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Animation jobs leaving Okanagan after tax credit axed, say industry leaders

Brain drain looms for Kelowna animation sector with loss of provincial tax credit
Okanagan animation studios say elimination of a provincial tax credit favours Vancouver.

The animation sector in Kelowna is hopeful the provincial government will reverse its decision to kill a regional tax credit relied on by local studios.

The exclusion of animation studios from the regional and distance location tax credit—which equates to about 12% of payroll—will send jobs to not just outside Kelowna, but out of Canada as a whole, says two local studio leaders.

“Canada constantly competes with overseas for animation,” said Jay Surridge, creative director and studio head for Monster Puppy Productions Inc.

“That extra 12%, that was bending in our direction… the work back to Canada. If you remove that, those 100 jobs are going to be gone, that money is going to go to India, China, over to Europe and other places.”

Surridge, after nine years of working as a partner with Kelowna’s Yeti Farms, is in the midst of launching his own studio and has 25 people working on a new project under the Monster Puppy Productions banner.

“I'm basically building up the core crew… We were actually going to start looking at a space, possibly buying a building,” he said, explaining that the elimination of the tax credit has resulted in a freeze on many future plans.

Earlier this year, Kelowna’s Yeti Farms was sold and rebranded as Artist Animation Studio.

Todd Ramsay, Yeti Farm co-founder and head of animation at Artist Animation Studio, echoed Surridge’s sentiments about animation work heading overseas.

“What these tax incentives really do is they allow these bigger companies like Netflix and Amazon to choose studios like us, as opposed to sending the work overseas to Korea and China and the Philippines,” Ramsay said.

Both Ramsay and Surridge said Kelowna’s studios previously captured a lot of the “overflow” work from the larger firms in Vancouver like Industrial Light and Magic or Sony.

But with the tax credit gone, that overflow work will either be handled in-house by the big studios or overseas, they said. As the big studios get bigger, the animation sector will get more concentrated in Vancouver, which has better infrastructure and access to film executives.

“For me, getting things going and starting up a new company here, why would I do it in Kelowna and not do it in Vancouver, or go to a different province at this point,” Surridge said.

James Wood, animation instructor at Okanagan College, said Kelowna’s studios traditionally served as a proving ground for students entering the industry.

“Can they afford to go to Vancouver, or Toronto? Can they afford to live there? How can they start their careers then,” Wood said.

Wood said the larger studios will not be impacted by the removal of the tax credit in a big way, “They've got deep pockets, they can handle this.”

“Those who are closer to the line, smaller productions, are probably going to have to fold up,” Wood continued.

Petition launched

Sean Ridgeway, department head of animation at the Centre for Arts and Technology in Kelowna, has launched a petition calling on the government to change course. Several hundred people have signed so far.

“Many of our students come to our school from remote rural areas of British Columbia, Alberta, and Saskatchewan. Most often, they choose to attend school in Kelowna because moving here is less daunting and financially more viable than moving to a ‘big city’ like Vancouver,” Ridgeway said on the petition.

“Additionally, they are compelled to enroll in our school because of our historic ability to place them in smaller, local studios like Artists Animation Studio (formerly Yeti Farm Creative), Monster Puppy, and the local satellite studio of Bardel Entertainment.”

Closing a 'loophole'

During a visit to Kelowna earlier this month, Finance Minister Katrine Conroy said the tax credit was removed in this year's budget as a way to "close a loophole" created by companies taking advantage of the tax credit for individuals who were working from home.

"The original intent of the tax credit was so when companies were based out of Vancouver and they were staying there to do all their filming, it was an incentive for them to move into other parts of the province," said Conroy.

"What we found in the animation industry was people were using the tax credit because they had employees who were working from home. It wasn't being utilized in the way the tax was intended."

She admitted that the move could have some unintended consequences for studios that were not abusing the credit.

"We recognize it could affect some people but we need to close the loophole. It wasn't being utilized in the way it was originally intended."

The industry remains subsidized by tax dollars in a big way. When combined with federal tax credits, B.C. studios can still access credits for 58% of payroll.

"There isn't another industry in B.C. that can access 58% tax credits toward their payroll," says Conroy.

Ramsay called that perspective “short sighted.”

“It really helped the industry here and it brought a lot to the local economy,” Ramsay said. “These are all artists and animators that are living here, paying rent, we’re leasing a space downtown Kelowna.”

“I think the benefit far outweighs the amount of money the government pays for the tax credits — it seems to be a no brainer,” he continued.

“There was no consultation given to us or no one reached out and asked what the impacts would be,” he continued. “It doesn't take effect until June 1. So we're really hopeful that it can be reversed.”

CreativeBC says the motion picture sector had a $46.59M direct GDP impact on the Thompson-Okanagan in the fiscal 2021/22 year.

Kelowna-Mission MLA Renee Merrifield raised the issue in the legislature this week and suggested the tax credit was a small drop in the bucket of a budget that is carrying an $8B deficit.

Conroy responded by saying Kelowna has competitive advantages of living in Kelowna, like a lower cost of living than Vancouver, something Merrifield disputed.