NMBA to urge preservation, reform of new media tax credit through lobby effort

A new and likely overdue effort to reform Ontario’s main support mechanism for the development of new digital products – the Ontario Interactive Digital Media Tax Credit (OIDM) – is now underway as the New Media Business Alliance (NMBA) is spearheading a lobby effort to fix perceived problems with the credit. Within a short time, the NMBA is set to write to the province’s Ministry of Finance with an urgent message that the tax credit should be maintained through possible government cutbacks. The lobby group also hopes to meet with government officials to make both long- and short-term changes to the tax credit, which to date has been ineffective, according to producers. The OIDM credit has been under fire from Ontario producers and from top-ranking Ontario Media Development Corp. (OMDC) officials almost from the day it was introduced in the summer of 2000. Intended to spur the development of educational and entertainment interactive titles, critics have long suggested that it is too restrictive and that too few companies are eligible to apply (CNM, July 12/00). Now, as rumours of government cutbacks to a wide swath of tax credits swirl around the province, NMBA chief Ian Kelso tells Canadian NEW MEDIA that the time has come to act. Madeleine Meilleur, Ontario’s recently installed culture minister, has gone on record several times in the past weeks to reassure film and television producers that tax credits for their sector will emerge intact through the next budget, but new media companies remain on tetherhooks about the fate of the OIDM credit. Early comment from OMDC officials indicates that a possible cut to the credit is only a rumour based on journalistic excess in the mainstream press, but Kelso says his group will take advantage of the public profile being given the issue to press for changes. "First and foremost, we want to make sure that our tax credit will not be killed," Kelso tells CNM. "As most of our industry are well aware, the tax credit has never been particularly effective. It was a step in the right direction, but unfortunately from any survey that we’ve made, it’s got to be substantially undersubscribed. There’s some definite problems with the credit, some of which we can talk about easily fixing – making some quick changes. There’s some low-hanging fruit. "There’s some simple things that can be done to make the tax credit more effective for our industry and then there’s some longer term things that are policy issues that we’d like to talk about in terms of furthering that, making it a truly effective tool for the industry and achieving its end goals." He says the NMBA will pursue a two-track approach to bringing about changes. First the group will lobby for the preservation of the credit and to loosen up its most restrictive aspects. Then, through a series of meetings, the NMBA will talk about larger structural changes that might be made to provincial measures to support the new media industry. One immediate change that might be made, he notes, is to a provision calling for qualifying products to be almost entirely developed in Ontario. "That particular regulation is interpreted to mean that 90% of the product must be owned by the corporation that’s applying for the tax credit, and no more than 10% of the work can be done outside of Ontario. Now, when it comes to the copyright issue, a lot of projects – especially those stimulated by the Bell (Broadcast and New Media) Fund – are strategic partnerships between companies where the new media company may not own that substantial amount of the project. Right away you’re looking at locking out a great part of the production that’s being done in Ontario today. It just doesn’t make sense…As soon as you start splitting copyright up in any way, it knocks the tax credit right out of your picture." The provision could, Kelso suggests, be made less restrictive through a ministry-initiated change in its interpretation without the need for legislative changes. Over the longer haul, several other aspects of the credit need to be changed to stimulate economic activity in the sector, Kelso argues. For example, he notes that a company’s potential tax credit is reduced if it receives funding from other sources such as Telefilm Canada’s Canada New Media Fund. Further compounding the problem, freelance labour – often the bulk of staff employed on a given new media project – are only credited at 50% of their cost. "It grinds your tax credits down. If you start with a 20% tax credit on labour, but most of your labour is freelance, you’re actually looking at 10% because it’s freelance labour. Then the tax credit is further ground down by the amount that you got through any other government subsidy program like the Canada New Media Fund. You’re looking at a 3%, 4% tax credit – a 5% tax credit, which, if you’re not doing a really substantial production is almost the cost of applying for it and the cost of accounting." He says the reality of new media production means much of the work is done by freelancers and that the credit needs to recognize the legitimacy of that arrangement. "Certainly no new media company that I can think of can afford to carry the overhead of a substantial staff, yet by the very nature of the way that the industry operates – from project to project and you hire the specific specialist that you need for each project. I don’t think that’s a bad thing…Most freelancers don’t want to work full-time for a corporation." Also on the agenda is the possibility of fronting an advance to successful applicants to help with cash flow. While the OMDC has made strides in turning applications over more quickly, the wait for a refund has proven daunting to some smaller companies. Further, Kelso would also like to raise the possibility of expanding the list of eligible products. For example, he says, prototype products aren’t currently being treated as a legitimate expense, a class of projects he argues are crucial to creating and selling products with market potential. In pressing for changes, the NMBA will likely have the OMDC on board as a valuable ally. Both former head Adam Ostry and current president Michel Frappier have both told CNM that changes to the credit are necessary (CNM, April 16/03; April 8/02). Less than one year ago, Frappier went on record to say the credit is "over-engineered. It’s too complicated. People aren’t using it." Change, however, will have to come from the province’s finance ministry and Kelso acknowledges that it may be less understanding than the OMDC as those not in the industry still struggle to understand the cultural new media sector outside the context of the dot com bubble. "It’s been a perennial problem in terms of definition. People…define (new media) by the platform…I don’t necessarily blame them. It is confusing even at the best of times to understand how the different industries, the sectors, are evolving separately on the platform. We clearly have to separate the business and the commerce – the e-business, e-commerce – and the e-content," he says. "We’re in the business of making cultural products and hopefully global cultural products." Kelso notes that Ontario has many strengths that bode well for the industry down the road, but that the sector still needs help from the public to hone its business models. "We need to build a lot more flexibility into this. The big message is that we’re a young industry taking baby steps right now. We shouldn’t be treated like a mature industry in having tools that are excessively restrictive – and in many cases more restrictive than many of the other cultural industries. We need something that’s going to allow us to grow."

NMBA to urge preservation, reform of new media tax credit through lobby effort

Broadcast | February 20, 2004

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