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Digital Animation Tax Credit Regulations
made under Section 47B of the
Income Tax Act
R.S.N.S. 1989, c. 217
O.I.C. 2015-212 (June 16, 2015), N.S. Reg. 269/2015
Citation
1 These regulations may be cited as the Digital Animation Tax Credit Regulations.
Definitions
2 (1) In these regulations,
“Act” means the Income Tax Act;
“digital-animation production” means a film or video production created primarily with the use of digital technology in which all, or substantially all, of the production consists of the sequencing of a series of 2-D, 3-D or stop-motion animation images rendered to create artificial moving images;
“eligibility certificate” means a certificate issued under Section 3 in respect of a digital-animation production that is determined to be eligible to apply for a tax-credit certificate;
“NS eligible employee” means an employee of an eligible corporation who
(i) was resident in the Province on the last day of the calendar year immediately before the taxation year for which a tax credit is claimed for an eligible digital-animation production, and
(ii) normally reports to a permanent establishment of the eligible corporation in the Province;
“tax-credit certificate” means a tax-credit certificate issued under subsection 47B(6) of the Act in respect of a tax credit for an eligible digital-animation production.
(2) A reference in these regulations to the Minister of Finance and Treasury Board of the Province includes a person designated by the Minister of Finance and Treasury Board of the Province as referred to in subsections 47B(5) and (7) of the Act.
Eligibility certificate
3 (1) A corporation must receive an eligibility certificate before applying for a tax-credit certificate.
(2) An application for an eligibility certificate must be made to the Minister of Finance and Treasury Board for the Province before principal photography or key animation of the digital-animation production begins.
(3) An application for an eligibility certificate must include any information and records that the Minister of Finance and Treasury Board for the Province requires about the corporation and the digital-animation production to determine whether the corporation qualifies for a certificate under subsection (4).
(4) The Minister of Finance and Treasury Board of the Province must issue an eligibility certificate to an eligible corporation if they are satisfied, based on the information provided by the corporation and any other information available to them, that the corporation will be entitled to receive a tax-credit certificate in respect of its digital-animation production once the production is completed.
Application for tax-credit certificate
4 (1) An application for a tax-credit certificate must be made no later than 30 months after the end of the taxation year in which expenditures for any eligible digital-animation productions covered by the certificate were made.
(2) An application for a tax-credit certificate must be in a form acceptable to the Minister of Finance and Treasury Board of the Province, and must include all of the following:
(a) a copy of the eligibility certificate for all eligible digital-animation productions covered by the certificate;
(b) any information and records that they require about the eligible corporation and all eligible digital-animation productions covered by the certificate to determine whether the corporation and productions meet the criteria set out in the Act and regulations for issuance of the certificate.
Eligible corporations
5 A corporation that satisfies all of the following conditions is an eligible corporation:
(a) it is incorporated under the laws of Canada or a province of Canada and is a taxable Canadian corporation;
(b) it has a permanent establishment in the Province;
(c) it is not a prescribed labour-sponsored venture capital corporation as defined in the Income Tax Regulations made under the Income Tax Act (Canada);
(d) it is a Canadian-controlled corporation primarily carrying on business that is a film or video production business;
(e) it is not be registered as an eligible business under subsection 3(2) or 11(2) of the Equity Tax Credit Act.
Eligible digital-animation productions
6 A digital-animation production that satisfies all of the following conditions is an eligible digital-animation production:
(a) it has a minimum viewing time of 20 minutes;
(b) it will be broadcast, distributed or available for viewing no later than 24 months after it is completed, and a production services agreement for this exists, or a written agreement for this exists between the production’s eligible corporation and 1 of the following for consideration at fair market value:
(i) a corporation that is a distributor of film or video productions,
(ii) a broadcaster that is not associated, within the meaning of Section 256 of the Federal Act, with the eligible corporation;
(c) it is not any of the following:
(i) a film or video production that has been prohibited for use or exhibition under the Theatres and Amusements Act,
(ii) a film or video production that is eligible to receive a grant from the Nova Scotia Film and Television Production Incentive Fund,
(iii) a film or video production produced to solicit funds,
(iv) a film or video production produced primarily for industrial, corporate or institutional purposes,
(v) a film or video production for which public financial support would be contrary to public policy, in the opinion of the Minister of Finance and Treasury Board of the Province,
(vi) an animated scene, or series of scenes, relating to a video game that is not original animation, whether included in or distributed with the video game or distributed separately, that meets all of the following criteria:
(A) the user of the video game has limited or no control over it,
(B) it is used to advance the plot or provide character development, background information, a story line, context or clues;
(d) it does not consist of any of the following types of programming:
(i) news, current events or public affairs programming, or a program that includes weather or market reports,
(ii) talk show,
(iii) programming of a game, questionnaire or contest, other than a production directed primarily at minors,
(iv) sports event or activity,
(v) gala presentation or awards show,
(vi) reality television,
(vii) pornography,
(viii) advertising.
Tax-credit rates
7 The following rates are prescribed for the purposes of calculating the amount of a tax credit under subsection 47B(7) of the Act:
(a) the basic tax-credit rate is 50%; and
(b) the digital-animation tax-credit rate is 17.5%.
Eligible NS labour expenditure
8 (1) Subject to subsection (2), a salary or wage paid by an eligible corporation is an eligible NS labour expenditure for a taxation year if it meets all of the following criteria:
(a) it is paid to a NS eligible employee;
(b) it is reasonable in the circumstances;
(c) it is included in the cost of an eligible digital-animation production and is directly attributable to the production of the digital-animation production;
(d) it is incurred by the eligible corporation in the taxation year, after June 30, 2015, and before July 1, 2020;
(e) it is paid by the eligible corporation in the taxation year or no later than 60 days after the end of the taxation year;
(f) it does not form part of the eligible corporation’s eligible NS labour expenditure claimed for a preceding taxation year;
(g) it does not include any amount determined by reference to profits or revenues;
(h) it is not an amount for which the eligible corporation may claim a tax credit under Section 41 of the Act;
(i) it is not an amount related in any way to another film or video production;
(j) it does not include an amount for advertising, marketing, promotion or market research.
(2) If a salary or wage that meets the criteria in subsection (1) is equal to or greater than $150,000, only $149,999.99 may be included in eligible NS labour expenditure.
(3) An eligible NS labour expenditure incurred by an eligible corporation in a taxation year, but not paid before the 61st day after the end of the taxation year, may be included in eligible NS labour expenditure incurred by the eligible corporation in a subsequent taxation year if the eligible NS labour expenditure is paid no later than 60 days after the end of the subsequent taxation year.
Eligible NS animation labour expenditure
9 (1) A salary or wage paid by an eligible corporation is an eligible NS animation labour expenditure for a taxation year if it meets all of the following criteria:
(a) it is an eligible NS labour expenditure;
(b) it is an amount paid for activities undertaken to produce digital animation, including designing, modeling, rendering, lighting, painting, animating, rigging, storyboarding and compositing;
(c) it is not an amount paid for animation created
(i) by post-production activities, or
(ii) primarily for use in promotional material for the eligible digital-animation production.
(2) An eligible NS animation labour expenditure incurred by an eligible corporation in a taxation year, but not paid before the 61st day after the end of the taxation year, may be included in eligible NS animation labour expenditure incurred by the eligible corporation in a subsequent taxation year if the eligible NS animation labour expenditure is paid no later than 60 days after the end of the subsequent taxation year.
Eligible remuneration
10 (1) Remuneration paid by an eligible corporation is eligible remuneration, for the purposes of determining the qualifying labour expenditure in Section 12, if it meets all of the following criteria:
(a) it is reasonable in the circumstances;
(b) it is included in the cost of an eligible digital-animation production and is directly attributable to the production of the digital-animation production;
(c) it is incurred by the eligible corporation in the taxation year, after June 30, 2015, and before July 1, 2020;
(d) it is paid by the eligible corporation in the taxation year or no later than 60 days after the end of the taxation year;
(e) it does not form part of the eligible corporation’s eligible remuneration claimed for a preceding taxation year;
(f) it is not an amount for which the eligible corporation may claim a tax credit under Section 41 of the Act;
(g) it is not an amount related in any way to another film or video production;
(h) it does not include an amount for advertising, marketing, promotion or market research;
(i) it is paid to any of the following arm’s length persons or entities for services rendered personally at a permanent establishment in the Province in the circumstances described:
(i) an individual who is not an employee of the eligible corporation, for services they rendered personally,
(ii) the employees of an individual described in subclause (i), other than any amount that exceeds the salaries or wages of those employees for personally rendering those services,
(iii) a taxable Canadian corporation, for services rendered personally by an individual who owns all of the issued and outstanding shares of the capital stock of the taxable Canadian corporation if the activities of the taxable Canadian corporation consist principally of providing the individual’s services,
(iv) a taxable Canadian corporation, for services rendered personally by its employees, other than any amount that exceeds the salaries or wages of those employees for personally rendering those services;
(v) a partnership that is carrying on business in Canada, for services rendered personally by any of the following:
(A) a member of the partnership,
(B) employees of the partnership, other than any amount that exceeds the salaries or wages of those employees for personally rendering those services.
(2) Eligible remuneration incurred by an eligible corporation in a taxation year, but not paid before the 61st day after the end of the taxation year, may be included in eligible remuneration incurred by the eligible corporation in a subsequent taxation year if the eligible remuneration is paid no later than 60 days after the end of the subsequent taxation year.
Eligible overhead expenditure
11 The eligible overhead expenditure for an eligible digital-animation production, for the purpose of determining the qualifying labour expenditure in Section 12, is the amount determined by the following formula:
65% x NSLE
where
NSLE = eligible NS labour expenditure.
Qualifying labour expenditure
12 The qualifying labour expenditure for an eligible digital-animation production is the amount equal to the lesser of the following:
(a) the eligible NS labour expenditure;
(b) the amount determined by the following formula:
50% x (NSLE + EO + (65% x ER))
where
NSLE = eligible NS labour expenditure,
EO = eligible overhead expenditure, and
ER = eligible remuneration.
Assistance
13 Financial assistance received from any of the following is assistance for a taxation year:
(a) a government or other public authority, whether in the form of a grant, subsidy, forgivable loan, deduction from tax or investment allowance, other than a film or video tax credit under the Federal Act or a tax credit under Section 47B of the Act;
(b) a corporation registered as an eligible business under subsection 3(2) or 11(2) of the Equity Tax Credit Act that made a specified issue under the Equity Tax Credit Act after April 9, 2015.
Records kept by eligible corporation
14 (1) An eligible corporation must keep records in the form required by the Minister of Finance and Treasury Board of the Province, and containing any information that the Minister of Finance and Treasury Board for the Province considers necessary to determine that the eligible corporation is complying with the Act and these regulations.
(2) An eligible corporation must keep the records required by subsection (1) at its head office or at another place approved by the Minister of Finance and Treasury Board of the Province.