Toronto and London-based Grosvenor Park and Vancouver-based Sentinel Hill Alliance Atlantis Equicap Limited Partnership (SHAAELP), in which Alliance Atlantis Corp. holds a 30% stake, are two of the Canadian-based companies expected to be hardest hit by the Canadian government's closure in Jan 2002, of a loophole in its tax law that allows film investors to deduct losses made from funding start-up production partnerships.
Publicly-held AAC issued a statement on Sept 24, saying that the new tax change would reduce its SHAAELP-derived revenue by $3.8m (C$6m) for the current fiscal year, while earnings for the following year, ending March 2003, could be affected by as much as $12.7m (C$20m). Vancouver-based Lions Gate Entertainment also has a stake in tax-assisted financing through its interest in CineGate Production Management Services.
While not technically defined as a tax shelter, the loophole is integral to the business of 'tax-assisted private sector structured filmed entertainment financing', whereby production companies (including US studios) can save up to 6% of their production budget.
A Canadian producer who asked not to be identified told Screendaily that the changes would have little effect on the number of so-called 'runaway' productions - US financed film and television productions - shooting in Canada. "They [US producers] come up here because of the dollar difference. If it was just a matter of that five or six percent they wouldn't bother."
The producer suggested the government's action was politically and financially expedient - giving the appearance of addressing a contentious cross-border trade issue while closing a tax-revenue draining loophole.
Co-production treaties and federal and provincial incentives such as labour-based tax credits and the production services tax credit, both of which can contribute significantly more to a production, remain unaffected.
Both Grosvenor Park and SHAAELP, which has a European joint-venture with Ernst & Young (UK), are active in other markets. None of the companies was available for comment.