Loss of tax credit could impact animation studios in the Okanagan

Photo: Pixabay

A long-time player in the Okanagan’s animation industry compares it to throwing the baby out with the bathwater.

Darren Battersby, who has worked with several companies, including Network Entertainment and Yeti Farm (now Artists Animation Studio), is speaking out after it came to light that animation productions in B.C. will no longer be able to claim regional and distance location tax credits.

Battersby says a lot of the companies that have started up in the Kelowna area in recent years rely on the tax credit to help pay their workers.

“Yes, it’s a very heavily subsidized industry, moreso than live action, but the overhead and the costs that an animation studio carries is by far a lot more than any film studio ever does,” Battersby explained. “So, those tax credits were vital to be able to start the industry in Kelowna.

“It would never have happened if those tax credits weren’t available.”

The government says it’s closing a loophole that saw some companies claiming the credits for employees who were working from home.

“I understand there are concerns any time a change is made. This change has been needed to address a growing trend of animation companies incorrectly claiming regional and distant location tax credits for employees working from home," said Katrine Conroy, Minister of Finance, in a statement to Castanet.

"Location credits are intended to encourage on-location film and TV work outside of Metro Vancouver, not for employing people working from home."

Kelowna-Mission BC United MLA Renee Merrifield recently penned a letter to the minister of Tourism, Arts, Culture and Sport asking for clarification on what is being done to mitigate the negative effects the decision could have on brick-and-mortar studios in the Okanagan.

“This is a devastating cut for our region, with well over a hundred people who have lost their jobs. Additionally, we have been advised there was no consultation or warning,” wrote Merrifield. She notes that the industry is suggesting the wording of the tax credits be modified to clarify the only animation companies based in the eligible region be allow to apply for distance and regional credits.

Battersby says that after the pandemic, some workers continued to work from home, but he suggests in very small numbers.

“At the end of the day, we’re still paying for those people, we’ve still got to supply them with equipment, we’ve still got to supply them with software. We’ve still got to do the whole process to try to be competitive on the international market.”

He says the government should be able to rework the rules to target those who are abusing the tax credits.

“It’s a very small component of the tax credit and they could easily change that to prove or show that you have a studio in the region that you’re claiming the tax credit. If you can’t prove it, they sure, kick it out, but don’t abolish the whole thing for the people that are trying to make a business out of it.”

The Ministry of Finance says the value of the regional and distant location tax credits to animation studios claiming employees working from home is only 0.2% of the total credits claimed. It also notes that animation productions continue to be able to claim 44% to 51% of labour costs through the B.C. film tax credits, and 53% to 58% when the federal film tax credits are taken into account.

Local industry representatives have been working to get clarity from government officials and another meeting is planned in the coming weeks. The tax credit change is schedule to take effect June 1, 2024.