Norman Bacal is a partner in the law firm of Heenan Blaikie, based in Toronto.

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The Ontario tax credit presented May 7 will act as a replacement of the Ontario Film Investment Program. The new scheme is a refundable film and television tax credit which will function in a manner similar to the federal tax credit for Canadian film or video productions.

The Ontario credit will generally be at a rate of 15% of qualifying labor expenditures incurred after June 30, 1996. First-time producers will be eligible for a 30% rate. Like its federal counterpart, qualifying labor expenditures cannot exceed 48% of the cost of the production.

Maximum 7.2%

As a result, the effective tax credit will be a maximum of 7.2% of the budget (or 14.4% in the case of first-time producers). Since the credit grinds down the cost of production for the purposes of the federal tax credit, the maximum federal credit will be reduced from 12% to 11.1%. The combined federal and Ontario tax credits do not exceed a maximum of 18.3% of the cost of an eligible Ontario production (24.7% for first-time producers).

The Ontario tax credit will apply to productions for which principal photography commenced after May 7, 1996. The credit will be assignable although there is some question at this time whether the limitations on assignability will mirror those under the recent federal budget.

The credit is to be applied to outstanding Ontario tax liabilities of the corporate producer and any excess will be refundable subject to corporate minimum tax. As a result, corporations which are entitled to other tax preferences may find the credit is not fully refundable.

Only qualified firms

Only a qualifying production company is entitled to the Ontario tax credit. A qualifying production company is an Ontario-based corporation which otherwise qualifies for the federal tax credit.

Eligible Ontario productions must qualify for the federal tax credit and must also be certified by the Ontario minister of citizenship, culture and recreation to an eligible Ontario production.

To obtain certification, a production must meet tests which are similar to the previous ofip tests; that is, the production must qualify for at least eight points under the federal regulations, the producer must be an Ontario producer, at least 75% of all production costs must be Ontario costs, the production must be shown in Ontario by an Ontario-based theatrical film distributor or Canadian broadcaster within two years, and all principal photography and post-production must occur in Ontario.

There continues to be more flexibility for treaty coproductions in that the requirement is that either principal photography or post-production must occur in Ontario. In addition, principal photography of documentary productions may occur outside Ontario.

The following types of productions will be excluded from qualification as an eligible Ontario production: magazine format programming, variety shows, educational or instructional programming, tv programming not shown in primetime (except children's) and service productions.