Canada: Six Questions: Sex, Tax and Bill C-10

In February 2008, members of the Canadian film and TV industry publicly denounced amendments to the Income Tax Act contained in Bill C-10, labeling them "censorship." Director David Cronenberg was quoted in, an online magazine, as calling the provisions an assault on freedom of expression, and the source of potential catastrophe to financing a film "because the whole thing would fall apart like a house of cards." Minister of Canadian Heritage Josée Verner rebuffed the censorship claims, asserting that Bill C-10 has nothing to do with censorship and its goal "is to ensure public trust in how tax dollars are spent."

Why the fuss? This six-question primer covers key and background points in the current controversy over Bill C-10.

WHAT? Bill C-10, An Act to amend the Income Tax Act, including amendments in relation to foreign investment entities and non-resident trusts, and to provide for the bijural expression of the provisions of that Act, amends the definition of "Canadian film or video production certificate" in subsection 125.4(1) of the Income Tax Act. A production must receive a Canadian film or video production certificate in order to qualify for certain federal tax credits administered by the Canadian Audio-Visual Certification Office (CAVCO).

Under the changes, a "Canadian film or video production certificate" will mean a certificate issued in respect of a production by the Minister of Canadian Heritage, certifying that the production is a Canadian film or video production in respect of which that minister is satisfied that certain criteria have been met concerning revenue share, and that "public financial support of the production would not be contrary to public policy [emphasis added]." This 'public policy' provision is the source of the controversy.

The heritage minister has stated that Bill C-10's public policy provision will address "only the most extreme and gratuitous material." News reports speculate that criteria for denying tax credits could include grounds such as gratuitous violence, excessive sex, significant sexual content that lacks an educational purpose, or denigration of an identifiable group.

In fact, the language of Bill C-10 provides no explanation of the criteria according to which a film could be considered, in the heritage minister's discretion, "contrary to public policy." Bill C-10 also provides that the heritage minister shall issue guidelines under which a film or video production would satisfy the criteria. The bill expressly states that the guidelines will not be statutory instruments under the Statutory Instruments Act (and therefore not governed by the process of review and public comment afforded to regulations). At the time of writing of this article, the heritage minister had not released any guidelines nor given precise indications of their content, despite urging from members of the film and TV industry.

On April 2, 2008, the Department of Finance reportedly argued, before the Standing Senate Committee on Banking, Trade and Commerce, that the criteria for offensive film and TV productions should not be included in the legislation or its regulations — the court could void regulations due to vagueness but were likely to be more lenient with criteria contained in guidelines.

Minister of Canadian Heritage Josée Verner also appeared before the Senate banking committee, stating that Canadian Heritage would not apply the public policy provision until 12 months after Bill C-10 received royal assent. In addition, she invited input from the film and TV industry on the development of the guidelines. Members of the industry have subsequently voiced concerns about being involved in the development of censorship guidelines, since they are opposed to their very concept.

WHEN? The bill was passed by the House of Commons with all-party support on October 29, 2007. It received its second reading in the Senate on December 4, 2007. At the time of writing this article, the Senate banking committee was conducting hearings on Bill C-10, and concerned parties were appearing before the committee.

WHERE? The bill must undergo its third and final reading in the Senate. The Senate banking committee delayed a third and final reading of Bill C-10 in late February 2008, when public criticism of the bill erupted, putting the matter on hold until April 2008.

WHO? Objectors within the industry include a wide range of groups and individuals, including directors, actors and politicians who have publicly voiced opposition to the bill. Groups expressing concern or lobbying to challenge the bill include ACTRA (Alliance of Canadian Cinema, Television and Radio Artists), the Writers Guild of Canada, the Directors Guild of Canada, and the Canadian Film and Television Production Association.

WHY? A similar "public policy" provision was proposed in draft regulations to the Income Tax Act in 2003 by then Liberal Heritage Minister Sheila Copps. Ms. Copps was quoted in various press reports as explaining that the intention of her proposed provisions was to establish "reverse onus" for producers of extremely objectionable material, and to give the heritage minister discretion to prevent a film from receiving a tax credit in extreme cases.

The 2003 proposal arose in response to the film Karla about the lives of Paul Bernardo and Karla Homolka, and the hypothetical scenario where a film such as Karla might be eligible for tax credits had it been produced in Canada. However, the Income Tax Regulations enacted in 2005 did not contain the provision granting ministerial discretion to deny tax credits to films considered contrary to public policy.

The motivation for the Conservative government's inclusion of the public policy provision in Bill C-10 is unclear. Traditionally, the tax credits have been highly labour-driven, designed to encourage producers to hire Canadians using relatively objective criteria that award points to a production based on Canadians hired for key positions. Current regulations already exclude content such as pornography, news, reality television, game shows, talk shows, corporate video and advertising.

HOW? The affected federal tax credits are not the only source of funding available to film and TV producers. Other direct and indirect sources are available from federal, provincial and private sources, including Telefilm Canada (also administered under Canadian Heritage), banks, provincial tax credit programs and other private financiers. Practically, however, CAVCO tax credits and Canadian Program certification are often critical components to secure funding for Canadian productions. Consider that:

  • Domestic film and TV productions typically apply and may obtain subsidies at the script stage, but refundable tax credits are subsequently applied for and received after completion of principal photography.

  • Domestic productions often rely on funding from more than one source. Other sources of funding may base their funds or advances to the producer on the expectation or condition that the federal tax credit and certification as a Canadian Program by CAVCO will be received.

  • A producer (or financiers) therefore will not know if a production is unacceptable until after it has been shot, monies have been spent and the reviewing committee has reviewed the film and rendered a decision, should it choose to do so.

  • Producers who are denied tax credits could face a great risk of exposure to repay financiers whose grants or advances (e.g., Telefilm Canada, bank and distribution advances, etc.) were based on anticipated tax credits. This could potentially result in business or personal bankruptcy for the producer.

  • The public policy provision may not affect foreign productions shooting in Canada that receive CAVCO-administered federal tax credits but are not considered "Canadian" productions. Canadian Heritage representatives have argued that such tax credits are intended to encourage investment based on spending in Canada and not on content.

Supporters of the public policy provision claim it is only fair that public monies not be used to support the production of offensive content, and that nothing stops producers of such content from making their projects using other funding.

Opponents of the amendments raise numerous concerns, including:

  • the importance of the tax credit and Canadian program certification to financing arrangements;

  • the lack of clarity about who will decide what norms are "contrary to public policy";

  • the lack of guidelines or criteria;

  • the discretionary nature of how review and decisions will be exercised;

  • the volatile and practical effect of the timing and subjectivity of decisions;

  • the resulting inability of producers to secure adequate financing for their productions; and, of course,

  • the aftertaste of censorship.

Banks may be discouraged from providing the necessary loans to edgier, riskier productions if the projects may not be eligible for the tax credits on such subjective terms.

If the guidelines are put in place, some opponents argue self-censorship will result — writers and producers will write to the guidelines in order to ensure tax credits are received so the production can be made. Either way, they argue, the end result may be a freeze on the artistic expression of edgy, unique Canadian voices in film and TV.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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