Film or Video Production Services Tax Credit (PSTC)

• 1. Overview of the Tax Credit
• 2. How the PSTC Works

These guidelines have been prepared to assist in the completion of the application form for a Film or Video Production Services Accreditation Certificate. Such certificates are issued by the Department of Canadian Heritage through CAVCO.

The legislation which governs the Film or Video Production Services Tax Credit is set out in section 125.5 of the Income Tax Act (the "Act") of Canada and draft section 9300 of the Regulations to the Act (the "Regulations"). Section 125.5 of the Act received Royal Assent on June 18, 1998. The Act and the Regulations take precedence over these guidelines.

Introduction

1. Overview of the Tax Credit

The Film or Video Production Services Tax Credit ("PSTC") is jointly administered by the Department of Canadian Heritage through the offices of CAVCO and by the Canada Revenue Agency. In order to receive a PSTC pursuant to section 125.5 of the Act, an eligible applicant must first obtain an "Accredited Film or Video Production Certificate" (the "Accreditation Certificate")^[1] from CAVCO. The Accreditation Certificate will be issued where a production initially meets all the requirements of draft Regulation 9300 of the Act. That certificate, along with a "prescribed form" (T1177, Claiming a film or video production services tax credit) and any prescribed documentation, must be filed with the corporate tax return for the year of an "eligible production corporation"^[2]. The Canada Revenue Agency will then review the claim by the corporation, ensure that it continues to meet all of the eligibility requirements of the program and determine the amount of the PSTC which the corporation is entitled to receive.

Generally, the PSTC is available at a rate of 16 per cent of "qualified Canadian labour expenditures" incurred after February 18, 2003 (11 per cent between October 1997 and February 18, 2003) by an "eligible production corporation" for services provided in Canada by Canadian residents or taxable Canadian corporations (for amounts paid to employees who are Canadian residents) for the production of an "accredited production". The "qualified Canadian labour expenditure" for a production refers to all amounts which are "Canadian labour expenditures" less assistance ^[3] (as defined in section 125.5 of the Act) received for those Canadian labour expenditures (such as other provincial tax credits). The PSTC may be calculated by multiplying the "qualified Canadian labour expenditure" by 16 per cent.^[4]There is no cap on the amount of PSTC which can be received in respect of any production and it is completely refundable. The PSTC is not available where the production has received a tax credit in respect of section 125.4 of the Act (a Canadian Film or Video Production Tax Credit).^[5]

The provision of eligible services to the production may be provided by any number of "eligible production corporations". However, CAVCO will issue a single certificate with respect to the production to the copyright owner, whether that entity is an "eligible production corporation" or not. It is therefore incumbent on the service provider(s) to ensure that the copyright owner will apply to CAVCO for an Accreditation Certificate and will provide them with a copy of such certificate so that they may claim the relative portion of the PSTC in computing their income for the year.

A capital cost allowance, up to the cost of the accredited production (net of the credit and assistance), may also be available to some "eligible production corporations" to the extent that they are also the owners of the copyright in the production.^[6]

Official treaty co-productions between Canada and another country (as administered by Telefilm Canada) are eligible. However, those productions may access either the PSTC program or the Canadian Film or Video Production Tax Credit Program (as provided for under section 125.4 of the Act), not both.

2. How the PSTC Works

The PSTC is a mechanism designed to encourage the employment of Canadians, by a corporation (a taxable Canadian corporation or a foreign-owned corporation), the activities of which in the year are primarily the carrying on through a permanent establishment in Canada of a film or video production business or a film or video production services business. In return for hiring Canadian residents to perform work in Canada, the "eligible production corporation" may be entitled to a credit against taxes payable in Canada.

The tax credit is available on a yearly basis for labour-related expenditures incurred in respect of an "accredited production" and may be claimed by the "eligible production corporation" when it files its corporate tax return for the year. The tax credit amount will be in respect of eligible amounts paid in that year or within 60 days after the end of that year for labour incurred in that year. Where a corporation has no taxes payable in the particular taxation year in question, the amount deemed as a credit under the PSTC is refundable to the corporation. In such a case, a cheque will be issued to the corporation after an assessment by the Canada Revenue Agency.

Note:

• ^[1] Subsection 125.5 (1) of the Act, under the definition of "accredited film or video production certificate".
• ^[2] Subsection 125.5 (3) of the Act.
• ^[3] Subsection 125.5 (1) of the Act, under the definition of "qualified Canadian Labour Expenditure".
• ^[4] 11 per cent for qualified labour expenditures incurred between October 1997 and February 19, 2003.
• ^[5] Subsection 125.5 (4) of the Act.
• ^[6] Class 10(s) asset.

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