Canadian sources. Documentaries that include any non-Canadian costs tend to already be close to the 75% Canadian services threshold because a large proportion of their expenses go towards key creative positions, which, while generally occupied by Canadians, are excluded from the services calculation. The additional presence of licensing costs for non-Canadian stock footage makes it especially challenging to remain eligible for the CPTC and can limit the range of subject matter that Canadian documentary producers can explore.
6. The following proposed modifications require no change to the Regulations and would have an immediate beneficial impact on documentary production, and production more generally, allowing for greater creative flexibility and reduced administrative burden.

Proposed Modifications

7. CAVCO proposes to make changes to the CPTC guidelines (section 7.10.03) to reflect the fact that stock footage costs would be moved from the “Services” category to the “Other” category. This change would exclude these costs from the 75% “Canadian services” threshold calculation.
8. The Breakdown of Costs would be adjusted to move “Stock Footage” (live action - line item 67“b” / animation – line item 48“b”) from the “Services” column to the “Other” column.^{Footnote 1}
9. CAVCO has reviewed a large sample of applications from recent years, and based on that data, the proposed modifications would have an overall positive impact with respect to productions that include stock footage costs. CAVCO does not anticipate a significant negative impact on Canadian suppliers of stock footage.

Coming Into Force

10. CAVCO proposes a transition period during which applicants can choose whether to leave their stock footage costs in the “Services” column or move them to the “Other” column. This transition period will be in effect for any productions that started principal photography before the date that is six months after the publication date of the final public notice on this issue. For example, if a final public notice is published on April 1, 2022, then any production beginning principal photography at any time up to October 1, 2022 (either earlier in 2022, or even in a previous year) would fall under this transition period.
11. For productions beginning principal photography after the date that is six months after the date of the final public notice, all applicants will put stock footage costs in the “Other” column. CAVCO welcomes comments on the proposed transition period.

Call for Comments

12. CAVCO requests written comments on these modifications. All comments must be received by CAVCO by February 23, 2022. Submissions must include the name of the person or organization providing comments. Paragraphs should be numbered. All comments received will be given due consideration.
13. Please submit your comments by email at bcpac-cavco@pch.gc.ca to the attention of the Director, CAVCO.
14. Any questions about this public notice can be sent to CAVCO by email (bcpac-cavco@pch.gc.ca) or you may call toll-free at 1-888-433-2200 (Teletypewriter toll-free: 1-888-997-3123).