The Production Tax Credit: A Guide for Ontario’s Film and Television Industry

Working in the film and television industry in Ontario, especially in Toronto, is a wild ride. As the industry changes—new storytelling, new tech, new viewer habits—understanding the financials is key to success. One of the biggest financial tools available to producers in Ontario is the Ontario film and television tax credit. This is a big deal for production companies and a must have for anyone looking to get in or grow in this market.

This guide covers everything you need to know about the Production Tax Credit in Ontario. From eligibility and qualifying expenses to the application process, we want to make the financials clear for producers, filmmakers and TV creators. By understanding the details of this incentive you can get the most out of it and position your production company for success.

What is the Production Tax Credit?

In a nutshell, the Production Tax Credit is a refundable tax credit based on qualifying labor expenditures for production companies involved in eligible Ontario productions. The program is meant to attract investment in the province’s film and TV sector and create local jobs. It allows companies to claim a percentage of their eligible Ontario labour expenses incurred during the production of eligible productions.

Production Tax Credit Details

Basic Credit Rate: 35% of eligible Ontario labour expenses
First-Time Producer Bonus: 40% for first time producers making their first film or TV production in Ontario
Administration: Ontario Creates and CRA administer the program to ensure compliance with the rules

These are the basics that make the Production Tax Credit a financial foundation for production companies in Ontario to invest in eligible production projects and talent.

The Tax Credit Administration

The administration of the Production Tax Credit involves two main agencies: Ontario Creates and the Canada Revenue Agency (CRA). This includes the management of Ontario tax credits, such as the Ontario Film Tax Credit (OFTTC), which outlines eligibility requirements and guidelines for various types of productions.

Ontario Creates

Eligible Ontario production is supported by Ontario Creates, the provincial agency that fosters the growth of the creative industries in Ontario. They support film, TV, and digital media producers through the funding and regulatory maze. Ontario Creates is the first point of contact for producers looking for tax credits and manages the entire application process.

Ontario Creates Functions:

Application Processing: Ontario Creates reviews applications for the Production Tax Credit to ensure they meet eligibility and program rules.
Certificate Issuance: Once applications are approved, Ontario Creates issues a Certificate of Eligibility that confirms the production is eligible for the tax credit.
Guidance and Resources: They offer resources, workshops, and guidance to help producers understand the incentives.

Canada Revenue Agency (CRA)

The Canada Revenue Agency is responsible for the overall tax implications and provides fiscal guidance on tax credits at the federal level. They ensure tax rules are followed and consistency across all sectors, including the determination of fair market value for financial agreements in film and video productions.

CRA Functions:

Tax Filing: The CRA collects taxes and manages corporate income tax returns including those that claim the Production Tax Credit.
Compliance and Audits: The CRA audits and assesses claims for tax credits to ensure they are legitimate and follow the rules.

Ontario Creates and the CRA work together to get you access to the incentives to grow and sustain the Ontario film and TV industry.

Eligibility

Understanding the eligibility rules is key for production companies to access the Production Tax Credit. The rules are specific to ensure the program supports productions that qualify as Canadian films and are truly based in Ontario.

Qualifying Production Company

To be eligible for the Production Tax Credit a production company must:

Canadian-Controlled: Be a Canadian corporation. This ensures the benefits of the tax credit stay in the local economy.
Permanent Establishment in Ontario: Have a physical presence in Ontario, working with local talent and resources. This often means having an office, employees or a production facility in the province.
Tax Filing Obligations: File an Ontario corporate tax return to be compliant with Ontario tax laws and contribute to the provincial tax base.

These rules ensure the Production Tax Credit is targeted to companies that are contributing to the local economy and workforce, excluding any production produced primarily for industrial, corporate, or institutional purposes.

Residency

A special rule requires the individual producer—a key person in the production—to be considered a resident of Ontario for tax purposes at the end of both of the two calendar years preceding the start of principal photography

Eligible Ontario Labour Expenditures

Eligible Ontario labour expenditures are the labour costs incurred during the production that meet the rules for the video production tax credit. However, not all labour costs are eligible for the tax credit. Key rules are:

Reasonable Costs: Only reasonable labour expenditures are allowed. Productions that claim excessive or inflated costs will be audited and scrutinized by tax authorities.
Directly Related to Production: Labour expenditures must be directly related to the production. Labour costs for non-production activities (e.g. marketing, distribution or administration not related to the production) cannot be claimed.
Invoicing and Record Keeping: Accurate invoicing and good record keeping is key to proving eligibility. Productions should keep organized financial records and make sure all invoices clearly break out labour costs for production activities.

Breakdown of Eligible Labour Expenditures

Eligible Ontario labour expenditures for film or television production are:

Salaries and Wages: Payments to employees directly involved in the production. This includes key personnel such as directors, producers, writers and crew.
Contract Labour: Amounts paid to individuals hired on a contract basis to work on the production.
Payroll Benefits: Employer paid benefits for the eligible employees such as health and pension contributions.
Production Staff: Labour costs not funded by other sources so local talent benefits from the project.

By understanding and tracking these expenditures, production companies can maximize their tax credit claims and reduce their financial burden.

Production Commencement Time (PCT) and Credit Calculation

The Production Commencement Time (PCT) is a key factor in claiming the Production Tax Credit. Understanding the timing around this can make a big difference in eligibility and the amount of credit for eligible production.

What is Production Commencement Time

The PCT is the earlier of two dates:

Date of First Labour Expenditure Incurred: This is the first date the production company incurs labour related expenses for the project.
Date of First Payment: This is the date the production company makes the first payment for those labour expenditures.

Make sure to properly identify and document the PCT as all calculations for tax credits are based on eligible Ontario labour expenditures incurred after this date. This is crucial for ensuring that your production qualifies as an eligible production and can claim the various tax incentives offered by regional authorities.

Calculating the Tax Credit

Once the PCT is established the tax credit can be calculated based on the qualifying labour expenditures for Ontario productions. The formula is:

Standard Rate: 35% of all eligible labour costs.
First-Time Producer Rate: 40% for first time producers in Ontario.

Many producers create spreadsheets to track all eligible expenditures by category. This makes the application process easier and helps with budgeting and planning for future projects. It is crucial to ensure that all costs fall under eligible production to qualify for the tax credits.

The Tax Credit Process

The process of applying for and claiming the Production Tax Credit is a few steps. By understanding this process producers can navigate it successfully and access the benefits.

The first step in claiming the Production Tax Credit is to apply for a Certificate of Eligibility through Ontario Creates. This is the key document that confirms the production will get the credit as an eligible production.

Step 2: Certificate Review and Approval

Once the application is submitted Ontario Creates will review the documentation to ensure it meets the eligibility requirements. If the production is eligible they will issue a Certificate of Eligibility that estimates the tax credit the company can claim. This certificate is required for the next steps in the claiming process for eligible production.

Step 3: Claim

Once you have your Certificate of Eligibility you will need to file your claim with your T2 Corporation Income Tax Return for the year the production took place. The following are required:

Certificate of Eligibility: This document confirms your eligibility and the estimated tax credit.
Tax Return: The completed T2 form that shows your corporation’s total tax liability.
Supporting Documentation: All documentation that supports your eligibility and expenditures throughout the production.

Make sure to be organized and detailed in this step as your filing must demonstrate compliance with provincial regulations and support your claims for eligible production.

Special Rules and Incentives

The Production Tax Credit has some special rules and incentives that can add to the financial benefits for producers of eligible production.

Regional Production

Productions may be considered regional Ontario productions if they meet location requirements. Filming regionally not only supports local economies but also opens up more funding opportunities and incentives to increase project viability.

If a production is deemed regional it may be eligible for grants and financial support from local municipalities or economic development agencies that want to grow the film industry outside of the major urban centers. Additionally, such productions often qualify as eligible production, meeting specific criteria to claim various tax incentives offered by regional authorities.

First-Time Producer Bonus—Facts

The First-Time Producer Bonus is a great incentive for emerging talent in Ontario’s film industry. If a producer has never produced a film or TV show in Ontario before this bonus may allow them to claim 40% tax credit. It’s an opportunity for newbies to get started and build a production practice in the region.

This bonus encourages first-time producers to invest in their ideas in Ontario and build a culture of innovation and new talent by supporting eligible production.

Refundable Tax Credit Mechanics

The refundable nature of the Production Tax Credit means if producers don’t have tax liabilities they can still receive funds from the credit. In effect this is a reimbursement for eligible expenditures.

The refundability of the tax credit is key especially for emerging production companies just starting out. It’s a safety net that can help offset production costs and allow creators to focus on the content. This is particularly beneficial for eligible production, as it ensures that productions meeting specific criteria can claim various tax incentives offered by regional authorities.

Exhibition and Screen Credit Requirements

Changes that came into effect for productions that started principal photography after August 24, 2023 have updated the exhibition and screen credit requirements that must be followed for eligible production.

End Credits Acknowledgment

To comply with the new guidelines productions must now include an acknowledgment of Ontario tax credit in their end credits. This acknowledgment will show the financial support of the Ontario government to the creative sector.

Required Acknowledgment Elements

Productions must include three elements in their end credits:

Province of Ontario Logo: A visual of the province’s logo.
Ontario Creates Logo: The logo of the provincial agency.
Acknowledgment Text: The specific text that outlines the tax credit amount to the production.

Though it seems simple, make sure all elements are correct. If any are missing it will complicate the process of claiming your credit and potential funding for eligible production.

Regulatory Changes and COVID-19

As the industry adjusted to the ongoing challenges especially those brought on by the COVID-19 pandemic, recent regulatory changes introduced new considerations for Ontario producers, particularly regarding eligible production criteria.

Effective Dates for Changes

The Production Tax Credit regulations apply to productions that start principal photography on or after November 1, 2022. Productions that started before this date are governed by the previous rules and are not affected by these changes. Eligible production must adhere to the new regulations to qualify for the updated tax incentives.

Eligible Expenditures during COVID-19

The pandemic brought new challenges that required regulatory changes to include labour related expenditures under the eligible category. Productions were interrupted and costs associated with these interruptions—suspensions, severance payments, relief expenses—may be eligible for tax credits.

Make sure to keep records of these special circumstances as it will be required for compliance and validation during uncertain times. Eligible production must meet specific criteria and obtain certificates of eligibility to claim these tax incentives.

Application and Review Process

Navigating the application process for the Production Tax Credit requires attention to detail. Here’s a step by step guide to help you through it, ensuring your project qualifies as an eligible production.

Step 1: Read the Guidelines

Before you start the application process read the Film and Television Tax Credit Program Guidelines and any supporting forms. These documents outline the eligibility and compliance requirements. Knowing these rules will make the submission process smoother and ensure your project qualifies as an eligible production.

Step 2: Create an Ontario Creates Account

Once you have read the guidelines create a secure account on the Ontario Creates portal for online access. This will allow you to apply for the tax credit and track your application. Choose a username and password that you can remember. Productions must create an account to determine if they qualify as eligible production for various tax incentives.

Step 3: Fill out All Required Forms

Make sure your application is complete and accurate, following all the guidelines. Any incomplete or incorrect information will delay or reject your application, so double-check everything before submitting. Ensure that your forms are filled out correctly, especially if you are applying for eligible production tax credits.

Required Documents:

Application Form: Fill out all fields and make sure all information is correct.
Supporting Documents: Gather and attach all required documents, financial records, invoices and proof of expenditures for eligible production.

Step 4: Submit and Follow up

Once you have all your documents in order and reviewed submit your application through the online portal. As a best practice keep copies of all submitted documents for your records. After submitting, consider checking on the status of your application to address any questions or concerns related to eligible production.

Getting a Tax Credit and Next Steps

Once you have received your Authorization Letter from Ontario Creates you can proceed to request tax credit certificates. This section will walk you through the process for eligible production.

Request Timeline

To maximize your claims request tax credit certificates within 6 months of each taxation year end in which you expect to make claims. Time is of the essence to maintain your eligibility for the tax credit, especially for eligible production.

What’s My Maximum Request?

Check your Authorization Letter or Revised Authorization Letter for the maximum amount of tax credit you can request. Knowing these limits will help you plan and calculate the financial benefits to your eligible production.

Producer Challenges

While the Production Tax Credit is a great opportunity for Ontario’s film industry, the producer should also be aware of the challenges and considerations in accessing and using this incentive, particularly for eligible production.

Common Challenges

Complex Rules: The rules and eligibility requirements are complicated for producers especially those new to the industry. Hiring professional advisors or consultants can help alleviate this burden.
Long Payment Times: The approval and payment of tax credit can take time. Producers should plan their budgets accordingly and look into alternative funding options if cash flow is immediate.
Documentation Requirements: Keeping records is crucial to be eligible for the credit. Producers must be diligent in tracking all expenses and keeping records throughout the production process.
Audits: Tax authorities may audit tax credit claims to ensure compliance. Being prepared for audits means having organized records and transparent financial practices. This is particularly important for eligible production, as it must meet specific criteria and maintain thorough documentation to qualify for various tax incentives.

Strategies

Plan Ahead: Read the guidelines early in the production process. Tax planning will help you structure your production to maximize eligible expenses.
Consult with Experts: Hire tax professionals or consultants who specialize in film and television tax credits. They can help you navigate the rules and ensure compliance.
Training and Resources: Take advantage of training, workshops or resources provided by Ontario Creates to learn more about the tax credit program and its benefits.
Collaboration: Consider working with other production companies, co-productions or local talent. This can mean shared costs and more funding opportunities for eligible production.

Final Thoughts

Accessing the Production Tax Credit in Ontario’s film and television industry is not only possible but a smart way to get ahead financially. By reading the guidelines, understanding the calculations and following the application process you can position your production company to benefit from this great tax incentive.

For producers and creators involved in television and film production in Ontario knowing the Production Tax Credit means funding for your creativity and innovation. As you enter the world of media production remember the Production Tax Credit is your financial friend.

Contact Tax Warriors today and let us help you get ahead! Your next eligible production in Ontario is waiting.

Get in touch.