TABLE OF CONTENTS REFUNDABLE TAX CREDIT FOR QUÉBEC FILM AND TELEVISION PRODUCTION INTRODUCTION.. 3 QUALIFIED CORPORATION 4 QUALIFIED PRODUCTION..

Transcription

1 REFUNDABLE TAX CREDIT FOR QUÉBEC FILM AND TELEVISION PRODUCTION REFUNDABLE TAX CREDIT FOR QUÉBEC FILM AND TELEVISION PRODUCTION TABLE OF CONTENTS INTRODUCTION.. 3 QUALIFIED CORPORATION 4 QUALIFIED PRODUCTION Eligible and Ineligible Classes of Films Eligible Films... 5 Ineligible Films Distribution Requirements Distribution in Québec. 7 Exemption for Giant-screen Films.. 7 Dubbing in Québec.. 7 Sub-titling for the Hearing-impaired Producer Requirements Definition of Producer. 8 Residency Requirement. 8 Change in Producers Control of the Production 8 5. Creative Services Criteria Minimum Number of Points Required.. 8 b) Scale for Creative Staff.. 8 Allotment of Points Québec Expenditures Criteria Films 75 Minutes Long or More Films Less Than 75 Minutes Long Co-production Requirements More than One Production Company.. 11 Exemption for Giant-screen Films Series Requirements Final Certification.. 11 Time Limitation. 11 Revocation of Advance Ruling Effect of Revocation Costs to be Paid before Issuance of Final Certification 12 ELIGIBLE LABOUR EXPENDITURES Eligible Production Costs Definition Expenses After Post-Production. 12

2 Producer Fees and Overhead Assets Acquired During Production.. 13 Goods and Services for No Consideration.. 13 Prescribed Amounts of Assistance.. 13 Government Assistance. 13 Other Assistance. 13 Other Advantages, Benefits or Refunds Labour Expenditures Salary and Wages. 14 Remuneration (other than Salary or Wages) Reimbursement by a Wholly-owned Corporation to its Parent.. 15 Special Rules Governing Labour Expenditure of a Corporation. 15 CALCULATING THE TAX CREDIT Base Amount of the Tax Credit Ceiling on the Tax Credit Amount of the Ceiling.. 17 Application to Co-productions Claiming the Tax Credit from the MRQ When a Credit Can be Claimed.. 17 Period of Claiming Expenditures French-language Feature Films and Documentaries Enhanced Tax Credit Types of Eligible Films.. 17 Additional Qualification Requirements Scale for Creative Staff for the French-language Enhancement.. 17 Allotment of Points French-language Feature Films and Documentaries Enhanced Tax Credit Rate 18 Limitation on Additional Tax Assistance.. 18 Role of SODEC 18 Giant-screen Films Enhanced Tax Credit Rate Limitation on Additional Tax Assistance Role of SODEC Computer Animation and Special Effects Expenditures Supplementary Tax Credit Types of Eligible Expenses Eligible Activities Computer Animation and Special Effects Expenditures Supplementary Tax Credit Rate 19 Role of SODEC Regional Film and Television Producers Supplementary Tax Credit Eligible Corporations.. 20 Eligibility Certificate. 20 Montréal Region 20 Eligible Labour Expenditures Regional Film and Television Producers Supplementary Tax Credit Rate 20 Limitation on Additional Tax Assistance Eligible Co-productions.. 21 Role of SODEC 21 TABLE: Summary of Rates for Additional Tax Credit Incentives 21 SCREEN CREDIT REQUIREMENT 22 CONTACT INFORMATION.. 22 Rev 2006/05 Page 2 of 22

3 Updated on May, 2006 INTRODUCTION The refundable tax credit for Québec film or television production ( tax credit ) covers labour expenditures incurred by a corporation that produces a Québec film, as this expression is understood in the Regulation respecting the recognition of a film as a Québec film. This tax credit generally corresponds to % of eligible labour expenditures incurred to produce a Québec film. Moreover, the labour expenditures giving rise to this tax credit may not exceed 50% of the production expenses of the film, so that the tax assistance may not exceed 14.58% of such expenses. However, under the application of this tax credit, additional assistance may be allowed regarding labour expenditures relating to the production of certain French-language feature films, certain documentaries and giant-screen films, with the result that the tax assistance may reach % of the film s production costs. In addition, films including computer animation or special effects, excluding French-language feature films, certain documentaries and giant-screen films, may obtain additional tax assistance. Moreover, to encourage the production of films that better reflect the many regional realities of Québec and to help producers established outside the Montréal region, additional assistance is also granted when the film or a portion of the film is produced outside the Montréal region. In this case, the tax assistance may reach 24.28% of the film s production costs. In all cases, this tax credit may not exceed $2,187,500 million per film. Application Date of Guidelines The following guidelines apply to a Québec film regarding which an application for an advance ruling, or a final certification application if no application for an advance ruling was previously filed regarding such film, is filed with Société de développement des enterprises culturelles ( SODEC ) after August 31, For all applications filed with SODEC prior to September 1, 2003, please refer to the relevant legislative materials for the rules applicable to such application. These guidelines have been prepared to assist producers in completing the application form for an advance ruling or final certification with SODEC. The relevant legislative provisions contained in the Taxation Act and Regulation respecting the recognition of a film as a Québec film takes precedence over these guidelines. Rev 2006/05 Page 3 of 22

4 QUALIFIED CORPORATION In order to be eligible for the tax credit, the corporation that incurs the eligible expenses in relation to the production of a Québec film must be a qualified corporation as that term is defined in the Taxation Act. It is the responsibility of the Minister of Revenue for Québec ( MRQ ) to confirm the eligibility of a corporation that applies for the tax credit in respect of a Québec film. SODEC will be responsible for verifying the criteria regarding specified creative positions and the percentage of expenses incurred in Québec in relation to the film; however, SODEC must also satisfy itself as to the control of the film or television production by the corporation that files an application for recognition as a Québec film. A qualified corporation means, in respect of a taxation year, a corporation that, in the year, has an establishment in Québec and carries on there a Québec film or television production business that is a qualified business, other than a specified investment business or personal service business, but does not include: a corporation that, at any time in the year or during the 24 months preceding the year, is controlled, directly or indirectly in any manner whatsoever, by one or more persons not resident in Québec; a corporation that, in accordance with Book VIII of the Taxation Act, is exempt from tax for the year under this Part or that would be but for section 192; a corporation governed, in the year, by an Act establishing a labour-sponsored fund, a corporation holding a broadcast license issued by the Canadian Radio-television and Telecommunications Commission ( Broadcaster ), or a corporation that, at any time during a taxation year or the preceding 24 months, is not at arm s length with a Broadcaster or is controlled directly or indirectly, in any way whatsoever, by a Broadcaster. In order to determine the control of a corporation for the purposes of the tax credit, control will be determined by an objective test. More specifically, the shares held by persons not residing in Québec will be hypothetically attributed to a hypothetical person. If such attribution gives control of the corporation to such hypothetical person, the corporation shall be a corporation controlled by persons not residing in Québec. Therefore, collective holding alone will be sufficient to attribute control of a corporation to a group of persons not residing in Québec and holding more than 50% of the shares of such corporation, without the need to show that such persons are acting in concert. This test will apply to a taxation year of a corporation beginning after March 11, Rev 2006/05 Page 4 of 22

5 QUALIFIED PRODUCTION In accordance with the Règlement sur la reconnaissance d un film comme film québécois, for a film to be recognized as a Québec film and benefit from the provisions of the tax credit, SODEC must issue a certificate that the film in question meets the following requirements: 1. Eligible and Ineligible Classes of Films Eligible Films: The classes of films eligible for recognition as Québec films are the following: fiction films, including films consisting entirely of sketches taken in full from a script and designed and arranged especially for television; documentary films comprised of 30 minutes of programming, or, in the case of a series, 30 minutes of programming per episode, with the exception of films intended for children under age 13; educational games, quiz shows and contests for children under 13 years of age, which are broadcast no later than 7 pm Monday through Friday and 7:30 pm Saturday and Sunday; variety shows that satisfy at least one of the following requirements : at least two-thirds of its content must consist of performances by performing artists, other than interviews or participation in games, questionnaires or contests, in any form, with the exception of shows presenting a recording of improvisation matches; it is a talk show whose discussions concern, exclusively or almost exclusively, artistic, literary, dramatic or musical activities and works; it consists, exclusively or almost exclusively, of performances by performing artists (other than interviews or participation in games, questionnaires or contests, in any form), with the exception of shows presenting a recording of improvisation matches, and discussions concerning artistic, literary, dramatic or musical activities or works; or it is intended for children under 13 years of age. television magazines that satisfy the following requirements: they are part of a program cycle; they are neither fiction, nor a reconstruction of an actual event, nor reality television; each show has a minimum of 30 minutes of programming; each show covers a number of subjects, whether or not they belong to the same field of knowledge; and each show consists of independent segments of comparable length. variety shows and television magazines must be broadcast in prime time between 6 pm and mid-night Monday through Friday and between 9 pm and midnight Saturday and Sunday; however, these requirements will not apply: to variety shows and television magazines intended for children under 13; or to programs that satisfy the following requirements: they mainly target an audience outside the metropolitan Montréal region, where for the purposes of this measure, the metropolitan Montréal region shall be understood to include the Island of Montréal, Île Jésus and Montérégie; a minimum of 60% of the total expenses incurred for their production, except those relating to financing, is paid to individuals domiciled outside the metropolitan Montréal region Rev 2006/05 Page 5 of 22

6 for at least two years before the date on which shooting begins, or to companies whose principal place of business is located outside the metropolitan Montréal region; and they are produced by a firm that does not have a place of business in the metropolitan Montréal region. In the case of a series, each episode that is part of a series must qualify for the same class of eligible productions in order for them to be recognized as a Québec film. Ineligible Films: The classes of films ineligible for recognition as Québec films are the following: films produced for industrial, commercial, corporate or institutional purposes; films produced for educational purposes or for the purposes of teaching a technique; films intended for an adult audience and including scenes of explicit sexuality; videoclips; shows or films covering a sports event or a sports activity; news programs, public affairs programs or reports; weather, road or stock market reports; gala, award or parade television productions that present an activity in real time, for live or delayed broadcast, with or without modification during editing; games, questionnaires and contests, in any form, with the exception of educational broadcasts in the form of games, questionnaires or contests intended for children under 13 years of age; variety shows and television magazines other than those mentioned under classes of films eligible for recognition; a production intended to raise funds; a reality television show; a making of production; a production, other than a documentary, consisting completely or almost completely of stock footage; or a film specifically contemplated by a class of excluded productions may not be recognized as a Québec film as part of a production class that is otherwise eligible (for example, a making of production may not be recognized as a documentary). Rev 2006/05 Page 6 of 22

7 2. Distribution Requirements Distribution in Québec: An application to SODEC for the recognition of a Québec film must be accompanied by one of the following: a commitment from a Broadcaster that the film will be broadcast in Québec ; or a commitment from the holder of a distribution licence that the film will be shown in Québec on premises where films are shown to the public and where the main activity is showing films of all the classes provided for in section 81 of the Cinema Act, replaced by Section 14 of Chapter 21 of the Statutes of Exemption for Giant-screen Films: To make allowance for the limitations of the Québec market for screening Giant-screen films, the regulatory requirement regarding screening in Québec is replaced with a requirement regarding screening in Canada. More specifically, a qualified corporation must show, when it files a final certification application with SODEC, that the Giant-screen film regarding which the application is filed is covered by an undertaking that the film will be screened in Canada, in a public performance venue. SODEC may revoke the favourable advance ruling issued regarding a Giant-screen film that is not covered by such an undertaking. Dubbing in Québec: When an application for an advance ruling or final certification of an original production in a language other than French is accompanied by an undertaking by a Broadcaster that the production will be distributed in French in Québec, or an undertaking by the holder of a distribution license that the production will be shown in French in theatres in Québec, the French dubbing of the production for which the application is filed must be carried out in Québec. However, this requirement will not apply in the case of an international co-production involving a country of the Francophonie, if the foreign coproducer is responsible, under the official co-production agreement, for completing an original French version. SODEC may revoke the favourable advance ruling or final certification issued regarding an original production in a language other than French if such production is subsequently distributed in French in Québec, in a version dubbed outside Québec, and if SODEC is of the view that such distribution was contemplated or foreseeable at the time the application was filed for an advance ruling or final certification regarding such production. However, this power of revocation will be limited to a period of three years following the date on which the final certification application regarding such production is filed with SODEC. Sub-titling for the Hearing-impaired: Sub-titling for the hearing-impaired will be mandatory for any production intended for broadcast in Québec, unless the producer demonstrates to SODEC that it is impossible for him to satisfy this condition for technical reasons. In addition, the producer must give an undertaking, regarding any production, to sub-title it for the hearing-impaired before distributing it on the videocassette market in Québec. Should he fail to do so, SODEC may revoke the advance ruling or final certification that was issued for such production. Rev 2006/05 Page 7 of 22

8 3. Producer Requirements Definition of Producer: For the purposes of this section, the producer is the individual responsible for decision-making throughout the development of the project and the production of the film. Residency Requirement: The position of producer must be held by an individual who resided in Québec, for the purposes of the Taxation Act, on December 31 of the year preceding the year during which an application for an advance ruling is filed with SODEC regarding the production. Change in Producers: If two producers succeed each other during the development and production of the property because, for instance, of a change in ownership of the property, the production may qualify as a Québec film if each producer satisfies the residency criteria. 4. Control of the Production Recognition of a production as a Québec film will not be granted where the qualified corporation that makes the application for recognition does not control the production of the film. 5. Creative Services Criteria Minimum Number of Points Required: A film 75 minutes long or more must, among other things, either: obtain at least six points out of ten based on the Scale for Creative Staff in subsection 5 b) below according to which points are awarded regarding individuals who resided in Québec, for the purposes of the Taxation Act, on December 31 of the year preceding the year during which an application for an advance ruling is filed with SODEC regarding the production; or obtain at least seven points out of ten based on the Scale for Creative Staff in subsection 5 b) below according to which a minimum of five points are awarded regarding individuals who resided in Québec, for the purposes of the Taxation Act, on December 31 of the year preceding the year during which an application for an advance ruling is filed with SODEC regarding the production, and a maximum of two points are awarded to an individual who was a Canadian citizen for the purposes of the Citizenship Act or a permanent resident for the purposes of the Immigration Act on December 31 of the year preceding the year during which an application for an advance ruling is filed with SODEC regarding the production. Scale for Creative Staff: The Scale for Creative Staff is as follows: the director: the scriptwriter: the first lead actor: the second lead actor: the staging director: the chief cameraman: the composer: the film editor: 2 points; 2 points; 1 point; 1 point; 1 point; 1 point; 1 point; and 1 point. Allotment of Points: The allotment of points for the Scale for Creative Staff in subsection 5 b) above is governed by the following conditions: Rev 2006/05 Page 8 of 22

9 Residency Requirement: a point is allotted for a position specified in subsection 5 b) above only if such position is filled in its entirety by an individual who resided in Québec, for the purposes of the Taxation Act, on December 31 of the year preceding the year during which an application for an advance ruling is filed with SODEC regarding the production; Screenwriter Residency Exemption: notwithstanding paragraph 5 c)(i) above, where the position of scriptwriter is filled by several individuals who did not reside in Québec, for the purposes of the Taxation Act, on December 31 of the year preceding the year during which an application for an advance ruling is filed with SODEC regarding the production, the two points allotted for that position are granted if one of the scriptwriters is at the same time: an individual who resided in Québec, for the purposes of the Taxation Act, on December 31 of the year preceding the year during which an application for an advance ruling is filed with SODEC regarding the production; the author of the script of the film, provided that it is an original work or a cinematographic adaptation of a protected work; the person who determines the final version of the script; and the person who, as scriptwriter, receives the highest fee; Lead Actor: the identity of the first and second lead actors will be determined on the basis of remuneration paid, regardless of its form, and also by taking on-screen time into account; Where No Actor: where there is no actor, the person who fills the position of dancer, singer, variety artist, host, announcer, moderator, or off screen interviewer or who speaks the part of a character in an animated film, according to the characteristics of the film, is substituted; Subject of a Documentary: a person who is the focus of a documentary film is not deemed an actor; Composer: the point for the position of composer is allotted only if the music created for the film is an original work; Animated Films: in the case of an animated film, the position of animation cameraman is substituted for that of chief cameraman and the position of head cartoonist for that of staging director; Staging Director: where there is no staging director, the artistic director is substituted and where both are absent, the head set designer is substituted; Minimum Creative Requirements: Subject to the requirements in section 5, under subsection 5 b), a film must obtain at least two points from among those allotted for the writer or the director and at least one point from among those allotted for the first lead actor or the second lead actor; and Documentary Exemption: where a documentary film is unable to amass the minimum number of points prescribed by section 5 because some positions listed therein are not filled, it is exempted from the required minimum, provided that all the positions held from among those listed are held by persons who resided in Québec, for the purposes of the Taxation Act, on December 31 of the year preceding the year during which an application for an advance ruling is filed with SODEC regarding the production. Rev 2006/05 Page 9 of 22

10 6. Québec Expenditures Criteria Films 75 Minutes Long or More: For a film 75 minutes long or more: a minimum of 75% of the total postproduction costs including costs incurred for laboratory work, film cutting, sound editing and re-recording, preparing and integrating the credits and the music of the film must be paid for services provided in Québec, and a minimum of 75% of the total cost of producing the film, excluding the remuneration of the producer and of the persons listed in subsection 5 b) above, the costs referred to in paragraph 6 a) (i) above and the costs related to financing the film, must be paid either to individuals who resided in Québec on December 31 of the year preceding the year during which an application for an advance ruling is filed with SODEC regarding the production, or to corporations or partnerships that had an establishment in Québec during the taxation year of the corporation during which an application for an advance ruling is filed with SODEC regarding the production. In the case where the business of the corporation or of the partnership consists essentially in offering the services of a shareholder, a member of the partnership or of a person related to a shareholder or a member, the shareholder, the member or the related person who supplied the services in the course of the production must have resided in Québec on December 31 of the year preceding the year during which an application for an advance ruling is filed with SODEC regarding the production. Films Less Than 75 Minutes Long: Notwithstanding sections 5 to 6 a), a film lasting less than 75 minutes is recognized as a Québec film if at least 75% of the total cost of producing the film, other than the costs related to financing the film, is paid either to individuals who resided in Québec on December 31 of the year preceding the year during which an application for an advance ruling is filed with SODEC regarding the production, or to corporations or partnerships that had an establishment in Québec during the taxation year of the corporation during which an application for an advance ruling is filed with SODEC regarding the production. In the case where the business of the corporation or of the partnership consists essentially in offering the services of a shareholder, a member of the partnership or of a person related to a shareholder or a member, the shareholder, the member or the related person who supplied the services in the course of the production must have resided in Québec on December 31 of the year preceding the year during which an application for an advance ruling is filed with SODEC regarding the production. Co-production Requirements: Québec Co-productions: Notwithstanding sections 5 to 6 b), a film produced under a government coproduction agreement concluded by the government of Québec or by any of its departments or agencies is recognized as a Québec film if the Québec part of the film meets the requirements of sections 1 to 4. Other than the costs related to financing the film, at least 75% of the total cost of producing that part of the film or, in the case of a serial film, of producing all the episodes, must also be paid either to individuals who resided in Québec on December 31 of the year preceding the year during which an application for an advance ruling is filed with SODEC regarding the production, or to corporations or partnerships that had an establishment in Québec during the taxation year of the corporation during which an application for an advance ruling is filed with SODEC regarding the production. In the case where the business of the corporation or of the partnership consists essentially in offering the services of a shareholder, a member of the partnership or of a person related to a shareholder or a member, the shareholder, the member or the related person who supplied the services in the course of the production must have resided in Québec on December 31 of the year preceding the year during which an application for an advance ruling is filed with SODEC regarding the production. Rev 2006/05 Page 10 of 22

11 Canadian Co-productions: In the case of a film produced under a government co-production agreement concluded by another government in Canada or by any department, ministry or agency of that government, paragraph 6 c) (i) applies to the Canadian part of the film. More than One Production Company: If two corporations succeed each other during the development of the project and the production of the property because, for instance, of a change in ownership of the property, the production may qualify as a Québec film if, considering the total expenses incurred by the two corporations, the 75% criterion for expenses incurred for the production is satisfied. However, each corporation must show, to the satisfaction of SODEC, that it is a qualified corporation for the purposes of the tax credit. To do so, the corporations may in particular provide SODEC with an advance ruling by the MRQ confirming their eligibility to obtain this tax credit. Exemption for Giant-screen Films: For the purposes of determining whether a Giant-screen film satisfies the 75% criterion set out in this section 6, expenses in relation to the production or post-production services not available in Québec will not be taken into account. 7. Series Requirements Each episode of a serial film is recognized as a Québec film if the episode meets the requirements of sections 1 to Final Certification Time Limitation: An application for final certification regarding a Québec film must be filed with SODEC within the eighteen (18) months following the end of the corporation's taxation year that includes the date of recording the master tape or the answer print of such film. However, for Québec films for which no application for an advance ruling has been filed with SODEC, the final certification application must be filed no later than the expiry of the period of limitation applicable for the taxation year of the corporation that includes the date of recording the master tape or the answer print of such film, i.e. usually within three years following the notice of first assessment issued by the MRQ for such taxation year. Revocation of Advance Ruling: SODEC may revoke the favourable advance ruling issued regarding a production if no application for final certification is submitted to it by the prescribed deadline. Effect of Revocation: The revoked advance ruling will be null and void as of the date it was issued by SODEC. Where a favourable advance ruling or a final certification, issued in relation to a property is revoked by SODEC, any portion of the tax credit paid in the year or in a previous year may be recaptured by means of a special tax imposed by the MRQ at any time. For greater clarity, a revocation by SODEC may give rise to the application of a special tax for the purposes of each of the tax credits paid, including the enhanced tax credits for French language films and documentaries, for expenditures in relation to special effects and computer animation and for services supplied outside the Montréal region. Costs to be Paid before Issuance of Final Certification: A final certification may not be issued for a Québec film unless a corporation proves, to the satisfaction of SODEC, that 95% of the production cost of the Québec film regarding which such application was filed has been paid. A corporation may in particular provide the required proof by presenting a special report issued on a date following the audited cost report. Rev 2006/05 Page 11 of 22

12 ELIGIBLE LABOUR EXPENDITURES The determination of the eligible labour expenditure for a Québec film is done in two steps: 1) the determination of the eligible production costs and 2) the calculation of the labour expenditures. 1. Eligible Production Costs Definition: The eligible production costs of a corporation for a taxation year in respect of a property that is a Québec film are the production costs, other than an amount included in the production cost, cost or capital cost of the film to another corporation that is a qualified corporation and, subject to the other provisions of this section, include only those amounts that are: actually incurred by the corporation during the period running from the screenplay to the post-production of the property, or within a longer period considered reasonable by the MRQ, actually paid by the corporation, and directly attributable to the production of the property. For greater clarity, certain expenses, such as incorporation expenses paid by a corporation created solely for the purpose of producing a film, although incurred with the objective of producing a film, are not directly attributable to the production of such film and therefore not eligible for the tax credit. Similarly, for purposes of illustration, the tax on capital, corporate income tax and fees paid to the Inspector General of Financial Institutions are expenses excluded from the notion of production expenses because they are not directly attributable to the production of a film. Expenses After Post-production: Eligible production costs can also include other expenses, such as those relating to sub-titling or dubbing, financial expenses or legal expenses, that may be incurred after the date of recording of the master tape or the answer print of the film, subject to the requirements noted above, provided also that: such expenses would not have been incurred had the property not been produced; and the period following the post-production of a film, within which the MRQ may recognize certain expenditures as eligible production costs of a film, may not exceed eighteen (18) months from the end of the fiscal year that includes the date of recording of the master tape or the answer print of the film. Producer Fees and Overhead: Eligible production costs can also include producer s fees and general administration expenses incurred for the production of a film and which are directly attributable to the production of the film. However, to prevent amounts substantially greater than the standards generally recognized by the industry from being included in the calculation of the production expenses of a film, the MRQ may refuse to recognize, as production expenses of a film, any amount included in the production expenses of the film that he considers unreasonable compared to industry standards of the property. Assets Acquired During Production: Production costs directly attributable to the production of the property include a portion of the acquisition cost of assets belonging to the production corporation, and that it uses in the course of the production of a film. The portion of the acquisition cost of such assets that may be included in the production expenses of a property must correspond to the portion of the accounting depreciation of such assets, for a year, relating to the use the corporation has made of its assets, in such year, in the course of the production of the film. For greater clarity, all the amounts thus included in the production expenses of several films, in relation to a given asset, must not exceed the total accounting depreciation of such asset. Rev 2006/05 Page 12 of 22

13 Goods or Services for No Consideration: Eligible production costs do not include an amount equal to the fair market value of the use by the corporation before the end of the year of goods or services as part of the production of the property, for no consideration on the part of the corporation. Prescribed Amounts of Assistance: Production costs must be reduced by the amount of any government assistance and non-government assistance that the corporation has received, is entitled to receive or can reasonably expect to receive, except in regard to the following amounts ( Prescribed Amounts ): the amount of financial assistance granted by SODEC, the Conseil des arts et des lettres du Québec (CALQ), the Canada Council or the Canadian Independent Film and Video Fund; the amount of financial assistance granted by the National Film Board and the amount corresponding to the fair market value of assistance granted by that body in the form of property or services; the amount of financial assistance granted by Telefilm Canada with the exception of any subsidy granted by that body under the dubbing and subtitling assistance fund; the amount of financial assistance received from the Canadian Television Fund under the Equity Investment Program or the Licence Fee Program; or an amount of financial assistance received from the Fonds de diversification de l économie de la Capitale. Government Assistance: The amount of any financial contribution attributable to a film, regardless of its form, provided, directly or indirectly, by a government, a municipality or other administration, other than a Prescribed Amount, will be considered a reducing amount of government assistance for the purposes of the tax credit. For greater clarity, the notion of indirect assistance will be applied to determine whether an amount was received from a government, a municipality or other administration. In particular, the Canadian film or video production tax credit and the federal tax credit for film or video production services are non-reducing amounts of assistance. More specifically, income from the exploitation of a film is not a financial contribution attributable to a film for the purposes of the notion of amount of assistance. For example, the fees paid by a public broadcaster to present a film are income from the exploitation or a property, and do not constitute contributions covered by the notion of amount of assistance. Other Assistance: In the case of financial support granted by any other entity, person or partnership, the notion of non-government assistance will apply to reduce the amount of eligible production costs. The determination of whether such amount is considered to be a form of assistance will be a question of fact in each case. The MRQ must first (i) ensure that the amount in question is attributable to the property and (ii) determine the nature of the amount, i.e. it must check whether the payer obtained consideration for the amount of its financial contribution. If the payer did receive consideration, the MRQ must then (iii) determine the fair market value (FMV) of such consideration. If the amount paid by the financial backer exceeds the FMV of the consideration obtained by the latter, the balance is then considered by the MRQ as an amount of assistance. Other Advantages, Benefits or Refunds: Eligible production costs must also be reduced by the amount of any advantage, benefit or refund the corporation has obtained, is entitled to obtain or may reasonably expect to obtain, no later than the filing deadline applicable to it for such given taxation year, whether in the form of compensation, guarantee of proceeds of alienation of an asset that exceeds the fair market value of such asset, or in any other form or in any other way. Furthermore, the portion of the proceeds of the alienation of an asset relating to a portion of the cost of acquisition of such asset that has already been included in the production expenses of a film will be considered an advantage. For greater clarity, when the portion of the acquisition cost of an asset belonging to a corporation is included in the production expenses of a film the corporation has produced, the portion of the proceeds of the alienation Rev 2006/05 Page 13 of 22

14 of such asset in excess of the portion of the acquisition cost of such asset that has not been depreciated in the course of the production of the film, will be considered an advantage. For illustration purposes, for a given film, if an asset belonging to a corporation has been used by the corporation and an amount of $10, representing depreciation of 10% of such asset ($100 * 10%), has been included up to $5 in the calculation of the production expenses of the film and of another film respectively, and such asset is resold at $100 no later than the filing deadline applicable to the corporation for the taxation year in which it claims this tax credit regarding the given film, an amount of $5 must be deducted in the calculation of the production expenses of the given film. 2. Labour Expenditure In the determination of the amount of the tax credit, the labour expenditure for a taxation year in respect of a Québec film means, subject to the rules described below in subsection 2 d), Special Rules Governing Labour Expenditure of a Corporation, the aggregate of the following three amounts to the extent that they are reasonable under the circumstances and included in the production cost, cost or capital cost, as the case may be, of the film to the corporation: Salary and Wages: Salary or wages directly attributable to the film that are incurred in the year by the corporation in connection with each stage of the production of a film, from that of the screenplay to that of post-production and paid by it at the time of claiming the tax credit 1 ; Remuneration (other than Salary or Wages): That portion of the remuneration, other than salary or wages, incurred in the year by the corporation in connection with the stages of production of the film referred to above in subsection 2 a) and paid by it at the time of claiming the tax credit 1, to an individual, that can reasonably be attributed either to services provided by the individual personally as part of the production of the film or to the wages of the individual s employees who provided services as part of the production of the film, to a particular corporation having an establishment in Québec, other than to a corporation referred to in paragraph 2 b) (iii) below, to a corporation that holds a broadcasting licence issued by the Canadian Radio-television and Telecommunications Commission or to a corporation which is not at arm s length with a corporation holding such a licence; and, that can reasonably be attributed to the wages of the particular corporation s employees who provided services as part of the production of the film, to a corporation having an establishment in Québec all the issued capital stock of which, except the directors qualifying shares, belongs to an individual and whose activities consist mainly in providing the services of that individual, that can reasonably be attributed to services provided by the individual as part of the production of the film, or to a partnership carrying on business in Québec, that can reasonably be attributed either to services provided, as part of the production of the film, by an individual who is a member of the partnership or to the wages of the partnership s employees who provided services as part of the production of the film; Reimbursement by a Wholly-owned Corporation to its Parent: Where the corporation is a subsidiary wholly-owned corporation of a particular corporation, the reimbursement made by the corporation, at the time of claiming the tax credit, of an expenditure that was incurred in a particular taxation year by the particular corporation in respect of the film and would be included in the labour expenditure of the corporation in respect of the film for the particular year, by reason of subsection 2 a) and b) above, if, 1 Other than, when applicable, the remuneration paid to the main characters of a docu-soap. Rev 2006/05 Page 14 of 22

15 where such is the case, the corporation had had such a particular taxation year and if the expenditure had been incurred by the corporation for the same purposes as it has been by the particular corporation and paid at the same time and to the same person or partnership as it has been by the particular corporation. Special Rules Governing Labour Expenditure of a Corporation: For the purposes of the definition of labour expenditure, the following rules apply: For the purposes of subsection 2 a), salary or wages: the salaries or wages directly attributable to a film are, where an employee directly undertakes, supervises or supports the production of the film, that portion of the salaries or wages, paid to or on behalf of that employee, that may reasonably be considered to be related to the production of the film; and the salaries or wages incurred must be incurred by the qualified corporation with respect to individuals who resided in Québec at some time during the taxation year of such individual in which the services were provided in the course of the production of the film; For the purposes of subsections 2 a) and 2 b), remuneration, including salary or wages: specifically excludes an expenditure included in the production cost of a film to a corporation and consisting of an amount otherwise included in the cost or capital cost of the film to another corporation that is a qualified corporation, and specifically excludes remuneration based on the profits or revenues derived from the operation of a film or an expenditure as remuneration that is, or may reasonably be considered to be, incurred by a corporation, as an agent, on behalf of another person, but specifically includes an expenditure calculated in particular on the basis of the projected territory for the distribution or broadcast of the film, when it is incurred in full in relation to the stages of the production of the film from the screenplay to postproduction, and when it is not subject to any reimbursement if the film is not used according to the initial forecasts; For the purposes of subsection 2 b), remuneration other than salary or wages: an amount may be included in the amount established under that subsection 2 b) in respect of an employee referred to in paragraphs 2 b) (i), (ii) or (iv) or an individual referred to in paragraphs 2 b) (iii) or (iv) only if that employee or individual is a party to the contract entered into, on the on hand, his employer, the corporation referred to in that paragraph 2 b) (iii) of which he is a shareholder or the partnership of which he is a member, as the case may be, and, on the other hand, the corporation in respect of which the said definition applies, pursuant to which the employee or the individual, as the case may be, undertakes to personally provide services as part of the production of the film; and an amount may be included in the amount established under that subsection 2 b) in respect of an employee referred to in paragraphs 2 b) (i), (ii) or (iv) or an individual referred to in paragraphs 2 b) (iii) or (iv) only where such employee or individual resides in Québec at some time during the taxation year of such employee or individual in which such services giving rise to the amount were provided in the course of the production of the film; For Taxation Years Before Filing with SODEC: for a taxation year in which a corporation files an application for an advance ruling or, in the absence of such an application, an application for final certification in respect of a film was filed with SODEC, the amounts referred to in subsections 2 a) and b) are deemed to include the amounts that would be included in the labour expenditure of the corporation for the year in respect of the film if in that subsection 2 a) and the portion of subsection 2 b) before paragraph 2 b) (i) the words incurred in the year were replaced by the words incurred in a taxation year preceding the taxation year in which the corporation filed an Rev 2006/05 Page 15 of 22

16 application for an advance ruling or in the absence of such an application, an application for final certification was filed with SODEC ; Government and Other Assistance: the amount of the labour expenditure of a corporation for a taxation year in respect of a film shall be reduced, where applicable by the amount of any government or other assistance, other than a Prescribed Amount, that is attributable to that expenditure, that the corporation has received, is entitled to receive or can reasonably expect to receive at the time of filing its fiscal return for the year; Other Advantages, Benefits or Refunds: the amount of any benefit, advantage or refund whether in the form of compensation, guarantee or proceeds of alienation of an asset that exceeds the fair market value of such asset, or in any other form or in any other way, that the corporation received, is entitled to receive or can reasonably expect to receive, no later than the filing deadline applicable to it for such given taxation year, and which is attributable to a labour expenditure of the corporation, for such taxation year, shall reduce the amount of such expenditure for the purposes of calculating the labour expenditure of the corporation, for such year; Expenses After Post-production: the period following the post-production of a film, within which the MRQ may recognize certain expenditures as labour expenditures of a film, may not exceed 18 months from the end of the fiscal year that includes the date of recording of the first master tape or answer print of a film; and For a Corporation that is Not a Qualified Corporation: where, for a taxation year, a corporation is not a qualified corporation, its labour expenditure for the year in respect of a film is deemed nil. CALCULATING THE TAX CREDIT 1. Base Amount of the Tax Credit Subject to the added incentives described below, the tax credit applicable in respect of a Québec film corresponds to % of labour expenditures for the year. The labour expenditures giving rise to this tax credit may not, however, exceed 50% of eligible production costs of a film, so that the tax assistance may not exceed 14.58% of such costs. 2. Ceiling on the Tax Credit Amount of the Ceiling: A ceiling of $2,187,500 per production or per series applies to all films. Application to Co-productions: The ceiling must be shared, regarding a co-production, only among the coproducing corporations otherwise eligible for the tax credit. In this regard, the certificate issued by SODEC, for a Québec film co-production, will indicate the share of each co-producing corporation concerning the production expenses, labour expenditures and the $2,187,500 ceiling applicable to each. 3. Claiming the Tax Credit from the MRQ When a Credit can be Claimed: A qualified corporation may claim a tax credit, regarding a film, as of the taxation year of the corporation in which an application for an advance ruling has been filed or in the absence of such an application, an application for final certification was filed with SODEC, regarding such film. Rev 2006/05 Page 16 of 22

17 Period of Claiming Expenditures: All tax credit claims must be submitted to the MRQ within 12 months following the due date for filing the tax return (i.e. 18 months) for the year in which an application for an advance ruling was filed or, in the absence of such an application, an application for final certification was filed with SODEC, regarding such production. Likewise, for every subsequent taxation year, all tax credit claims relating to such film must be submitted no later than 18 months following the fiscal year end, until the film is completed. 4. French-language Feature Films and Documentaries Enhanced Tax Credit a) Types of Eligible Films: The following French-language productions benefit from an enhanced base tax credit if they otherwise qualify as Québec films and satisfy certain additional Québec content criteria noted below in subsection 4 b): feature films of 75 minutes or more in length, other than animation 1 ; or documentaries intended essentially for release in French-language markets, provided that they are not part of a series 2. b) Additional Qualification Requirements: In order to qualify: the French-language film must obtain at least five points out of maximum of seven according to the residency of certain key persons on the Scale for Creative Staff for the French-language Enhancement in subsection 4 c) below, and the production corporation must pay at least 75% of the talent payroll to persons, other than those covered by the Scale for Creative Staff for the French-language Enhancement, who resided in Québec, for the purposes of the Taxation Act, on December 31 of the year preceding the year during which an application for an advance ruling is filed with SODEC regarding the production. c) Scale for Creative Staff for the French-language Enhancement: The Scale for Creative Staff for the French-language Enhancement is as follows: the director: 2 points the scriptwriter: 2 points lead actor: 2 points second lead actor: 1 point Allotment of Points: The allotment of points for the Scale for Creative Staff for the French-language Enhancement in subsection 4 c) above is governed by the following conditions: 1 In order to determine a production's eligibility to the enhanced tax credit, the production will have to meet the following criteria: 1) the development and screenplay of the film are to be done in French-language; 2) the film meets the allotment of points for the Scale for Creative Staff; 3) at least 75% of the talent payroll (excluding extras) is paid to Quebec residents other than those covered by the Scale for Creative Staff; 4) first film exploitation is to be made in French-language in Quebec. In the case of a co-produced feature film, the above mentioned criteria will apply, except for criteria 3, on the global budget and entire production. 2 In order to determine a production's eligibility to the enhanced tax credit, the production will have to meet the following criteria: 1) the development and scenario of the film are to be done in French-language; 2) the film meets the allotment of points for the Scale for Creative Staff as defined in sections 4b, 4c and 4d of the Guidelines; 3) in the case of a made for television production, the film's financial structure has a majority (51% and more) of Frenchlanguage broadcaster licences in terms of dollars and its first exploitation is to be made in French-language in Quebec; 4) in the case of a feature film with a theatrical release, its first film exploitation is to be made in French-language in Quebec. In the case of a co-produced documentary, the above mentioned criteria will apply on the global budget and entire production. Rev 2006/05 Page 17 of 22