In the past few years, Nova Scotia has fostered the development
of video game and interactive media companies by offering a
competitive digital media tax credit. Under Nova Scotia's Digital Media Tax Credit Regulations,
qualified companies were able to claim the lesser of:
50% of eligible Nova Scotia labour
(plus a regional credit of 10% if qualifying expenditures for
productions are outside the Halifax Regional Municipality) or
25% of total Nova Scotia expenditures
(plus a regional credit of 5% of qualifying expenditures for
productions outside the Halifax Regional Municipality).
Companies could also receive a credit on marketing and
distribution expenditures to a maximum of $100,000 per product.
These expenditures may be made outside the province. To be eligible
for this tax credit, a company must be a taxable Canadian
corporation with a permanent establishment in Nova Scotia, whose
primary purpose is to develop interactive digital media products
– an interactive digital media product must educate, inform
or entertain and present information in at least two of text, sound
As readers may know, the last few weeks of changes in the film
tax credit available in Nova Scotia have created some confusion
regarding the incentive regime under which animation companies in
Nova Scotia will operate beginning on July 1, 2015. Animation
companies have been clear that they need more support than will be
provided under the revised film tax credit regime.
To their credit, these animation companies and the Government of
Nova Scotia have negotiated a new stream of the digital media tax credit
that fosters this specialized ecosystem and from July 1, 2015,
incentives for animation companies will be provided under a new
branch of the Digital Media Tax Credit. This new program was
designed based on comparable regimes that currently exist in
Ontario and British Columbia.
Under this new credit stream, animation companies (like all
eligible companies under the Digital Medial Tax Credit rules) will
benefit from the lower of:
50% of eligible labour costs (which
will be further described in coming regulations) or
25% of total Nova Scotia production
However, in addition, these companies will be able to access a
bonus rebate of 17.5% on all animation labour costs (I note that
the government release advises that there will be a maximum on
salary levels eligible for consideration within the credit). An
illustration of the new animation incentive calculation can be
The finalization of the new regime should provide a few reasons
for animators to feel relieved that they have almost successfully
reached the end of this budget negotiation process. First, this
novel tax credit stream would seem to be more advantageous than the
revised film tax credit regime under which tax rebates per eligible
company are less beneficial in the aggregate and the total fund is
capped to the amount of the new Nova Scotia Film and Television
Production Incentive Fund.
Second, initial analysis suggests that animation companies will
receive around the same rebate this year as they were able to
access under the film tax credit regime that existed in the
2014-2015 fiscal year (unless of course the definition of
'eligible labour costs' is slimmed down in the upcoming
regulations which are due before July 1st).
Premier Stephen McNeil has implied that the fund for this new
steam of the Digital Media Tax Credit is capped at the $10 million
mark (being the amount that the Government of Nova Scotia has set
aside for the fund in this fiscal year). On the other hand, Finance
Minister Diana Whalen told the media last week that the new program
is tax credit not a set fund and will thus be available to all who
meet the eligibility requirements (despite any depletion of the
This distinction is obviously key to animation companies as they
were part of a group of companies that relied on approximately $24
million of funding under the film tax regime during the 2014-2015
fiscal year. The Government has indicated that beginning in the
2016-2017 fiscal year only $4 million will be budgeted for this
animation specific program.
More to come – until then it seems that the show goes
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