I come to you from a very beautiful day today in Vancouver—cherry blossom country, as Mr. Joly referred to it.
I come at you from a different direction. I'm not a producer of Canadians films, but rather a service provider to the industry. I get involved at the conceptual, financial, or pre-production stage with producers. I advise throughout the production phases on financial matters. I assist in the wrap-up and financial reporting to achieve compliance with the various rules and regulations that producers are required to meet, including to gain access to the production tax credits that are available, both provincially and federally.
I also work very closely with interim financiers, such as the chartered banks here in Canada. Legal representatives, such as Mr. Dhaliwal, seek my advice on not only providing comfort on estimates of tax credits that will be claimed by producers, but also in terms of specific wording in the structuring of legal agreements in order to have the producers comply with the various rules and regulations around the tax credits.
Like Mr. Joly, I think that change is good, but change has to make sense as well. The benefits have to outweigh the cost of change. Keep in mind that my comments are general ones that come from years of experience in reviewing production budgets, financing structures, and cost reports; in preparing tax filings; and in working with various organizations like CAVCO, the provincial films organizations, and Creative BC here in B.C. I also work closely with the CRA in their reviews of tax credits and their interpretations of the various guidelines.
My comments are based on that, but also with the objective of any review being undertaken, such as yours, on how to improve as a country.
We've been successful in building this production industry in this country, which has been idolized by many other countries. We've also become known as a best in class for these tax credit programs that we have and that have been replicated all over the world. That being said, how do we improve? There are a number of things that we can do, but it plays on my experience that I've had over the last 21 years.
First and foremost, given that there are so many parties that play in the space—whether it be the various government agencies, provincial and federal, including the CRA as an example—we all have to work together. We have to work for the common good. We have to be as cohesive as we possibly can in administering the various programs, and we have to improve the cohesion. There's a lot of red tape that's involved in this industry, with the producers constantly having to prepare and compile information and supply it to the various organizations, whether they be the provincial institutions or federal institutions such as CAVCO, the CMF, or the CRA. We have to make this as easy as possible for producers so they're spending more time in the production or distribution of their films, as opposed to the administration around their productions.
When you consider incentives, we need to start considering incentives around the promotion of films.
There have been a number of producers who have said to me that producing films is easy, but that selling them is hard. That's so true because films are costly and risky to produce. With all the years that I've had in reviewing production budgets, there's one thing that I've noticed time and time again, which is that all the dollars that are raised by producers are going into the production and not into P and A. By P and A, I'm referring to prints and advertising, which are costs incurred in the distribution of film.
When we look at the tax credits that are so generous in this country, we're seeing those tax credits going into the financing of the productions. It's very seldom that you see excess tax credits being generated by a production company that are then being plowed back into the capitalization of that company, or prints and advertising for the promotion of its films.
Some of the things we have available to us here in British Columbia include an international financial centre. British Columbia has been designated as that. That means that companies, like brokerage firms, that work with foreign customers are able to gain access to reduced provincial taxes based on the work they do or the sales they make to these foreign clients. It's based on a net income and it's a percentage of their net income related to their IFC activities.
One of my thoughts is that if we could get a similar program for distributors of film to help them gain access to reduced taxes on sales of Canadian feature films, that would go a long way to promoting the distribution industry here in Canada.
When we look at existing tax credits, I'm sure you all know by now from the other interviews that you've had that the federal credits actually grind the provincial tax credits that are generated. By grind we mean that the base on which the federal tax credits are based is far less than the base of the provincial tax credits because the provincial tax credits are taken into effect.
I know there's a movement that would request that the federal grinds be reduced or eliminated. The only issue with that is that you've got to be careful about the costs this may add to the federal government in terms of additional tax credits, but you've also got to be concerned with the consistency with other industries such as the technology industry where SR and ED calculations also grind federally by provincial assistance programs that are similar in that space.
At end of the day it all comes back to the commercial viability of Canadian feature films. We need to investigate the costs versus benefits of protecting Canadian heritage over the commercial viability of productions. One of the things I've considered in making this presentation is whether we can look at the components behind tax credits on Canadian certification and play with those components to make it easier for producers to make their films more commercially viable.
We look at things like the producer-control guidelines and whether we can relax those to a certain extent. We look at things such as the need to have one of the top two highest paid actors be Canadian. Can we relax those, so that we can bring more foreign talent that is more recognizable in the world to our productions without damaging or impacting our ability to claim a Canadian certification in tax credits? Or do we reduce the spend criteria on Canadian productions, so that we can have more foreign influence?
Finally, the last point I wanted to make is about commercial treaty productions. As you know, or you may not know, there is no co-production treaty with the United States. We have many co-production treaties with other countries around the world, but we have various guidelines that restrict the ability of co-producers to use talent or services from outside of those co-producing countries.
If we were to perhaps relax those restrictions, we could potentially enter into more co-productions and bring talent outside of those co-producing countries that might make our productions more commercially viable.
Those are just a few points that I wanted to raise. I'm sure you have a number of questions, so I'm going to leave it at that. I thank you for giving me the opportunity to address you, and I look forward to entertaining any questions you may have.