By Doug Barrett, adjunct professor in the Arts, Media & Entertainment MBA program at the Schulich School of Business
It is well known that the Canadian government has directed the CRTC to review its definition of Canadian content, and that the Commission is currently wrapping up a vast series of Canada-wide and industry-wide consultations on the topic. Everyone is treating this as an important and vital process.
But the CRTC is not the principle Canadian content certification authority. That role belongs to the Canadian Audio-Visual Certification Office (CAVCO). CAVCO is an office within the Department of Canadian Heritage which certifies the eligibility of a program for the Canadian Film or Video Production Tax Credit, generally referred to simply as the “Cancon tax credit.” It applies the well-known 6-out-of-10 point minimum requirements for Canadians to fill the major creative roles for the program. And it confirms that other conditions have been met, such as copyright being owned by Canadians, the central decision-making for production and distribution being controlled by Canadians, and an “acceptable” share of revenues from non-Canadian markets being receivable by the Canadian producer.
(Foreign programs—those that do not meet the Cancon tax credit requirements—may nevertheless qualify for a different and somewhat less generous tax credit originally intended as an inducement for foreign studios to bring their productions to Canada and to employ Canadians. This tax credit for non-Canadian programs is called the Film or Video Production Services Tax Credit. Technically it is also certified by CAVCO, but it has become common in the industry to refer to a “CAVCO certified program” as being one certified as Canadian for the purposes of the Cancon tax credit.)
Overwhelmingly, the Cancon tax credit is a key part of funding for programs made for the Canadian broadcasting system.
But it is important to emphasize that whatever definition is used by the CRTC for its own purposes, the Cancon tax credit is only available if a program is certified as Canadian by CAVCO. And while a CAVCO certified program is automatically accepted by the CRTC, CAVCO does not accept a CRTC certification.
This can be explained because the CAVCO Cancon tax credit rules are much more rigorous than those currently used by the CRTC. For example, unlike CAVCO, the CRTC does not require Canadian copyright ownership, or an “acceptable” share of revenues from non-Canadian markets for the producer. Most importantly, the CRTC does not require any Canadian involvement in the commercial distribution of the program.
This leads to a fundamental question: if access to the more generous Cancon tax credit is at the core of the Canadian program production industry, why is so much attention being paid to the Canadian program definition used by the CRTC? Is it assumed that once the CRTC definition is settled, it will somehow provide access to the Cancon tax credit? This is simply not going to happen. Let me explain why.
The rules relating to tax credits are set out in the Income Tax Act and appliable Regulations. The Income Tax Act puts the decision to certify squarely in the hands and subject to the discretion of the Minister of Canadian Heritage who must be “satisfied” about compliance with the applicable requirements. So, when CAVCO certifies that a program is Canadian, it does so in the name of and on behalf of the Minister.
So, what about certification under International Treaty Co-productions negotiated with numerous countries by the Department of Canadian Heritage? The common assumption is that this role has been legally assigned to Telefilm as the designated administrative authority under the Treaties. Um. Not so much. The fine print on Telefilm’s own website describes it role as “recommending” that a project complies with the applicable Treaty to the Minister of Canadian Heritage, who again is legally empowered and required to exercise her discretion.
All roads therefore lead to the Minister. In context this makes perfect sense: a decision under Parliamentary legislation that leads to a tax benefit should be made by the government, and in its name by the applicable Minister designated in the Income Tax Act.
The CRTC is a different thing. It is an independent regulatory tribunal with its own discretionary powers now set out in the Online Streaming Act. Nowhere in that Act, or in the Income Tax Act or its Regulations is the CRTC mentioned as having the discretionary power to grant what is essentially a tax benefit to Canadian producers. The current CRTC content certification rules are set out in Public Notice CRTC 2000-42 and were partly replaced in 2010. They represent a policy which the CRTC can unilaterally amend from time to time and needs no Ministerial authority to implement. The likelihood that somehow the Government of Canada might amend a taxing statute to give an independent regulatory tribunal the legal authority to grant a tax benefit is unlikely to say the least.
Given all this I have two questions:
- Why are we not discussing the Canadian content definition under the “real” authority, the Income Tax Act, and why is the government itself rather than the CRTC not leading the debate with a view to making appropriate amendments to that Act or its Regulations in the usual manner?
- If the CRTC certification cannot deliver access to the Canadian content tax credit what is that specific certification for, and what should it be for? Originally, it was developed to permit broadcasters regulated by the CRTC with a way to log the Canadian programming they were obligated to air. What has it become in the streaming age; what is its public purpose in that context; and what should be its function going forward?
I’ll deal with these questions in part two.
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