Toronto Tax Credits Take a Hit

A surprising reduction in Ontario could send Hollywood producers elsewhere as one local insider laments, "Our credibility is blown forever."

This story first appeared in the May 15 issue of The Hollywood Reporter magazine. To receive the magazine, click here to subscribe.

If Hollywood during recent years spoke about Canada's film tax credits, two words came to mind: predictable and stable. But not anymore.

Suddenly, Ontario's film tax credit has been cut from a hefty 25 percent of all foreign production spending to 21.5 percent. While not a huge shift, the April 23 reveal threatens to curtail a shooting boom driven largely by U.S. film and television productions. The home province of Toronto currently is hosting Warner Bros.' Suicide Squad, Ricky Gervais' Special Correspondents and the Hulu miniseries 11/22/63.

"Our credibility is blown forever now," says Paul Bronfman, chairman of Pinewood Toronto Studios and CEO of rental-equipment giant William F. White. Indeed, in a cutthroat business, even a modest reduction of Ontario's tax credit could send future location shoots outside the province — or the country. An estimated $300 million in movie and TV shoots are committed to Ontario in 2015, and they could be steered elsewhere if not locked in at the 25 percent rate. "To ensure it's still seen as a stable and reliable jurisdiction, Ontario needs to grandfather existing projects," says David Carter, president of Canada Film Capital, which offers Canadian tax-credit services.

A lot of money is at stake for U.S. studios, too. The province in 2013-14 gave foreign producers $224.7 million in tax breaks for 174 projects that shot locally, up from a year-earlier $183.2 million for 127 projects, according to the Ontario Media Development Corp., which markets Ontario to Hollywood. But now the province is making a calculated wager that currency savings from a strengthening U.S. dollar will offset the effects of its tax-credit clawback. The risky bet could bolster such rival U.S. locales as Louisiana and Georgia. "I have to believe this will prompt [U.S.] producers to scratch their heads and take their pencils out and do some recalculations of where the benefits are," says Lui Petrollini, a partner in media and entertainment at EY.

Ontario's loss might mean immediate gains for Vancouver. British Columbia's foreign film tax credit rebates 33 percent of labor costs, less generous than the all-spend tax breaks in Ontario and Quebec. Still, Hollywood A-listers working in Vancouver like its close proximity to Los Angeles for weekend breaks. "[British Columbia] and Ontario have been in friendly competition for film and television business for many years. We have every expectation that will continue," says Richard Brownsey, CEO of Creative BC, which markets Vancouver as a foreign location destination.

But another Toronto studio operator warns that, despite Ontario remaining competitive with rival locales, "there's likely further reductions to come," which could exacerbate an exodus. Adds Bronfman, "This will cost the province thousands of jobs and millions of dollars."