UCP remove film tax credit cap they created

Last week, the Alberta government announced that they were removing a cap on the Film and Television Tax Credit.

The tax credit, released last January, had a $10 million cap, which meant that companies couldn’t apply for more than a $10 million credit on any single production.

If approved for the tax credit, companies would receive either a 22% or 30% tax credit on their taxes, based on their total production costs.

To qualify for the 30%, production companies must be owned by Alberta-based shareholders, have their copyright held by an Alberta-based entity, and spend at least 60% of total production costs in Alberta (or at least 70% in salary on Alberta-based individuals).

Those who don’t meet the ownership or copyright requirements would have to settle for the 22% tax credit.

The UCP government introduced the tax credit after cancelling in 2019 the Screen-Based Production Grant, which the NDP had introduced just 2 years prior. The SBPG replaced the Alberta Production Grant, itself focused on made-for-TV-movie and documentary production, to encourage development of Alberta-made, big-budget films.

When it launched, the SBPG made $45 million available per year for eligible companies. Qualifying companies could receive a cash grant of up to 30% of their production expenditures, to a maximum of $5 million per production. If the production contributed “significantly” to “Alberta’s culture and economy”, companies could’ve been eligible for up to $7.5 million.

As part of the tax credit they launched last year, the UCP implemented the $10 million cap. So they basically announced last week that they’re removing a cap that they put in place on a tax credit that they created to replace a cash grant.

On the surface, the tax credit programme might seem like a better deal for the province than the previous grant, even with the cap. Both of them were 30% of production costs, but the tax credit had a cap of $10 million and the grant had a cap of only $5 million (or $7.5 million in certain cases).

But here’s the biggest difference between the two. To get the tax credit, you must first spend the money. You have to already have the financing in place to move ahead with production. In fact, one of the things companies must include in their application for the tax credit is evidence of financing.

The grant, on the other hand, was the financing. Or rather, it was some of the financing.

If they qualified for the grant, film companies had to raise only 70% of the financing needed for production. That would make it easier to raise funding for production, especially for new production companies.

Film companies don’t get the tax credit unless they raise 100% of the financing. And that potentially could leave out small producers, if they face challenges raising that kind of financing.

As far as removing the $10 million per production cap goes, that also will unlikely benefit small producers, given that they may not be producing media with a total production value of over $33 million. Removing the per-production cap will likely benefit only large production companies.

Last week’s announcement claimed that the provincial government is increasing spending for the tax credit by $19.5 million this budget year, for a total of $50 million. It’s great that the government is increasing the budget by nearly $20 million, but keep in mind that the NDP allocated $45 million a year for the SBPG.

When the tax credit was announced in the 2019–2020 budget, funding was “expected to be $15 million in 2020-21, $30 million in 2021-22, and $45 million in 2022-23.” In last year’s budget, that was adjusted to “$22 million in 2020-21, $31 million in 2021-22, and $45 million in 2022-23.”

The first projections averaged $30 million a year, and last year’s adjustments averaged to $32.67 million a year.

The government claims they’ll spend $50 million this year, which they said was $19.5 million more than last year. That means, last year must have been $30.5 million. If we assume they’ll spend $50 million next year (actual numbers haven’t been released), then that works out to about $43.5 million per year over the same 3-year period.

Either way, it’s less than the $45 million than the NDP were spending on the grant and it benefits fewer smaller companies.

One final note: in the announcement, the provincial government claims that “the tax credit has a significant return on investment, with every $1 in tax credits distributed creating roughly $4 that is reinvested into Alberta’s economy.”

This seems to be misleading.

The 2021–24 ministry business plan for Jobs, Economy, and Innovation stated that “for every $1 in tax credits provided in 2020-21, $4 were invested in Alberta productions supporting the province’s economic recovery.”

If I’m reading this correctly, that means that for every $1 paid out in tax credits, $4 had already been spent in the film industry on productions. The announcement makes it seem as though the $4 was a direct result of the $1, but it seems to be the other way around. The tax credit didn’t necessarily create that investment.