When it comes to film production, a Canadian producer can structure a film or television co-production with a non-Canadian producer as either an international treaty co-production certified by Telefilm Canada or as a co-venture certified by the Canadian Radio-television and Telecommunications Commission (“CRTC”) pursuant to Appendix 1 to the Public Notice CRTC 2000-42.
In our article on the pre-production checklist, finalizing any film production as a co-production or co-venture agreements are important and below are some tips to maximize the incentives.
Film Production in Canada
Certification by Telefilm as an international co-production involves an advance ruling and final approval. The applications for certifications are simultaneously advance by both the Canadian producer to Telefilm and the foreign producer to their applicable authority. Certification as an “official treaty co-production” is then decided by both Telefilm and the foreign authority. Such certification gives such eligible productions government incentives and tax benefits for film production.
Film Production as an International Co-Production Treaty
Some of the benefits of certification as a treaty co-production include access to all the Canadian federal and provincial government incentives for film production such as:
- Canadian federal content and provincial Canadian content or services film and television tax credits
- Canada Media Fund (“CMF”)
- Canada Feature Film Fund (“CFFF”)
- Qualify as “Canadian programs” certified by the CRTC
- Enhanced Canadian broadcast licence fees
- Private and public discretionary funding
Similar such incentives may apply in the territory of the foreign producer as well.
The CRTC requires that Canadian television broadcasters, cable and specialty providers and networks broadcast a certain amount of “Canadian content” when it comes to television and film production that fits within their definition of a “Canadian program” which are issued a “C” number for domestic productions and an “SR” for co-ventures. The CRTC’s definition of “Canadian Program” must meet the following criteria:
- The producer must be a Canadian citizen or permanent resident of Canada
- Must meet 6 out of 10 points for a live-action production (“Points Test”)
- Director – 2 points
- Screenwriter – 2 points
- Lead Performer (or first voice) – 1 point
- Second Lead Performer (or second voice) – 1 point
- Production Designer – 1 point
- Director of Photography – 1 point
- Music Composer – 1 point
- Picture Editor – 1 point
At least of the 1 the director or screenwriter of each production or episode must be Canadian or at least 75% of all production services costs (i.e. “below-the-line” costs with certain exceptions) must be paid to Canadians; and at least 75% of all post-production/laboratory costs must be paid for services provided in Canada by Canadians or Canadian controlled companies.
The following are the criteria to be certified as an international treaty co-production by CAVCO upon recommendation by Telefilm:
- Canadian control – Canadian co-producer must be controlled by a Canadian pursuant to the Investment Canada Act
- Co-Production Treaty with Canada – Co-productions must be with a country that has signed a co-production agreement with Canada and in the case of multi-party co-productions, at least one of the co-producers must be from a country that has signed a co-production agreement with Canada
- Profit Sharing, Creative & Copyright Ownership – creative and technical participation, spending, copyright ownership and profit sharing must be proportionate to the financial contribution of each co-producer in the television and film production
- Affiliated or Associated Co-producers with a foreign co-producer may be ineligible
- Development – Co-producers must control the development process as per Telefilm and one of the co-producers must own or control the underlying rights. The co-producers must develop the production significantly and or more own all the rights necessary to produce and exploit the co-production.
- Canadian financing must cover the cost of the Canadian parts of the production and now be lower than the minimum requirements of the applicable treaty which may be between 15% to 30%. Each treaty sets out the minimum financial requirements.
- Creative, Financial & Technical Control – The producer, crew and key personnel exercising control over the creative, financial and technical aspects of the Canadian portion must be Canadian citizens or permanent residents
- Co-productions with an EU member country must have the director and screenwriter as Canadian citizens or permanent resident of an EU member country.
- Exploitation rights – Canadian co-producer must retail all Canadian exploitation rights.
- Spend Requirements – all financing received from Canadian entities must be used first towards Canadian expenditures.
- Location Shooting may be done in a third country if required for in the script. However, no studio shooting allowed unless a third country exemption is obtained.
- Personnel – all personnel must be either from Canada of the co-producing country except – if co-production is with an EU members, then it can be in any EU country. Also, one lead performer and one cameo performer may be from a third country for a feature film. This increased for television series over seven episodes. Other exceptions may be made by Telefilm if personnel are indispensable.
- Producer credits – only the Canadian and foreign coproducers get producer credits except third country individuals may receive producer courtesy credit under certain conditions.
Film Production as a CRTC Co-Venture
A CRTC Co-Venture may be granted special recognition by the Canadian Radio-Television and Telecommunications Commission (CRTC as a “Canadian program” if it qualifies as a CRTC co-venture. For instance, there is no international treaty with the United States but Canada may enter into a co-venture with the US. In order to be given this special recognition, the Canadian company must have:
1) equal decision-making with the foreign co-venture parties on all creative elements of the production which means the Canadian production must have the following:
- a sole or co-signing authority on the Canadian production bank account and payment of Canadian elements
- production bank account
- must be in Canada if co-venture shot entirely in Canada
- If partially shot in Canada, then only that portion of the production must be in a Canadian bank account)
- If shot outside Canada, then a bank account must be in Canad for payment of the Canadian elements of the program
- Contributes at least 50% of the production financing and receives 50% share of the profits from the exploitation of the co-venture (but does not need to own any interest in the copyright which may be all owned by the foreign co-venturer).
- Is at financial risk or has the budgetary responsibility in respect of the co-venture production
- Has at least an equal approval of all creative elements and control
(2) be responsible for the administration of the Canadian portion of the production budget
(3) Meet the Canadian “Points” Test – 6/10 points for Canadian and 75% of minimum Canadian expenditures as noted above. If the co-venture is with a country that is part of the Commonwealth, French-speaking or has a co-production with Canada, the points test is reduced to 5 out of 10. However, the director or screenwriter and at least one of the two lead performers must be Canadian.
In other words, 75% of all service costs (below the line costs) must be paid to Canadians (excluding remuneration for producers and coproducers other than producer related positions, amounts paid to key creative personnel eligible for points, post-production costs, accounting fees, legal fees, insurance and financing costs and other indirect expenses and contingency costs.
75% of all post-production/lab costs must be paid for by services provided in Canada by Canadians or Canadian companies except if a country which is part of the Commonwealth, French-speaking or has a co-production treaty with Canada, then the expenditures requirement is reduced to 50%.
The incentives for a co-venture are access to the Federal Canadian Services Tax Credits and Provincial Services Tax Credits and enhanced Canadian broadcast licence fees.
Producer credits are to be balanced between Canadian and non-Canadian producers. A non-Canadian producer can receive producer related credits such as executive producer, associate producer, supervising producer, production executive and supervising executive.
10 Negotiating Tips for Film Production when it comes to Co-productions and Co-Ventures
1) Delivery Requirements & Obligations by Non-Canadian Producer – Ensure that the non-Canadian producer is obliged to exercise rights for SR number (Special Recognition as a co-venture) and complies with the delivery requirements to the Canadian broadcaster.
2) Overages – The non-Canadian producers should be on the hook for some overages if any. They will argue that as they are not involved in the day to day accounting and should not be on the hook. However, costs will be looked at more closely when both parties are on the hook.
3) Obtaining SR # – The Canadian producer should only have to produce to get the SR # and not actually have to get the SR # (Canadian broadcasters have a problem with this).
4) Life of Series – Negotiate a life of series commitment so Canadian broadcasters don’t use another producer for another season.
5) Format and Other Rights – Try and negotiate additional elements as a Canadian producer such as format rights etc.
6) Residuals – Try to minimize track and report residuals beyond the initial period. Track and make payment. You don’t want those obligations.
7) Single Purpose Production Company – security obligations that attach to the single purpose production company would be okay but do not allow any security obligations to attach to the core company. (US broadcasters often want a guarantee from core company but if security attached to assets beyond SR production, then the issue of security arises). Therefore, a Canadian producer should limit securities obligations to a single purpose company.
8) Representations and Warranties – Make sure to get representations and warranties and indemnities on anything the US producer brings to the project.
9) Take Over Rights – When the US producer is bringing $ or format, they want to be in a position of taking things over if something happens to the Canadian producer. If the US takes over, this could jeopardize Sr production.
10) Credits – Ensure your credits are locked on the foreign version of SR production.