Canadian cinema from boom to bust: the tax-shelter years

TAKE ONE, Dec-March, 1998 by Wyndhan Wise

By the beginning of 1977, the feature-film industry was finally struggling to its feet and there was a new secretary of state in Ottawa. In November of that year, John Roberts presented his Memorandum on Film Policy to the cabinet. It confronted directly the problem of foreign control of distribution in the Canadian marketplace. It proposed a 10 per cent tax on distribution revenues, with a rebate that would have functioned as a quota for Canadian films. Sandra Gathercole, in her insightful article for Cinema Canada in June of 1978 ("The Best Film Policy This Country Never Had") outlines in great detail what happened to Roberts's Memorandum. Without going into detail here, as the result of intense lobbying by the American Motion Picture Export Association, and the indifference of the minister of finance, Jean Chretien, Roberts watered down his proposals in 1978. Despite its lack of success, he recommended that the system of voluntary quotas should be continued and that the CFDC was yet again to receive a broader mandate and a greater infusion of capital. Roberts and Chretien essentially repeated the policy (or lack of same) initiated by Faulkner and Turner in 1975. Roberts couldn't break the dominance of foreign-controlled distribution nor the logjam created by the fact that theatrical exhibition and distribution are within provincial jurisdiction.

Chretien's 1978 spring budget did tackle the problem of revenue guarantees, and with legislation enacted in December of that year, the regulations were amended to deny the taxpayer full CCA on that portion of his investment in a certified film that was effectively covered by a "guarantee." However, much was still left to the discretion of the Department of Revenue, and this issue (which translated to mean that if a film had a distribution guarantee, then it would be disqualified for any CCA benefits) more than any other became the backbone upon which the artifical tax-shelter "boom" in feature production was created. In a separate but related move, the Ontario Securities Commission, in a landmark decision, ruled that investments in film were securities under the meaning of the province's Securities Act thereby requiring film producers to comply with provincial securities laws. The active involvement by two federal government departments (the Certification Office and the Department of Revenue), a federal Crown corporation (the CFDC) and provincial securities commissions emphasized the fact that feature-film policy was unduly complex and confused. Despite the repeated pronouncements that the feature-film industry should be culturally relevant, the thrust of the 100 per cent CCA and the CFDC was toward more costly "Hollywood-style" films. As the executive committee of the Association des Realisateures de Films du Quebec noted in a letter to Cinema Canada in May 1978, "This strictly commercial orientation which Ottawa proposes for its film policy is, in fact, confirmed by the permissive and quasi-fraudulent `tax shelter' which is just as American as it is Canadian."