Visual effects, animation studios unite to convince Quebec for better tax deal

MONTREAL — Visual effects and animation companies are uniting to strike a better deal with the Quebec government after it implemented tax changes that some firms say will cost them nearly two-thirds of their revenues next year.

Last spring, the provincial government added in the budget a 65 per cent cap on tax credits that international film studios can claim when they subcontract work to VFX and animation companies operating in Quebec. The original subsidy, which had no cap, was introduced in 1998, and the government says it has become too expensive.

The tax change entered into effect May 31, and as a result VFX and animation studios say the big film companies are less incentivized to put Quebec talent to work.

Véronique Tassart, director of mergers and acquisitions at Cinesite, said her company and other VFX and animation studios are making a joint set of proposals to the Quebec government in the next few months, before the next budget is tabled.

“We want to propose different solutions that would get the government the savings that they’re looking for without destroying the industry here in Quebec,” she said in a recent interview.

One idea, Tassart said, is to implement a rule requiring contracts between international studios and VFX and animation companies to require a minimum of 40-45 per cent of Quebec-based workers. This way, she says, the government is getting investment for its money.

Many companies already ensure about 65 per cent of labour on a contract comes from Quebec; but for some contracts, she said, the percentage of local labour is “much lower.”

Another possible proposal they will put forward, she said, is for Quebec to raise the cap so that the province remains competitive with Australia and France, where the tax environment is more favourable.

Already hard-hit by the Hollywood writers’ and actors’ strikes in 2023, Tassart says Cinesite was looking for a rebound — then the tax credit change came “as a bomb.”

Last spring, weeks after the government announced its plan, Cinesite lost three contracts accounting for one-third of its annual budget, she says. Cinesite, which had 600 Quebec-based employees in VFX and animation 2022, now has 400. More layoffs are looming, she said.

The government’s decision to review the tax credit was legitimate, Tassart says, but it was “too much and too fast.”

After surveying 28 different VFX and animation studios working in the province, the Quebec Film and Television Council found that they are expecting to lose an estimated 25 per cent of their revenue in 2024 and 63 per cent by 2025. The council says the industry generated revenues of $1.3 billion in Quebec last year, but in May, before the tax change kicked in, it said it expected that number to drop to $393 million by 2025.

The council says Montreal-based Digital Dimension closed its doors in May and two more studios are expected to close within the next six to 12 months. It expects four international studios working in the province will relocate work elsewhere. In 2022, Quebec employed 8,000 people in the visual effects and animation industry. Today, the council says the number of Quebecers employed has dwindled to 3,100, with more job losses to come.

Framestore, which produced all of the visual effects for “Barbie” at its Montreal office, is also trying to get concessions from the government. Chloé Grysole, a managing director with Framestore Canada, says the tax changes make it 10 per cent more expensive for film studios to produce visual effects in Quebec.

“We’re world leaders at the moment and the incentive always made it kind of a no-brainer to put work in Quebec. Now, with the incentives growing in France, in the U.K. and Australia, it’s more of a question mark than it used to be, and that’s problematic for us in the long run,” she said.

Quebec-born filmmaker Denis Villeneuve, the man behind Hollywood blockbusters like “Dune” and “Blade Runner 2049,” calls Quebec’s decision a “massive mistake.” In a recent interview with The Canadian Press, Villeneuve said film studios want to employ Quebec talent to make films, but all of that is now at risk.

The former tax credit structure, he said, was competitive with other countries. Without it, “we will lose thousands and thousands of jobs, and that was a lot of money that was coming back to the province.”

This report by The Canadian Press was first published Sept. 26, 2024.

Joe Bongiorno, The Canadian Press