Mar 18, 2021

CD Thu., March 18, 2021timer3 min. read updateArticle was updated 2 hrs ago An interactive production company is suing the Ontario government, claiming changes to the province’s digital media tax credit regime half a decade ago left the business unable to fully pay more than 40 workers or get financing for new projects. Xenophile Media Inc. is a Toronto-based company that made documentaries and cross-platform content, including alternate reality online games to complement television shows such as “Flashpoint” and “ReGenesis.” The company filed a statement of claim with the Ontario Superior Court of Justice in January, alleging that negligence by the Ontario Media Development Corporation cost Xenophile $750,000. The company says that it relied on refundable provincial tax credits to help pay the people it employed on at least a dozen productions, most of whom were independent contractors as the work was project-based rather than ongoing. But in the 2015 provincial budget, the government said it planned to change the rules so that projects would only be eligible for tax credits if at least 80 per cent of the workers were from Ontario and 25 per cent of the labour costs were for full-time employees of a company. The Liberal government at the time wanted to curtail the expenses associated with the Ontario interactive digital media tax credit (OIDMTC), which had been created to support the gaming industry but had “grown at an unsustainable rate” as companies doing work only tangentially related to digital innovation applied for the credit of up to 40 per cent on labour costs. The new rules also tightened up the types of projects that qualified for the credit, for example by excluding work on newspaper websites or apps. (Torstar Corp., the owner of the Toronto Star, previously reported receiving digital media tax credits.) But Xenophile says it was the changes to the labour requirements, which were aimed at encouraging permanent jobs in Ontario, that left it unable to pay workers or continue its business. The proposed rules were only finalized in 2017, but the new requirement that at least 25 per cent of labour costs be associated with employees became effective in April 2015, the moment the government introduced the budget. Patrick Crowe, the founder and president of Xenophile, said that change was a huge problem for small businesses like his that hired workers on a contract-by-contract basis. “It knocked us and all our projects and our business model out of the water without warning,” he said. Ontario Creates is an agency of the government that oversees the province’s tax credit incentives for creative industries, including music, film, television and video games. Suzan Ayscough, head of communications for Ontario Creates, said the agency could not comment on an active legal proceeding. In an email to the Star, Ayscough confirmed that the changes were announced as part of the provincial budget in 2015. She pointed to provisions of the budget and subsequent regulations that provided, “both the 80 per cent and 25 per cent tests would be applied to products which applied for certification after April 23, 2015, regardless of when the file was picked up for review.” Xenophile was in the midst of four final projects at that time. In the coming years, the company claims there were delays in processing its applications and that government bureaucrats gave it mixed messages on whether the work would still qualify for the OIDMTC. It says it ultimately learned in January 2018 that it would not qualify for tax credits on any of the projects because almost all of its workers were independent contractors. None of the allegations have been proven in court. Crowe said not getting the money the company was counting on left it unable to repay a $300,000 business line of credit as well as $300,000 he personally borrowed against his home in the Kensington Market area. RELATED STORIES “It destroyed my business. The changes to the tax credit were catastrophic for Xenophile,” he told the Star. The company has not worked on any other productions since then and Crowe and his partner have rented out their house and have been living with relatives or friends, bouncing between Sudbury and Vancouver. Loading... Loading... He said most project financing the company was able to obtain in the past was based in part on the availability of tax credits. Now, he said, even if he could get another project going, “the bank would have the legal right to take the money.” Letters Crowe sent to former finance minister Rod Phillips and Premier Doug Ford , pleading his case and asking for restored access to the tax credit, went unanswered, he said, and the government has not yet responded to his lawsuit. SHARE: