Two days before its tax credit is capped, the visual effects and animation industry is sounding the alarm. The main studios are calling on the Legault government to postpone the introduction of this measure until January 2025, while it finds a solution. Otherwise, thousands of people could lose their jobs.
“This decline [du crédit d’impôt] represents a cut of approximately 30%, which has the effect of making Quebec uncompetitive compared to its competitors located in other provinces and other countries. The impact is major,” said Sébastien Moreau, president and CEO of Rodeo FX studios, during a press conference on Wednesday.
For the occasion, he was surrounded by around twenty other industry players. With one voice, they all ask Quebec to initially postpone until January 2025 the application of a 65% cap on expenses eligible for the tax credit for companies operating in this sector.
If the government complies with their request, Quebec animation and visual effects studios plead that they could at least seek a few new contracts with the Hollywood giants this summer. They also hope to take advantage of this six-month period to convince the government to review the ceiling it intends to impose on the tax credit granted to the sector.
“The reduction in the tax credit is too rapid and too steep. And it comes at the worst time for our industry,” summarizes Sébastien Moreau.
Already difficult period
This industry, which has experienced meteoric growth in Montreal in the last ten years, was already weighed down by difficulties before the changes made to the tax credit in the Legault government’s latest budget. Actors’ and writers’ strikes in Hollywood have delayed several American productions. Quebec studios were therefore logically less in demand. This industry has had to temporarily lay off a little more than 42% of its workforce in recent months.
The normal resumption of activities was expected this summer. But the entry into force on May 31 of a cap on expenses eligible for the tax credit would dissuade major American studios from doing business in Quebec. Job losses suffered during strikes risk becoming permanent, it is feared. Worse: the Quebec Cinema and Television Bureau (BCTQ) estimates that the sector could experience other job cuts this summer if Quebec maintains the limit of expenses eligible for the tax credit at 65%. Of the approximately 8,037 jobs in the sector in 2022 in Quebec, only 2,623 could remain next August, according to the BCTQ.
In the near future, businesses could leave Montreal. It is also argued that a portion of workers, whose average salary is estimated at $82,000, will be forced to emigrate.
“Disney, Apple, Netflix, Amazon and all the others are all telling us the same thing: Quebec is no longer an option because of this new measure. The government is convinced that Quebec still is, wrongly, because the opinion of the major clients is completely different,” underlines Véronique Tassart, Director of Integration of Mergers and Acquisitions for Cinesite.
Quebec stays the course
In its last budget, presented in March, the Legault government changed the terms of the tax credit for audiovisual sectors. For foreign filming, on the contrary, the tax credit increased from 20 to 25%, which was well received. In video games, on the other hand, changes which should come into force in 2025 could also jeopardize jobs, especially in small companies, as reported The dutyTuesday.
“It is a responsible choice: while aid to [effets visuels et à l’animation] was disproportionate, those for filming and Quebec cinema were insufficient. Furthermore, let us remember that our support for the industry remains very competitive compared to other jurisdictions,” the office of Finance Minister Eric Girard reiterated by email on Wednesday.
The Legault government says it has decided to restrict the tax credit for the visual effects and animation sector following a consultation conducted last year. “During this consultation, several mentioned the significant cost of these credits, their ineffectiveness, the insufficient benefits and the current context of labor shortage to justify significant changes,” it was noted.