Proposed tax changes could have spinoff effect on Canadian film and television production

Proposed changes to the Income Tax Act that would eliminate a tax shelter used by the film and television production community could end up hurting not only U.S. production in Canada but also have negative spinoff effects on the domestic industry. Alliance Atlantis Communications Inc said Sept. 24 that the proposed tax changes are believed "to eliminate tax-assisted private sector structured filmed entertainment financings in Canada." Companies such as Sentinel Hill Alliance Atlantis Equicap Limited Partnership and CineGate Production Management Services Inc sell limited partnerships to Canadian investors in the production projects of U.S. studios. Due to the high start-up costs of production, the Canadian investors can write off the upfront costs for huge tax savings. The U.S. studios also benefit by saving up to 6 per cent of their film budgets through this type of private financing. On Sept. 18, Finance Minister Paul Martin tabled proposed changes to the tax laws that would eliminate "matchable expenditure" rules and take away the tax shelter for the film and TV industry. The government says the changes are aimed at ensuring "unintended tax benefits cannot be achieved." Some analysts believe the effect of the proposed tax changes on U.S. production in Canada will be minimal because federal and provincial tax credits, grants and other incentives will not be affected and the Canadian dollar remains low against the U.S. currency. Others note, however, that if the changes cause U.S. producers to reconsider filming in Canada, the domestic industry could be hurt. Many western-based producers say they use money they reap working on U.S. productions to help finance Canadian content. Alliance Atlantis, which has a 30 per cent stake in Sentinel Hill, has acknowledged that its bottom line would be affected, and that could make it reconsider its production schedule. Alliance Atlantis estimates that its earnings before interest, taxes and amortization (EBITDA) for the 12 months ended March 31, 2002 could be reduced by $6 million if the tax change is implemented. The hit could be as high as $20 million in the next fiscal year. Linda Rosenthal, president of CineGate, says she is still examining the proposed tax changes and has not yet come up with a firm evaluation of how the changes would effect her company. CineGate holdings were valued at $1.64 million in fiscal 2001.

Proposed tax changes could have spinoff effect on Canadian film and television production

Broadcast | September 27, 2001

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