Ministry o Finance Tax Expenditure Review - Screen-based Sector - OFFICE OF TAXATION, AGENCIES & PENSIONS OFFICE OF ECONOMIC POLICY September 1, 2011 -Confidential Advice to Cabinet — NOT FOR DISTRIBUTIONOverview of Tax Support for the Screen-based Sector A 35% tax credit for labour expenses is available to domestic film producers. 2010 Estimated Fiscal Impact: $110M A 25% tax credit for labour and other qualifying production expenses is available to foreign and non-certified domestic film producers. 2010 Estimated Fiscal Impact: $155M. A 20% tax credit is available for computer animation work in domestic and foreign film productions. 2010 Estimated Fiscal Impact: $25M A 40% tax credit on labour, marketing and distribution expenses is available to companies that develop their own digital media products (35% for fee-for- service products). 2010 Estimated Fiscal Impact: $20M All screen-based tax credits are refundable. - Confidential Advice to Cabinet - 2 NOT FOR DISTRIBUTIONKey Findings What i is the rationale for government support? Service productions /“Hollywood north” not Preset nae atay content. . Pomeete film production has grown but film sector GDP is not keeping pace with Ontario + Tax credits do not appear to be making cultural industries sustainable without government support. ls Ontario competitive with other jurisdictions? + Several other jurisdictions offer incentives, but other factors appear to be equally as important. + Foreign film activity varies significantly with the Canada-US dollar exchange rate, + Zero-sum game in inte-provincial tax crecit bidding wars but could lose activity if fall behind in subsidizing. ae the tax incentives efficient? Tax credits are not completely transparent — taxpayers are not able to know amount of support for a particular film. + Tax credits not sufficiently flexible to keep pace with the dynamic and rapidly evolving screen- based sector. a There have been numerous changes to the tax credits since theit Is tax support effective at generating incremental activity? Ontario’s screen-based tax credits are making up a larger share of production expenditures while production expenditures are flat. . Jobs created in film industry are often temporary in nature and the average film/TV industry wage is below the Ontario average wage. + Credits are not reducing taxes owing but largely benefiting businesses that pay no tax. Is the tax system the most effective vehicle for supporting the screen-based sector? - The tax system is not an optimal delivery mechanism as product certification adds administrative costs/burden. . Stakeholders need financing up front — not an option in tax system. - Confidential Advice to Cabinet - 3 NOT FOR DISTRIBUTION introduction.