Heritage policy advisor expressed concern over ‘integrity of CAVCO’s administration,’ application alleges
By Ahmad Hathout
A Canadian movie producer is asking the Federal Court to look into whether Canadian Heritage arbitrarily rejected its tax credit application.
Paige Darcy Productions Inc., which had been created for the sole purpose of producing the movie Paige Darcy and the Case of the Stoned Cat, claims in its judicial review application dated November 6 that Heritage’s Canadian Audio-Visual Certification Office (CAVCO) denied its application based on concerns about how it funds its production, despite not raising the issue with its previous productions or publicly stating the model is not accepted anymore.
The movie uses a “reinvestment” model to fund the production, which involves cast and crew members buying shares in the film to get in on its success. Matthew Campagna, the sole director of the production company, said the model has been used in its previous four films, all of which, he said, were approved by CAVCO and its Ontario counterpart as acceptable forms of financing.
Based on this track record, Campagna says the production focused its efforts on making the film in Canada – as opposed to other countries with competing tax credit incentives – and obtained a nearly $2-million RBC bank loan with a $200,000 interest reserve that cost the company interest expense of between $13,000 and $16,000 a month to maintain in anticipation that CAVCO would provide the certificate within the six-month timeframe it states it reviews applications.
“In advancing the loan, RBC relied upon a professional accounting opinion that calculated the tax credits that the Production Company expected to receive based on CAVCO’s stated policies and historical practices (including the certificates issued by CAVCO for the four preceding productions produced by Mr. Campagna with a substantially identical financing model),” the application says. “The Production Company and Mr. Campagna similarly relied upon CAVCO’s stated policies and historical practices in agreeing to, respectively, borrow and personally guarantee the RBC loan.”
Despite obtaining a tax credit certification from Ontario, which Campagna says has a similar framework to CAVCO, a similar approval never came from the federal government. Instead, over a period of two years after it filed its application in August 2022 and after spending roughly $350,000 in interest, CAVCO and the production went back and forth over modifications until CAVCO formally denied the application on October 9, the application says.
During a call in April 2024, the application alleges that CAVCO representatives admitted that, even though the process and correspondence were about the distribution and licensing agreements of the film, “CAVCO’s true concern was the basic financing model.
“This was the first time in the two-year review process that CAVCO expressed any issue with the basic financing model involving share purchases,” the application alleges, adding no public notice was given about a change in the policy. “By concealing these concerns in this manner, CAVCO acted in bad faith and in breach of its duty to proceed in an open, fair and transparent manner. CAVCO knew, or ought to have known, that its proceeding in this manner would cause severe financial harm to the Applicant.”
When Campagna allegedly told CAVCO reps on the call that his previous films have all been approved using that model, and that the bank used that precedent to lend the money, the CAVCO director allegedly said that the office “does not consider itself bound to follow the precedents of its previous four decisions. This shocking admission demonstrates that CAVCO is willing and able to breach the rules of natural justice and the rule of law.
“Although CAVCO claimed in the Notice that it was ‘not signalling’ that it now considered share purchases to be ‘unacceptable,’ the Decision and actions of CAVCO constitutes a policy change effectively deeming such share purchases to be an unacceptable form of financing, as conveyed by Mr. White during the April 2024 video call,” the application says. “CAVCO’s actions have been guided by undisclosed and/or irrelevant factors that have not been properly disclosed to the Applicant or the public.”
The application also alleges that, Matthew Gray, who was until recently the senior policy advisor to the minister of Canadian Heritage, advised Campagna that “there was a concern in the Minister’s office about the integrity of CAVCO’s administration of the tax credit program, but that he could not provide details.”
Asked about this and the broader application, Canadian Heritage said it was aware of the application but “does not comment on any matters that are before the courts.”
Paige Darcy Productions is asking the court to set aside CAVCO’s denial of its application and order the Heritage minister to issue a certification or, alternatively, force the minister to re-consider its decision.
Photo of film art for Paige Darcy and the Case of the Stoned Cat
