Montreal visual effects industry says tax credit changes are driving business away

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Representatives of Montreal’s visual effects industry say they’re already losing business due to provincial tax changes that come as they’re still recovering from the effects of the COVID-19 pandemic and Hollywood strikes.

Industry members say they’re now calling on the Quebec government to delay the tax credit changes — which come into effect at the end of the month — and to sit down with them to discuss alternatives.

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“The impact is already here. We know we lost contracts; some of our clients actually told us, ‘We’re going elsewhere because we’re not able to meet the May 31 deadline. We’re not going to rush things and we’re just going to go over to the U.K. and France,’” Véronique Tassart, the director of mergers and acquisitions transition at Cinesite, a London-based visual effects company that has a large Montreal presence, told reporters Wednesday.

Quebec’s visual effects industry was on an upward trajectory before it was hit by the combined impact of the COVID-19 pandemic and 2023 strikes by Hollywood actors and writers, which shuttered film sets and led to thousands of visual effects job losses in Montreal. Now, just as the industry is recovering, representatives say one of its competitive advantages is being taken away.

Tassart said Quebec was once the most attractive place for visual effects work, bringing in major international projects, but is no longer a consideration for big film studios.

The changes, included in the provincial budget tabled in March, increase the base tax credit for film production services by five percentage points — to 25 per cent, with another 16 per cent available for special effects and animation using computers — but introduce a 65 per cent cap on the percentage of costs eligible for the credit.

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Previously, 100 per cent of an animation or visual effects contract was eligible.

The net effect is the equivalent of a 30 per cent cut to the credit, Sébastien Moreau, the CEO of Montreal-based Rodeo FX, told reporters.

“The decrease is too fast, too big and comes at the worst time for our industry, which is going through a difficult time,” he said.

More than 8,000 people work in Quebec’s visual effects industry, said Chloé Grysole, the managing director of Canadian activities at Framestore Canada, and have an average salary of $82,000.

She said the industry generates $6 in economic activity for every dollar it receives from the tax credit, and that around $1 billion in business could be lost due to the changes.

Moreau said industry members want the provincial government to delay the changes to Jan. 1, 2025 and to work with them to find alternatives that will meet the goals of a government facing a tight financial situation, while maintaining the competitive advantage that has allowed Quebec studios to work on projects like Big Little Lies, Blade Runner 2049, Dune, Foundation, Game of Thrones, The Lord of the Rings, Mission: Impossible, John Wick, Breaking Bad and Stranger Things.

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In the 2024 budget, the Quebec government said the credit, like others supporting sectors related to information technology, was introduced at a time when the province faced a high unemployment rate — unlike today, when it has a labour shortage.

The changes also bring the credit in line with those supporting similar sectors — such as video games and film shoots — which are generally capped at 65 per cent of labour costs, the government said. The credit was the only wage-based credit that allowed 100 per cent of a contract to be claimed, according to the budget document.

Gavin Graham, who worked as a manager at a Montreal visual effects studio before losing his job due to the strikes, said people like him expected they’d be able to find work again, but that may not happen due to the tax credit changes.

“We were expecting a big recovery. We were expecting to be able to pull back a lot of the workforce,” he said in an interview. “But now that we’re seeing the clients potentially deciding not to send the work here, it means that people may not come back as well.”

The visual effects industry requires teamwork and the teams working in Montreal were among the best in the world, Graham said. He added that if the government doesn’t change course, leading workers to leave, that could be lost forever.

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