Table of contents
- Film or video production services tax credit
- Accredited production
- Eligible production corporation
- Qualified Canadian labour expenditure
- Canadian labour expenditure
- Revocation of certificate
- Questions and answers
- Forms and publications
The legislation governing the film or video production services tax credit (PSTC) is set out in section 125.5 of the Income Tax Act and in section 9300 of the Income Tax Regulations. The relevant sections of the Act and Regulations take precedence over these guidelines.
Film or video production services tax credit
If you are an eligible production corporation that produces an accredited production, the PSTC will provide you with a tax credit equal to 16% of your qualified Canadian labour expenditure for the year for the production. The PSTC is considered to have been paid on account of taxes payable under Part I of the Act, making the amount fully refundable in the year the PSTC is claimed.
Your eligible production corporation has to begin the principal filming or taping of the production before making a claim for the PSTC. Also, you have to file, with your T2 corporation income tax return for the tax year, the following documents:
- an accredited film or video production certificate for the accredited production; and
- Form T1177, Film or Video Production Services Tax Credit.
An accredited production is defined in section 9300 of the proposed Regulations. The accredited production must meet a cost minimum and it must be of an eligible genre.
Generally, the cost for a production for the 24-month period after principal filming or taping has begun must be more than $1,000,000 (CDN), except in the case of a series consisting of two or more episodes or a pilot for a series. The cost for each episode in a series or a pilot for a series, which has a running time of 30 minutes or less, must be more than $100,000 (CDN) per episode. The cost for each episode in a series or a pilot for a series with a running time greater than 30 minutes must be more than $200,000 (CDN) per episode.
A production will not be eligible for the PSTC if it falls within the following list of excluded genres as follows:
- news, current events, or public affairs programming, or a program that includes weather or market reports;
- a talk show;
- a production involving a game, questionnaire, or contest;
- a sports event or activity;
- a gala presentation or awards show;
- a production that solicits funds;
- reality television;
- advertising; or
- a production produced primarily for industrial, corporate, or institutional purposes.
Each episode in a series is treated as an individual production that must satisfy the minimum cost and eligible genre requirements.
Eligible production corporation
An eligible production corporation for a tax year is a corporation that, in the year, carries on, through a permanent establishment in Canada, a business that is primarily a film or video production business, or production services business. In this case, primarily generally means more than 50% of business activities. If your corporation carries on other business activities, the eligibility of your corporation may be an issue.
The corporation has to either own the copyright in the production for which a claim is being made, or contract directly with the owner of the copyright. If the corporation who owns the copyright is an eligible production corporation, it must claim the PSTC. Corporations who have provided services to the eligible production corporation would not be entitled to the PSTC.
However, the following corporations cannot qualify as eligible production corporations:
- prescribed labour-sponsored venture capital corporations for the purposes of section 127.4 of the Act;
- a person (such as a non-profit or charitable corporation) exempted from Part I tax; and
- corporations controlled by one or more persons exempted from Part I tax.
Qualified Canadian labour expenditure
Qualified Canadian labour expenditure means the total of all Canadian labour expenditure for the current and preceding tax years less:
- the total assistance that can reasonably be considered to be for the Canadian labour expenditures that your corporation or any other person or partnership has received, is entitled to receive, or can reasonably be expected to receive, that has not been repaid under a legal obligation to do so;
- the total of all qualified Canadian labour expenditures for preceding years; and
- where the eligible production corporation is a parent, the total of all amounts which are subject to an agreement under which a wholly-owned subsidiary reimburses to the parent for an expenditure incurred by the parent in respect of the accredited production.
The calculation of the PSTC is done on an annual basis, according to the fiscal year-end of your eligible production corporation. As a result, any amounts claimed in previous years for the qualified Canadian labour expenditures will not be eligible for the year. Likewise, where a wholly-owned subsidiary has reimbursed its parent under an agreement (see "Reimbursement by a wholly-owned corporation to its parent" in this document), the parent may not then claim the same amounts as qualified Canadian labour expenditures.
Assistance is defined in subsection 125.5(1) of the Act. It refers to paragraph 12(1)(x) of the Act. Generally, assistance includes any amount from public or private Canadian sources or from foreign sources that, at the time of the filing of the corporation's income tax return for the year, the corporation or any other person or partnership has received, is entitled to receive, or can reasonably be expected to receive for amounts included in the Canadian labour expenditure of an eligible production corporation. As a result, it would include forgivable loans, grants, subsidies, deductions from tax, allowances, or any other form of assistance.
A deduction from tax would include provincial film tax credits where they apply.
The PSTC of an eligible production corporation is considered to be assistance that the corporation receives from a government immediately before the end of the year. However, the PSTC is not considered to be government assistance for the purposes of determining the PSTC itself.
Canadian labour expenditure
Canadian labour expenditure describes the underlying expenditures of a corporation that will be eligible for the PSTC. If your corporation is not an eligible production corporation, its Canadian labour expenditure is deemed to be nil.
The Canadian labour expenditure of an eligible production corporation for an accredited production must be:
- reasonable in the circumstances;
- directly attributable to the production of the property (there must be a clear link to specific work on the production);
- incurred by the corporation after October 1997;
- incurred for the production stages of the property, from the final script stage to the end of the post-production stage;
- paid in the year or no later than 60 days after the end of the year;
- paid to persons who were resident in Canada at the time the payments were made; and
- paid for services rendered in Canada.
The total Canadian labour expenditure for your eligible production corporation is the total of the following three categories:
- salary or wages paid to your employees;
- remuneration, other than salary or wages, paid to a person or partnership; and
- reimbursement by a wholly-owned corporation to its parent.
Salary or wages
Salary or wages paid to your corporation's employees must meet the above-mentioned criteria. However, salary or wages do not include amounts included in an employee's income because of stock option plans or amounts determined by reference to profits or revenues. Salary or wages paid to employees of your corporation will not be eligible if they were not resident in Canada at the time the payments were made. Furthermore, salary or wages paid to employees of your corporation who are resident in Canada will not be eligible if the services are rendered outside of Canada.
Remuneration, other than salary or wages
The part of the remuneration, other than salary or wages, paid by your eligible production corporation under contracts for services, that is, as non-salaried remuneration, is considered to be a Canadian labour expenditure if the above-mentioned criteria are met and if the amounts are paid to:
- an individual resident in Canada at the time the amount is paid and who is not an employee of your corporation, to the extent that the amount paid is:
- attributable to services personally rendered by the individual in Canada for the accredited production; or
- attributable to and does not exceed the salary or wages paid by the individual to the individual's employees at the time they were resident in Canada for personally rendering services in Canada for the accredited production;
- another corporation that is a taxable Canadian corporation (shares are owned by multiple shareholders), to the extent that the amount paid is attributable to and is not more than the salary or wages paid to the other corporation's employees at the time they were resident in Canada for personally rendering services in Canada for the accredited production;
- another corporation that is a taxable Canadian corporation (solely owned by an individual), where all the issued and outstanding shares of the capital stock belong to an individual who was resident in Canada (loan-out corporation) and the activities of which consist mainly of the provision of the individual's services, to the extent that the amount paid is attributable to services rendered personally in Canada by the individual for the accredited production;
- a partnership, to the extent that the amount paid is:
- attributable to services personally rendered by an individual resident in Canada who is a member of the partnership for the accredited production; or
- attributable to and not more than the salary or wages paid by the partnership to its employees at a time when they were resident in Canada for personally rendering services in Canada for the accredited production.
You may include, in the Canadian labour expenditure, only the labour portion of the invoice sent by a service provider to your eligible production corporation. Amounts paid for materials are excluded. For services rendered by employees of the service provider, the Canadian labour expenditure must also be net of the employer's share of government source deductions and of any profit margin. However, this would not apply to a loan-out corporation, a partnership, or a individual who is not an employee of your corporation provided that the whole amount is paid for services rendered personally for the production by the shareholder of the loan-out corporation, a partner of the partnership or the individual who is not an employee of your corporation. The allowable remuneration in these cases may include a profit element. Work with your suppliers to ensure that an appropriate breakdown is shown on the invoice.
When your eligible production corporation pays an amount to a corporation, this corporation has to be Canadian and taxable. If not, the portion of the remuneration paid to such a corporation will not qualify as Canadian labour expenditures. Some Canadian broadcasters (example, TVOntario, Knowledge Network, the Saskatchewan Communications Network Corporation, Télé-Québec, etc.) are not taxable corporations.
Reimbursement by a wholly-owned corporation to its parent
To qualify for the reimbursement provision, your eligible production corporation has to be a wholly-owned subsidiary of another taxable Canadian corporation (referred to as a parent). As well, your corporation and the parent have to have filed an agreement with the Canada Revenue Agency (CRA) that the reimbursement provision applies. Your corporation has to make the reimbursement in the year or within 60 days after the end of the year.
The expenditure that was incurred by the parent in that tax year has to be for the production and otherwise qualify as a Canadian labour expenditure (CLE). In addition, the parent must have incurred the expenditure for the same purpose your corporation would have incurred it had it incurred it directly. If the parent and subsidiary have different year-ends, the eligibility of the CLE is based on the date of reimbursement to the parent corporation.
If these conditions are not met, payments to the parent corporation are payments to another taxable Canadian corporation. As a result, only the salary or wages of the parent corporation's employees would qualify as Canadian labour expenditures of the subsidiary.
If your corporation has claimed a Canadian film or video production tax credit (CPTC) under section 125.4 of the Act for a production, you cannot make a claim to obtain the PSTC under section 125.5 of the Act for the same production.
Revocation of certificate
The Minister of Canadian Heritage may revoke an accredited film or video production certificate for a production where an incorrect statement is made for the purposes of obtaining the certificate, or where the production is not an accredited production. A revoked certificate is considered never to have been issued for the purposes of claiming a PSTC.
Questions and answers
Q.1 What payments are included as Canadian labour expenditure?
A.1 Canadian labour expenditure describes the underlying expenditures of a corporation that will be eligible for the PSTC and includes the total of certain amounts to the extent that they are:
- reasonable in the circumstances;
- directly attributable to the production;
- incurred by the eligible production corporation after October 1997 for certain stages of the production;
- attributable to services rendered in Canada by an individual resident in Canada; and
- paid in the year or within 60 days after the end of the year.
These amounts are:
- salary or wages of the eligible production corporation's employees;
- remuneration paid to individuals who are not employees of the eligible production corporation;
- remuneration paid to another taxable Canadian corporation;
- remuneration paid to another taxable Canadian corporation (solely owned by an individual resident in Canada);
- remuneration paid to a partnership; and
- reimbursements made to a parent corporation.
Q.2 What is the meaning of "directly attributable" in the definition of Canadian labour expenditure?
A.2 Refer to Application Policy FIS 2006-01 for details on the application of the phrase "directly attributable" that is found in the definition of "Canadian Labour Expenditure" in subsection 125.5(1) of the Income Tax Act.
Q.3 Can amounts paid for tool rentals, which are reported on a T4 slip and for which tax is deducted at source,be included in Canadian labour expenditure?
A.3 Taxable benefits, which are reported on a T4 slip as income of an employee, would be eligible Canadian labour expenditures provided all other conditions of the Act are met.
The use of the term rental would suggest that there may be some question as to whether the person in question is an employee of the corporation. Whether a person is an employee is a question of fact that must be determined on a case-by-case basis. However, in accordance with Guide T4130 – Employers’ Guide – Taxable Benefits and Allowances, a reimbursement to an employee to offset the cost of tools needed for the job is a taxable benefit and should be included in the employee’s income. The amount would therefore be included in the Canadian labour expenditure provided all other conditions of the Act are met.
Q.4 What is the meaning of "remuneration" in the definition of Canadian labour expenditure?
A.4 Remuneration is not defined in the Act. However, subsection 125.5(2) of the Act indicates that remuneration does not include remuneration determined by reference to profits or revenues. Generally, remuneration will include fees for services and other taxable benefits. As a result, per diems, travel and living expenses, car rentals, etc., should not be included in the Canadian labour expenditure of the eligible production corporation unless they have been included in the income of the recipient as a taxable benefit.
Q.5 Will a breakdown of eligible post-production labour expenses be designed by the CRA and, if so, will it be the same as the breakdown that was prepared by CAVCO for the projects under the CPTC?
A.5 Paragraph 125.5(2)(b) of the Act provides a restriction to the post-production services that could be included in the remuneration (other than salary or wages) of an eligible production corporation. However, this restriction does not apply to salary or wages paid to employees of an eligible production corporation. We will not design a breakdown of eligible post-production labour expenses. However, the Canadian Audio-Visual Certification Office (CAVCO) provides a scale for the calculation of such costs in its guidelines for the CPTC for reference purposes. As with the CPTC program, these cost breakdowns may be useful to the eligible production corporation in claiming the PSTC. Nevertheless, the corporation must make efforts to obtain the actual cost breakdowns from the service provider.
Q.6 How does remuneration paid to a taxable Canadian corporation owned by an individual shareholder resident in Canada differ from remuneration paid to a taxable Canadian corporation whose shares are held by more than one person?
A.6 When calculating its Canadian labour expenditure for a tax year, an eligible production corporation may include the total remuneration paid to a taxable Canadian corporation owned by an individual shareholder resident in Canada (loan-out corporation), provided the individual has personally rendered the services and the activities of the corporation consist principally (more than 50%) of the provision of the individual's services. In such a case, the amount paid to the taxable Canadian corporation, including a profit element, qualifies as Canadian labour expenditure.
Remuneration paid to a taxable Canadian corporation whose shares are held by more than one person qualifies as Canadian labour expenditure of the eligible production corporation to the extent that the amount is paid out as salary or wages by that taxable Canadian corporation. When calculating remuneration to be included under this category, only amounts that are incurred for labour are eligible. The profit element cannot be included in the Canadian labour expenditure.
Amounts paid to a multi-owned corporation that is attributable to the services rendered by one specific individual of the corporation will also be limited to the salary or wages received from such corporation for services rendered personally in Canada for the accredited production.
Q.7 Do payments to non-Canadian corporations (loan-out corporations or others) qualify as Canadian labour expenditures?
A.7 Remuneration paid to a non-Canadian corporation will not be included in the Canadian labour expenditure of an eligible production corporation even though Canadian individuals provided the services. Remuneration has to be paid to taxable Canadian corporations in order to qualify as a Canadian labour expenditure.
Q.8 Will CRA issue a standard affidavit to be completed by all corporations to disclose information about their status? Will any back-up documentation be required?
A.8 We will not be issuing a standard affidavit to be completed by all corporations to disclose information about their status. However, some evidence to support whether or not a service provider is a taxable Canadian corporation would be necessary to verify the tax credit claim. This may be in the form of an affidavit or a statement included in the agreement that would be subject to our verification.
Q.9 Are salary or wages paid to "behind the camera" non-residents, which are subject to tax withholding, eligible if a waiver has not been granted based on the residency definition of the Act?
A.9 The salary or wages for an accredited production have to be paid to Canadian residents for personally rendering services in Canada in order to qualify as eligible Canadian labour expenditure. Therefore, the salary or wages paid to "behind the camera" non-residents will not qualify as Canadian labour expenditures.
Q.10 How and by whom would reasonable costs be defined? Will the definitions include maximum limits for such items as producer fees, legal fees, and financing charges?
A.10 We are responsible for determining if a cost is reasonable or not. The term reasonable as it relates to costs is not defined in the legislation. However, the Black's Law Dictionary describes reasonable as being fair, proper, moderate under the circumstances. We will determine, on a case-by-case basis, whether a cost is reasonable.
Q.11 What sort of documentation, if any, must be provided to CRA for the residency of individuals to which salary or wages have been paid? When establishing the residency of an employee, will a valid social insurance number and address be sufficient?
A.11 We do not specify the books and records to be kept by a taxpayer. A valid social insurance number and the individual's address provide some evidence that an individual is resident in Canada. However, in some situations, they are not sufficient to make this determination. The question of residency depends on the fact of the case, and the onus is on the claimant to prove that the residency requirements have been met. A determination of residency status can be obtained by sending a completed Form NR74, Determination of Residency Status (Entering Canada) to our International and Ottawa Tax Services Office.
Q.12 Is there a sample of the reimbursement agreement between a parent corporation and a subsidiary, which CRA will wish to see when reimbursement expenses are charged to an eligible production?
A.12 We have not designed a reimbursement agreement that a parent corporation and its wholly-owned subsidiary have to file with the Minister. As a result, we will accept any written agreement between a parent corporation and its subsidiary indicating that they want to take advantage of the reimbursement provisions.
Q.13 What taxable benefits may be included in the salary or wages of your eligible production corporation?
A.13 Salary or wages of your eligible production corporation will include the taxable benefits that you pay and include on the employee's T4 information slips such as:
- vacation pay;
- statutory holiday pay;
- sick leave pay;
- pension plan contributions;
- group insurance; and
- any other benefit taxable in the hands of the employee, such as travel expenses, car expenses including standby charges, etc.
However, the salary or wages of your eligible production corporation should not include employers' contributions to:
- the Canada Pension Plan or the Quebec Pension Plan;
- Employment Insurance;
- the workers' compensation board or the Commission de la santé et de la sécurité du travail (province of Quebec); or
- any approved employee pension plan, dental care plan, medical care, or optical care plan for the employee.
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