Adrian McDonald beat me to the punch on this. You can read his post here.
This story isn’t really VFX related but I couldn’t help but notice the parallels to what happened with Imageworks New Mexico: A small regional government offering reasonably generous subsidies only to be left at the alter for a more lucrative subsidy program.
The Canadian Province of Saskatchewan is ending its film subsidy program and wants out of the subsidy race to the bottom:
Saskatchewan premier Brad Wall on Monday insisted the province wanted out of the tax credit game, with never-ending rises in tax incentives to woo Hollywood and other foreign producers.
“We’re not going to participate in the bidding war that is happening between provinces with respect to these grants,”
The province offered subsidies that combined for a total of 30%. The result?
The province also said that production volume in Saskatchewan has fallen nearly 70 per cent during the last four years and employment in the industry has declined 54 per cent during the period.
No new productions have been scheduled for 2012-13 even with the tax credit in place, according to the government.
Why was this occurring? Well as I have pointed out, there is a film subsidy war in North America and Europe. Even regions like New Mexico and Sask. which offer generous subsidies find productions leaving to get the next big deal and right now Vancouver and Ontario are where it’s at. The film industry even made this clear while still asking Sask. to keep the program!
Bolen said productions are like a highly mobile ecosystem and can move to another jurisdiction.
“And by holding to this decision to not participate in that ecosystem, to basically withdraw from the competition, we are dooming the film and television industry in Saskatchewan to oblivion. It will no longer continue to exist if there’s not a resolution found to this,” said Bolen.
“These other kinds of solutions, while they’re worth discussing, will not address the fundamental problem and that is, that if you’re not part of the competitive ecosystem, you’re not in the game and if you’re not in the game you don’t have an industry.”
So Premier Brad Wall ends the subsidy:
“The industry told us they needed additional financial support to be viable,” Wall said in the release. “But given the current trends in the industry, we decided to focus on other priorities, such as other ways of supporting the film industry, affordable housing, supporting people with disabilities and improving health care, while balancing the budget.”
Once you realize that you not only have to keep paying for the productions to stay and then make sure you pay more money in case there are other places offering more money, you realize it’s useless. The general idea with these subsidies is want them to place their roots down and sustain their own growth without the subsidies.
I highly recommend reading Adrian McDonald’s blog post on the issue:
Film Incentives 101: Tax Credits = Cash, Not Lower Taxes for Production Companies
Soldier On.
VFX Soldier 
So I wonder if someone can clarify exactly how the production tax incentive works in British Columbia. I have done some searching on this blog and on stop-runaway-production.com, and as near as I can tell, it goes a little something like this:
I believe that BC only pays out the incentive on qualified labor, and by that I mean Canadian residents for at least a year. This would explain why VFX houses like Sony and DD want those folks who relocate up north to go there for a year or more.
For production work, the incentive is 45%. For post, 35%. It is my understanding that the government will take 45% of all salaries paid to qualified production workers and 35% of all salaries paid to qualified post-production workers and cut the production company a big fat check.
Also, the VFX house, sound stage, editorial house, etc. gets nothing. These payments go directly to the production. So, in the race to the bottom, VFX houses get no financial benefit to doing business in Vancouver, other than the studios giving them the work in the first place. They still have to pay 100% of their payroll liabilities, and the production gets a check for 35% of whatever the VFX house pays out.
Do I have this right? Would someone care to let me know if I am incorrect in any way?
Sounds about right but we’ll never really know unless there is a public audit. Given that premise that the facilities don’t get anything out of the move, I actually strongly suspect the VFX facilities actually lose money in extra overhead, infrastructure, and labor costs to do the work there.
Try this fun calculator out http://www.bcfm.ca/programs/tax-credits/fibc/
and check out this post where 2 facility owners admit they don’t get subsidies: https://vfxsoldier.wordpress.com/2012/01/30/the-biggest-misconception-in-the-vfx-industry/
That is not right. That makes no sense. If VFX companies did not get a rebate or benefit from moving up to Vancouver, then why would they bother?
Now, that’s not to say that the production companies are not the entities that get the real benefit in the end. They clearly are. In fact, the production companies often insist on a bulk of the work being done in these cheaper locations during the bidding process. They know these tax incentives exist and pretty much force VFX companies to chase them so they can get those savings.
The reason why vfx companies move up there is the fear another facility will go up there and be able to provide the studio access to the rebate.
The facility takes the hit on huge costs: infrastructure, overhead management, and getting employees to mobilize.
As I said before its like a Mexican standoff where instead of pointing the guns at each other, they have the guns pointed at their own self. Welcome to the race to the bottom.
I don’t think Saskatchewan is a very good example of film subsidy wars.
You need to understand Canadian Content Law (http://en.wikipedia.org/wiki/Canadian_content) and what kind of productions were actually being filmed/edited in Saskatchewan.
90% of productions being shot there were Canadian based content that was shot specifically for broadcast in Canada and never meant to be seen outside of the CBC or Canadian Film Festivals.
TV Series like “Corner Gas” and “Little Mosque on the Prairie” as well as a collection of TLC/Slice style reality TV shows were being produced there withe the subsidies. Small local TV stations were also using it to stay afloat.
Saskatchewan and neighbouring Alberta are also two of the richest provinces in Canada running massive surpluses thanks to energy booms and billions of dollars of investment in the Oil Sands.
Cost of living is also extremely high due to massive shortages in the labour pool. Fast food restaurants and retail outlets are often forced to pay upwards of $20/hour just to retain enough staff to stay open.
I think it’s a great example: local productions are flocking to Ontario and bc because the rebates are larger. Even if sask kept the subsidy, as mr wall pointed out, they were still inclined to leave for more generous subsidies.
Well, Someone asked for clearification of the tax credit in Vancouver. Well here it is. I had a studio doing VFX for many years, mostly in TV and had direct experience with this system.
I want to also say that I am torn with the TAX credit that my BC government is supplying. On one hand it encourages jobs in BC, specifically in Vancouver and the surrounding area, on the other it is like a large client, if for any reason it will go away, everything that was developed could fall apart, I prefer to compete on a level playing field. I have to say I have had direct benefit from the tax system rebate on a personal level. Just wanted to point that out.
Ok, so there are tax rebates for production and VFX and gaming, with the VFX and gaming under the DAVE tax credit system.
There are no big cheques going out to anyone. How this works is as follows. The production company has to be a BC registered company, which is fine, they usually work with a production services production company here in Vancouver, who is a local registerd production company, or perhaps they setup there own. They register their production and pay a fee for that registration. They do there production and calculate how much BC, Canadian labour was involved and the cost associate with that. (The staff that qualify, have to not only be canadian citizen, they have to be BC residents, who have files taxes with the government) The production is then allowed to apply for a tax credit of 33% on the labour only. If they shoot outside the local region ie downtown, they can add an additional 6% and if filming is located in more rural areas another 6% can be added. However lets use the local value, or 33%. So If they have VFX in there production and they use a VFX company that is registered as a BC company and hired BC labour, they can claim as a tax credit 17.5% of the labour performed by those BC residents. This tax credit is just that, a tax credit, so when they submit their year end and attached is the tax credit info, and if there taxes owed are greater than their credits, they simply pay less tax, but yes, if their taxes owed are lower than the credits they will pay no taxes, and if there is any left they will receive a cheque for the different. So no big fat cheque, but if the circumstances are correct they can get money directly. Again this has nothing to do with the VFX companies directly, they simply supply the production company with the information about there labour so they can add that into their calculations. Many productions will use these tax credits agains production loans also.
It should also be said that VFX companies can do VFX work for companies outside of Canada and offer the TAX credits to them, my companies has done this. It is complicated and is still a tax credit, but the VFX company has to establish that they are associated with the production, or are involved with a production company that is. So basically they can do VFX work for any production in the world so long as it meets all the rules. The tax credit only goes to the BC registered production company. So the money stays here, however the benedfit comes to the outside company through lower fees.
So when Production companies appy it will look something like this.
For the VFX portion lets use this example.
Say the VFX labour for a production is 100K so they will apply it like this:
tax credit are PSTC 33% + 17.5% = 50.5% on labour so the tax credit they get will be 50.5K or $50,500.00 in tax credits.
The numbers have gone up alot, they use to be around 33% total.
Now, if my company and DD are competing against each other, we are doing so on an even playing field, more or less, not taking into consideration there scale. I just mean that they have to hire the same people, pay the same taxes as my company which is local and always has and will be. We also have to look as the taxes paid by VFX companies here who come from the US. Corp tax in BC is lower than Ontario or the US. So I am sure that helps them make their decisions, is it worth setting up here. Moving here is just a way to funnel work into their company.
We should also remember that BC’s film industry is a fraction of California let alone the US as a whole. Our population is around 4 million people. The incentive for the government is to promote job creation.
I am ok with some kind of tax break for locally with the head office in BC to help the local company with labour expenses to compete on a level playing field. For example if California said, ok the BC corp tax rate is 25% lets do something to make that even so they can compete on creative, inovative and tech and not just money. Maybe a pipe dream, but just pointing out that I don’t mind that. However the idea that Large US companies can come in, and suck up all the labour then some really hurts smaller players and creates a artificial sense of momentum in the VFX industry, and schools produce more and more students, people thing it is booming and all it takes is a change in policy and then DD and the like will leave because it does not make any more sense and it all falls apart.
Where as if government wanted to have local companies succeed, a different approach should have been taken, in my view.
So I hope that the tax credit info helps. If not, no big deal.
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