In general, Quebec film and television productions are eligible for a refundable tax credit of up to 35% or 45% of the eligible labour costs incurred to produce a Quebec film. The eligible labour expenditures that give rise to the tax credit cannot exceed 50% of the film's production expenses (as a result, the tax credit generally may not exceed 17.5% or 22.5% of the total eligible labour costs).
This tax credit is available to independent film or television producers, but not to corporations that hold a broadcast license issued by the Canadian Radiotelevision and Telecommunications Commission. In addition, a special anti-avoidance rule excludes broadcasters from indirectly claiming the tax credit. Under this rule, a film production corporation that is not dealing at arm's-length with a broadcaster (at any time of a taxation year for which it intends to benefit from the tax credit or the 24-month period preceding it) will not be eligible for the tax credit unless it holds a special Société de développement des enterprises culturelles (SODEC) certificate. This certificate generally certifies that, although the film producer is not dealing at arm's length with the broadcaster, more than 50% of the film production company's production expenses for the last three taxation years (preceding the taxation year during which a film was made) were incurred in relation to films aired by a broadcaster with which the film production corporation is dealing at arm's length.
The criteria to make this arm's-length determination are based on the control a person or a group of persons exercises over a corporation. It is a question of fact whether persons not related to each other are dealing with each other at arm's length at a particular time. Revenue Quebec notes however, that application of the non-arm's length criterion has been very strict and that a degree of "streamlining" relief is warranted to provide relief while still achieving the tax policy objective of excluding broadcasters.
New associated test
The amendments propose to now only exclude the film production corporation from claiming the tax credit if it is "associated" with a broadcaster as opposed to dealing with it at non-arm's length (i.e., "related").
In addition, a film production corporation that (at any time of the year or the 24-month period preceding it) is associated with a broadcaster for a taxation year will not be eligible for the tax credit unless the corporation holds, for that year, a SODEC certificate. The certificate will also use the "associated" test instead of the "related" test (see above).
The proposed amendments apply to taxation years that end after February 28, 2014 and for eligible labour expenditures incurred in that taxation year.
For more information, contact your KPMG adviser.
Information is current to April 29, 2014. The information contained in this publication is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act upon such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's National Tax Centre at 416.777.8500