As BC looks to expand and diversify its economic activity by encouraging the growth of industries that offer opportunities to all regions of the province the film industry will continue to offer significant potential for growth as a vital element of a vibrant and diverse provincial economy.
At present the industry contributes a total of $1.4 billion in production expenditure and had an overall economic impact estimated to be $4.9 billion in 2003/04, while employing over 35,000 skilled workers, with British Columbians constituting 97% of the average film crew.
The future prosperity of the film industry is highly dependant on BC’s competitiveness, both internationally and nationally. The intensely competitive nature of the film industry was highlighted recently with the announcement by the Ontario government of a change in the film tax credit offered to the film industry. This announcement meant that BC faced the very real possibility of losing the over $1 billion annually invested in film production in BC.
Following this announcement the provincial government consulted with the industry and subsequently announced changes to the tax credit system here in BC. The changes announced, which will be effective from January 1, 2005 to March 31, 2005, will see the provincial Production Services Tax Credit for foreign productions increased from 11% to 18% and the Film Incentive BC tax credit for domestic productions raised from 20% to 30%. The Chamber welcomed the government’s announcement as a necessary investment in the future of a flourishing film industry in BC.
The Chamber also welcomed the fact that these changes will only be effective from January 1, 2005 until March 31, 2005. During this period the government and the industry have committed to working together to undertake a detailed review of the long term viability of the industry. This review will not only examine the long-term sustainability of tax credits but will also develop strategies to address the new reality for the industry of a high dollar and increased competition on a national and international front.
The industry will be asked to address the need for significant reform to its practices to become as efficient as possible and to enhance its competitiveness in areas under their direct control such as labour, location costs, and service levels to ensure BC has a flourishing, competitive industry.
As part of this fundamental review The Chamber urges the government to address a discrepancy that currently exists in the application of the Social Services Tax as it relates to film production that places the industry in BC at a distinct competitive disadvantage to other competing Canadian jurisdictions.
- The current administrative position of the BC government with reference to the application of the social services tax (PST) to film production creates a competitive disadvantage in BC for the film production industry, in comparison to Ontario, Quebec and other competing jurisdictions;
o Ontario qualifies film production as manufacturing for purposes of calculating its retail sales tax.
o Alberta does not have PST and therefore the matter is not an issue in that province.
o Quebec has harmonized its sales tax (QST) with the federal GST. Its interpretation of the issue is consistent with that of the Federal government.
- The provincial government ensure that the for the purposes of calculating corporate tax the federal government considers film production to be a manufacturing process;
“Bulletin IT-145R, Section 40”: “ Where a corporation is engaged in the production of motion picture films or programs on videotape, the activities which would qualify as manufacturing and processing would include preparation and editing of the script, manufacture of screen sets and props, acting, directing, lighting, camera work (filming), adding sound and colour effects, cutting, splicing and editing the exposed film and reproducing copies from the master negative or video tape.”
- The BC Ministry of Finance continues to consider the production of film to be a service, which is inconsistent with the other jurisdictions referenced above.
THE CHAMBER RECOMMENDS
That the provincial government:
1. upon completion of the review, immediately make the changes to the tax credits permanent if found viable;
2. recognize film production in BC as a manufacturing process, consistent with the Federal government interpretation;
3. revise “Bulletin No. 076” issued by the Ministry of Finance and Corporate Relations (BC) on January 1987 and revised January 1991 to be consistent with the positions of the federal, Ontario and Quebec governments; and
4. remove the competitive disadvantage to BC in reference to film production by harmonizing our PST policies with other provincial jurisdictions.
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