Saturday, November 1, 2014

'tax shelter cinema' - a Canadian chronology

See, this blog isn't really dead ;)

Recently I did a presentation at Toronto's "Small Talk" event, in which I presented my standard qualified defense of tax shelter cinema from a viewer perspective. Since I was (finally!) being called on as an authority, I figured it was time for me to clarify the timeline of Canadian government policy on film financing.

My preconceptions were challenged. Of course the 'tax shelter' was not one policy but many policies in a rather chaotic sequence. The most interesting thing I learned, which nobody really talks about in my experience, is that at each stage the issue was not the introduction of the policy itself, but its capacity to be exploited for mercenary means - at each stage, things got ugly a couple years after the policy itself was introduced. (Of course, this raises the question of whether tax credits are really the optimal way to fund the arts - a question many readers will have already answered for themselves.)

My friend and canuxploitation emeritus Paul Corupe asked to check out my research, and I figured it was about time this info was generally available in a concise form, so here it is. Note that I'm not a historian or an accountant and did this research in my spare time so it's not authoritative, but I haven't seen a more complete or penetrable account myself. Hopefully others will continue to run with it as I tinker away.

In compiling this chronology I made reference to the following books in particular:

Susan Crean - Who's Afraid of Canadian Culture?
Ted Magder - Canada's Hollywood*
Manjanuth Pendakur - Canadian Dreams and American Control
Douglas Fetherling, ed. - Documents in Canadian Film
Take One's Essential Guide to Canadian Film



Capital Cost Allowance introduced
60% of a given investment could be written off against taxable income
Regardless of national origin of production
Little activity

CFDC created to support Canadian cinema - $10 million, ran out quick

Over time: producers allow investments to be ‘leveraged’ via loophole - CCA calculated on TOTAL cost of the film (CFDC, lab investors etc defer ownership rights to private investors)
Spencer: “based on investors’ expectations that films will be losers”

November 1973
Government closes leverage loophole (in the wake of Harold Greenberg's particularly egregious "The Neptune Factor")
English feature production ‘almost completely paralyzed’

April 1974
Council of Canadian Filmmakers (CCFM) advocacy group launches offensive demanding action on distribution and exhibition

August 5, 1975
New policy introduced: 100% deduction in first year on feature film investment
    75 minutes long
    producer and 2/3 of creative personnel Canadian
    75% of technical services undertaken in Canada

International coproductions automatically eligible

Also ‘voluntary’ quota of 4 weeks per theatre (not per screen) - “a sham” that unsurprisingly went nowhere

March 1976
Tompkins Report
Citing “Jaws”, “the Canadian feature film industry has to aim for a world-wide market, and that any actions taken by the various governments in Canada should lead to this end.”
Quotas out of the question- “The leaders of the Canadian film industry must become sufficiently knowledgeable and skillful to face this competition with marketable standards”
CBC and especially the NFB “impeded the market mechanism, disregarded all yardsticks of competition and reduced the private sector to a marginal existence.”

“the boom”/gold rush
producers use ‘public offer’, shares to small scale investors for immediate tax writeoff (Lantos/Roth's "Agency" was the first)
Also ‘private placement’ offers which did not require public disclosure (hence no FOI info on these investments is available, as I found out)
Soon after, ‘package’ investments limited risk (and potential returns)

Investment firms and brokerages advised clients; eg. CFI Investments (chaired by John Turner!) prospectus indicates ‘family’ plots and ‘immediately recognizable stars’, and specifically spurns ‘self-indulgent producers’ and ‘personal statements’.
increased exploitation of intl copro treaties with: France, Italy, UK, FDR, Israel.

CFDC moved toward big budget productions under McCabe:
1978:         37 films        48.6 million            (1.3 mil avg)
1979:         66 films        171.8 million            (2.6 mil avg)
1980:        53 films        147.4 million            (2.8 mil avg)

December 1978
Revenue Canada clarifies policy around what portion of a film investment is ‘at risk’ and therefore eligible for deduction. Investment rises dramatically.

Jan 1 1981
New CAVCO (Canadian Film and Video Certification Office) ‘points’ system reforms:
6/10 ‘points’ to classify as Canadian
All producer functions to be carried out by Canadians
No points where Canadian shares creative position with a non-Canadian

November 12 - MacEachen CCA cut to 50% in first and second years
Loans to finance films no longer tax deductible
outcry, meetings
December 17 - 100% tax shelter extended to 1982 (in fact held on to 1987)

Jan 1 1982
Further CAVCO revisions:
2/4 points for director/screenwriter obligatory, as well as 1/2 lead actors

CCA reduced from 100% to 30% over two years
"tax shelter era" is functionally over