Jul 28, 2011

Changes in the Currency Value; Downfall of the US Productions in Canada

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The entertainment industry is facing difficult challenges and in Canada a higher value of the dollar increase the need for Government to raise Tax Credits to keep Production coming and Canadians Working. Globalization has put the world in competition for the same pie and now with the attractiveness of Asian countries for cheap labor and the increase in the quality and performance of companies in those countries, the competition has become fierce. Today, many countries and states are offering competitive tax incentives to production companies to get those big dollars into their local economy, it creates jobs and well paid workers can now provide a more competitive services thanks to those tax credits.

But still there was some concern as if the fall of US dollars would affect Canada competitiveness to attract feature film productions in Canada.

People fear the impact of a higher dollar on Canada’s competitiveness to attract American film productions.
Countries and states/provinces have to fight for same film productions and one of the most effective weapon they have is the tax incentives. Countries and states/provinces are offering competitive tax incentives to American production companies to increase the chances of seeing the big production’s buck touch their soils either for a Live action feature film or for post-production and visual effects work, insuring thousands of jobs.

Over the past years, the Canadian dollar has seen a steady rise compared to the US dollars and most of the provinces (Quebec, Ontario & BC) tax credits had to compensate to this CAN$ rise / US$ downfall. We’ve tried to make a direct correlation between the rise of the CAN $ with the rise of the tax credits. To achieve this, we considered base rate for the Quebec production tax credits of eligible labors expenditures incurred to produce a film with the qualifying “all spend” production costs. Special tax credits (many exist… have been taken out including Tax credits for VFX);

In the two Graphics below we compare the rise of CAN $ with the Quebec Tax Credit:

Should we be concern by a higher dollar?

The answer is : YES.
Everybody knows corporation are always looking for the best deals. They come to Canada, go to Australia and they’ll go to India or China to save more money. Corporations have been moving factories from one country to an other just to save a few bucks and to generate better income to their shareholders. The entertainment industry is not an exception, at the end they want to make money. The reality Canada is facing is that to keep runaway and any other productions in Canada they will have to offer better tax incentives, the US currency is plunging and will probably continue for the next few years.

Take for example New Zealand; One advantage they had, other than their beautiful landscapes, was the currency exchange rate. When they filmed the first Lord of the Rings, $1 USD was worth $2.17 NZD which was a great advantage for the Studios, this and the tax incentives offer by N.Z was a huge tax break for the studios. Lord of the ring Trilogy marked N.Z on the production scooting map and more productions went and worked in N.Z. But today, the US dollar is falling and $1 USD is worth only $1.17 NZD. The N.Z gouverment had to increase the Tax incentives program to stay in business.

In October 2010, N.Z changed the Large Budget Grant criteria to improve New Zealand’s competitiveness as a film destination to make sure they would see the two upcoming features Hobbits being filmed in N.Z. Government reach an agreement with Warner Bros by allowing an additional grant of up to $9.75 million for expenditure that is excluded under the standard grant. The additional grant is only available for big productions that will spend over $200 million in New Zealand.

FYI take a look at the average tax incentive in different region of the world. We did our best to level out the tax credits between the minimum to maximum deductions:

Now here’s my question to you; Do you Fear the Rise of Canadian Dollar, do you think it will affect Canada attractiveness and Should government raise the tax incentives?

By david Feature, FIlm and television production projects, Film industry 2 Comments