Source : Globe & Mail

How to bilk taxpayers and influence people

by Doug Saunders

So you want to go into the TV business, do you?  A wise choice.  There's lots of money in it.  But you'll have to learn a thing or two, see.  This is Canada, and we do things a little differently here.  None of that Mickey Rooney, let's-put-on-a-show visionary stuff.  Here, when you think of TV production you're better off imagining a Scorcese flick, a Mario Puzo adaptation.  It's a family, you know what I mean?

Don't worry about the cops.  They'll mostly stay out of your way.  I know; the RCMP launched an investigation this week into Cinar Films, the Montreal TV-production company that makes wholesome, all-Canadian kids' shows.  The allegation is that their government-funded Canadian-content shows were actually written by Yanks, with make-believe Canucks put on the credits to satisfy the funding agencies.  First of all, they haven't proven anything.  Second of all, that would be strictly small-fry stuff.

"There are honest people in this business," an experienced TV writer said to me this week.  "But they're in the minority.  Almost every producer has found a way around the Canadian-content rules, because the rules get in the way of making money."

Don't call it cheating, or a scam, or a fiddle.  No, it's Creating a Vibrant Cultural Industry.  It's Reflecting our Country to our Children.  It's Telling Canadian Stories to Canadians.  It's also a huge pot of taxpayer dough, maybe $400-million a year when you add it all up, just sitting there.  And while many Canadian filmmakers struggle in penury to realize their dreams, other producers' creativity starts and ends with ripping off the system.  As an industry source told Canadian Press this week, "It's a nightmare if this thing unravels."

A certain part of Ontario's Muskoka resort area has become known as "Lake Telefilm," because the very tangible benefits of Canada's film and TV-subsidy system are so visible around its shores.  You ought to to get a little place there.  Certain Toronto and Montreal neighbourhoods ought to be named after the TV series that have so amply furnished them, too.  You just gotta know how to grab a piece of it.  Let me show you a few tricks.

First of all, set up a production company in Toronto or Vancouver.  But open a "branch office" in Los Angeles - this is where most of your staff will be located, and where you'll do most of your business.  Everybody does it.  That way you'll look "Canadian" when it comes time to ask for money, but you won't have to work up here.

Even better, hook up with an American production company in L.A., and open a separate, seemingly independent company in Toronto to capture Canadian-content business.  As a Canadian, you can run a lively business in L.A. helping Hollywood types alter their productions so they satisfy the bare minimum legal requirements to be called Canadian and receive handouts.  There are lots of people doing that.

"A lot of these service companies in Toronto are basically fronts for an American deal," Pat Ferns, head of the Banff Television Festival and a veteran producer, said to be the other day.  He says it's not as bad as it used to be, but you can still get away with it.

"The regulations have tightened up, but we're in an industry that's very, very collaborative, and that creates a lot of grey areas that people can take advantage of."  Watch out for guys like Pat.  They're too honest.

CHEAT SHEET

"The government is hiding under the guise of cultural subsidy to really operate an industrial subsidy," said Ian Morrison of Friends of Canadian Broadcasting this week.  "Somebody is not policing the rules properly and they damn well should."  But till then, here's how to make a mint on bogus Canadian content:

Create shell companies.  Base yourself in Montreal or Regina, but have a "branch" office in L.A. - actually the parent firm.

Hire fake Canucks.  Have Americans write and star in your show, but put Canadian names (real or imaginary) high in the credits.

Co-produce internationally.  "Co-pros" jump to the front of the federal trough, even if there's nothing genuinely Canadian about them.

Juggle tax credits. Pay everyone in Canada for tax breaks - except American stars, who'll get a better rate in the U.S.

Never show a profit.  Make sure even your most successful, syndicated projects lose money on paper, so you never pay back grants or taxes.

Deduct everything.  Put your house and car in your movies.  Expense every lunch, party and trip.  Write off your life.

No matter how you get started, be sure to open tiny branch offices in Winnipeg and Saskatoon, and incorporate them separately, with one part-time person answering phones, so you can get extra grant bonuses from the feds for shooting "regional" productions and jumbo tax credits from those provinces for making "local" productions.  You might have to hire half-a-dozen crew members for the handful of scenes you shoot in the boonies, but you can keep doing most of your work in Toronto, or in L.A. for that matter.  Everyone does it.

Now, you're going to make a TV show.  In order to make it "Canadian" enough to get grants from Telefilm Canada and juicy tax breaks from federal and provincial governments, you have to make sure that most of your writers, directors, actors, stories and crew are Canadian.  Shhh, don't worry.  You won't actually have to use Canucks.

First of all, you don't have to do what Cinar is being investigated for allegedly doing: Paying an American to write your show and putting a fake Canadian's name (in this case, allegedly an amalgam of your children's names) on the credits.  It is a popular technique - The Ghost of Dickens Past, filmed last year, and Who Gets the House, coming in January, are among the productions doing the same, a Radio Canada report alleged on Thursday.

But there's an easier way.  The government doesn't actually require your Canadians to live in Canada.  And Los Angeles is full of people with Canadian passports who've lived in Hollywood for years, even decades.  Whenever a writer or director or actor moves south - and don't they all? - the first thing they're told is not to lose their citizenship.  Otherwise they'd be no good for grants. Most of the people who write and direct Canadian TV live in L.A.  Why not put Margot Kidder in the starring role?  Sure, she's still Canadian content, but she's pure Hollywood and not too expensive.

Still can't find a suitable Canadian?  You'll have to get a little trickier.  Why not hire a Canadian as the lead actor, and a well-known Yank in a supporting role - but make sure the American gets all the screen time, all the lines, and the girl.  You'll have to pay him a little more to settle for second billing; Canadian producers often pay the supporting Yank twice as much as the lead Canuck.

Oh, and let's say you really do want to hire a writer with a big eagle on his passport.  Don't sweat it.  Just pay him an extra hundred thou to appear on the credits as a "story editor," and get a Canadian to do a preliminary treatment and appear on the credits as "writer."  Ottawa's rules allow up to three foreigners to get "producer-related" credits - as "consulting producer," say.  "You wouldn't believe how often these people end up writing most of the episodes," a production-company executive told me.  Everybody does it.  It keeps the grant money flowing.

If you really want to avoid paying Canadians, produce a cartoon series.  Only 65 per cent of your money has to be spent in Canada, although the "key animation" is supposed to be done here.  Most companies openly ship their colouring and "in-betweening" - the drawing of repeated figures - to Asia, where labour is much cheaper.  But key animation is hard to define, and a lot more gets done abroad than you'd think.  "We did token work here, maybe 10 per cent of the work, but a lot of the principal work was in California," a cartoonist on a Toronto-based project said in an interview earlier this year.

Actually, there's a way to get big-time grants without having to be very Canadian at all.  It's called an international treaty co-production.  You sign up with, say, an Irish or German company that has a "co-pro" deal with Canada.  According to the rules, you have to get grants from the Canadian Television Fund and Telefilm, even if there's nothing terribly Canadian about your show and its creation is effectively controlled from abroad.  When there's a big lineup for grants each year, this is a way to skip to the head of the line.  Enjoy the money.

Now, let's talk about taxes.  Here's the catch: Your U.S. partner may want to do much of your work in the States, but if you do it in Canada, you get big tax credits on labour expenditures, credits worth at least 20 per cent of your budget.  So do both.  Here's how you swing it: Do half your shooting in and all of your post-production work (the editing and effects that can eat up a third of your budget) in the States - but pay your U.S. payroll invoices to the Yanks through your Canadian shell company, so you can claim them for tax credits.  Don't worry about getting caught.  As an unidentified official told Canadian press on Thursday, Ottawa doesn't really understand the business, so its monitoring system "is lousy, totally lousy."

On top of this, you get an investment tax credit for using a Canadian company this way.  And top of that, many Canadian equipment and post-production companies will be happy to issue "local" invoices for work done at the U.S. branches.

"If Revenue Canada were to audit a few made-for-TV movies and compare their generous rebates to the movie's actual cost, there'd be trouble," a film accountant told me.  "But they keep getting away with this, with filtering their payroll and invoices through Canada."

When it comes to big-name Hollywood actors, you've got to watch it.  You'll have to "bifurcate" their pay.  Make sure you only pay them a couple of hundred thou in Canada, because Ottawa hits them for taxes.  The other two million is paid in the States, where you've shot two minutes of footage.  Revenue Canada caught onto that one this year, so you might want to bill the $2-million two some other, non-Canadian production.  Actors don't mind, as long as they get paid.

Now it's time to pay yourself.  The most important figure in Canadian showbiz accounting is not the box-office gross or the net return but the "underage."  No, that's not the teenage girl in the lead role.  It's how much your show comes in under budget - even though it will appear, on paper, to break even.

What you do is show Telefilm and your investors a budget that says your series will cost $20-million.  Once you've shown them your "Canadians," the feds will give you, let's say, an $8-million cheque.  You shoot the series, making sure it costs only $15-million.  Then you can start dreaming.

Got a little feature film you want to start developing?  Bill a million to the show's underage.  Not happy with the Venetian marble on your office walls?  Bring in the contractors, and bill it to the underage.  Still under?  Give yourself a special consulting fee.  For a devious few, that's Canadian showbiz, baby.

It especially helps if you have international distribution rights to your series.  Then you can keep making money off it for years, and still keep it from making a profit.  Say you sell the German rights for a few hundred thou.  Well, to sell those rights, you had to fly to Europe, spend a few weeks in Cannes with a dozen of your "assistants," hold a huge party in Toronto and open an Amsterdam office.  All of it billed to the "cost" side of the show's ledger, of course.

"This can keep you going for years," a prominent Toronto entertainment lawyer laughed when I asked him about this.  "I've worked for some guys whose whole lives are billed to one production."

But just make sure it never shows a profit.  If that happens, you'll have to pay back your Telefilm money, not to mention paying all those people you guaranteed a percentage of your profits.  Canadian films and TV shows almost never show profits.  This permits you to cry to the granting agencies about all the money you've lost, even as you boast to your shareholders about all the money you've made.  Don't worry, they never talk to each other.

And you really ought to give yourself some gifts.  Your house isn't big enough?  Just shoot a scene for your series in the living room.  That way, you can get your house renovated and refurnished, and bill it to the taxpayer-funded production.  Plus, you can deduct your house as a place of business for the rest of the year.  And don't forget your car: Make sure the Mercedes appears in the background of a scene.  Presto, instance business-expense tax deduction.

Don't want to soil your parquet floors?  That's okay.  You can still sell that ratty old cottage couch to your TV series as set dressing for, say, $6,000.  And another thing: Call up an appliance company, a good one like Sub-Zero, say.  Ask them for one of those $10,000 ranges, free of charge, for the show.  Say it'll be featured prominently on screen, and that the company name will be noticeable in the credits.  Then, put a $10,000 cost item in your budget for the stove.

That'll give you some extra folding money.  At the end of the shoot, you can buy the stove from the production for a dollar, and stick it in your kitchen.

Not that you'll be using your kitchen much.  You'll be too busy billing $700 lunches at Bistro 990 to your TV series, struggling to shovel revenues down your throat before they turn into profits, pressing your lawyer on more ways to angle for government grants, all the while complaining about those nasty taxes.  Take it easy, and try not to choke.

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