The Business Pitch

Growth In Vancouver

I frequently receive calls from artists and students wondering about the stability of the visual effects industry during global economic change. A quick internet search for �vfx layoffs� turns up documents from 1997, 2001, 2003 and so on, indicating a predictable flow of company-specific downsizing and regrowth that is natural for this industry, considering the scale and ambition of most visual effects projects and the shift in the last 10 years to contract positions. 

People can't get enough of movies and television, especially in a recession. In North America during the Great Depression, film production was strong, not only due to advances in technology such as �the talkies� and color film along with widespread distribution, but also due to the underlying urge during tough times for people to escape through entertainment. 

"The content of the motion picture was designed for escape, the majority reflecting the tastes of tired or jaded adults seeking a never-never land of luxury and melodrama, sex and sentiment." (1)

In 2008, in the top 20 domestic (US) box office statistics, the clear winners were VFX-driven movies Iron Man and The Dark Knight, and animated features Wall-E and Kung Fu Panda. (2) The tired and jaded have spoken.

Ticket sales went up last year; Variety reports that the "Box Office Resists Recession" with domestic ticket sales rising to $9.63 billion US between Jan. 2, 2008 and Jan. 2, 2009, just edging out the previous year's total of $9.62 billion. (3) 

The Vancouver Sun reports that �North Americans will drink, dance and distract themselves through the worst of it.� Any way people can escape, they will,� says Gerald Celente CEO of The Trends Research Institute.� (4)

In Vancouver in the last few years, we've seen international companies Deluxe and Technicolor invest in Rainmaker and Command Post; Frantic Films of Winnipeg partnering with Prime Focus and opening offices in Vancouver and LA. We've also seen an influx of companies from the US, London or Toronto opening a branch in Vancouver, such as MPC, Stargate Digital, Zoic Studios, Entity VFX, Spin VFX and Gray Matter VFX. 

Ivan Hayden, VFX Supervisor for Supernatural Season IV and President of the Visual Effects Association of BC (http://www.veabc.com/), comments, "With over 30 local VFX Houses offering up the full amenities for Visual Effects between them, and a healthy freelance talent pool that can augment any production's needs, BC is stepping onto the global VFX stage. We are seeing more and more big budget projects looking North to take advantage of our cooperative community, skilled talent pool and tax incentives. Our VFX community is as healthy as ever, in this regard."

Vancouver VFX shops are now becoming first-string or lead VFX houses on films, a new trend that validates the talent and positive economic results of producing VFX in Vancouver. Image Engine (http://www.image-engine.com) worked on The Hulk last year, and along with Orphan and New in Town has a major Peter Jackson produced film in production (District 9); CIS Vancouver (http://www.cis-vancouver.com) has recent credits on Changeling and Twilight and just received the "Outstanding Supporting Visual Effects in a Motion Picture" award for Changeling from the Visual Effects Society (http://www.visualeffectssociety.com). 

Says CIS Digital Effects Supervisor Geoffrey Hancock, "We're working on an exciting project that pushes our past crowd work to new heights. For this we are expanding into another building nearby to meet the demands of artist workspace and render farm expansion. CIS has a couple of other projects in house like Angels & Demons, Tooth Fairy, G.I. Joe: The Rise of Cobra. It's bound to be a busy year." 

The Embassy (http://www.embassyvfx.com) added feature VFX to their strong commercial practice by providing VFX shots for Iron Man; Frantic Films (http://www.franticfilms.com) completed Stereo VFX on Journey to the Centre of the Earth and worked on The X Files: I Want to Believe and The Forbidden Kingdom, Artifex (http://www.artifexstudios.com) is busy with Defendor and Spin VFX (http://www.spinpro.com) is working on Psych and gearing up for another feature this spring. 

VFX Supervisor & Director John Gajdecki (http://www.johngajdecki.com/) comments, "We're working on The Hole, a psychological suspense feature that is shooting in Stereo in Vancouver and LA. The VFX are being completed both in Vancouver and in LA; I'm heading up the Vancouver half and Robert Skotak (Titanic and Aliens) heading up the LA half. We are moving away from our long-standing relationship with Digital Fusion and moving to NUKE for 2D and sticking with Maya for 3D. Also, we are the first to use the REVIEW features of Frame Cycler in Stereo Mode and are Alpha testing a new stereo projection system that is very slick indeed. The economic recession is not felt as heavily in Canada as in other countries due in large part to sound government policies, and as always we are as busy as we need to be." 

The next few years will prove to be very interesting in all aspects of the economy and filmmaking. Ground-breaking new technologies continue to develop, creative boundaries continue to get pushed. No matter what the economy, a talented, committed artist can find a way to contribute. Keep going to the movies! 

Sources:

1.http://xroads.virginia.edu/~ug02/FILM/hollywooddepression.html (http://xroads.virginia.edu/%7Eug02/FILM/hollywooddepression.html)

2.http://www.boxofficereport.com/ybon/2008gross.shtml

3.http://www.variety.com/article/VR1117997933.html?categoryid=1082&cs=1

4.http://www.vancouversun.com/Entertainment/Escapism+comes+fore/1158178/story.html

Quoted from: http://forums.cgsociety.org/archive/index.php/t-733718.html

Tax Benefits For The Self Employed In Canada

Some Common Tax-Deductible Expenses
Many self-employed tax benefits soften the blow of having to acquire things that an employer normally provides. In this way, the tax code helps to encourage entrepreneurship. (To read more about common deductions, see10 Most-Overlooked Tax Deductions.)  

• Self-Employment Tax Deduction: The self-employment tax refers to the employer portion of Medicare and Social Security taxes that self-employed people must pay. Everyone who works must pay these taxes, which for 2010 are 7.65% for employees and 15.3% for the self-employed (7.65% x 2). In 2011, taxes for self-employed filers are being reduced to 13.3%.  Many people view the self-employment tax as a discouragement to entrepreneurship, but the IRS does a couple of things to reduce the sting. 
  
  First, you get to deduct half of your self-employment taxes from your net income. Essentially, the IRS treats the self-employment tax as a business expense and allows you to deduct it accordingly. Second, you only incur self-employment tax on your net business income, or what's left over after you subtract your business expenses. 
  
  Finally, you only pay self-employment tax on 92.35% of your net business income in 2010. Thus, someone in the 25% federal tax bracket ends up with an effective self-employment tax rate of only 12.36%, not 15.3%. Remember, you're paying the first 7.65% no matter who you work for, so the self-employment tax amounts to an extra 4.71% tax for someone in the 25% federal tax bracket, not an extra 7.65%. That's a small price to pay for being your own boss, right? (Keep reading on this in Top 4 At-Home Financial Jobs and Should You Incorporate Your Business?)
  
  
• Home Office: The home office deduction is one of the more complex deductions. In short, any workspace that you use regularly and exclusively for your business, regardless of whether you rent or own, can be deducted as a home office expense. While you are basically on the honor system, you should be prepared to defend your deduction in the event of an audit. Make sure to prepare a specific map of your workspace, with the correct measurements, in case you are required to submit this information to receive your deduction. And don't forget to include your restroom, as the government expects your home company to need facilities too. (For more information on what is required for an audit, see Surviving The IRS Audit.)
  
  The expenses you can deduct for your home office include the business percentage of rent or mortgage, property taxes, utilities, homeowners insurance and home maintenance that you pay during the year. For example, if your home office occupies 15% of your home, then 15% of your annual electricity bill becomes tax deductible. (For more, see How To Qualify For The Home-Office Tax Deduction and Creating A Home Business Work Space.) 
  
  
• Health Insurance Premiums: The tax code makes it difficult for most people to deduct the cost of their health insurance premiums. However, if you are self-employed, pay for your own health insurance premiums, and were not eligible to participate in a plan through your spouse's employer, you can deduct all of your health, dental and long-term care insurance premiums. What's more, you can also deduct premiums that you paid to provide coverage for your spouse and dependents. This is technically considered a personal deduction, not a business deduction, but it is only available to the self-employed. (For more, see Buying Private Health Insurance.) 
  
  
• Meals and Entertainment: To deduct meals and entertainment (meals being considered the most common business entertainment expense), you must conduct business with the person you are entertaining during the meal/event or immediately before or after it. Unlike other deductions, these expenses are only 50% deductible, not 100%. Examples of deductible expenses in this category include tickets to a sporting event, the cost of a meal (with beverages, tax and tip), or the cost of a game of golf. Make sure to keep meticulous records of what business activity you conducted, when, with whom, and how it directly relates to the entertainment expense; keep your receipts. This area is audit-prone because many people try to cheat the system here.
  
  
• Internet and Phone: Regardless of whether you claim the home office deduction, you can deduct your business phone, fax and internet expenses. The key here is to only deduct the expenses that are directly related to your business. If you have only one phone, you shouldn't deduct its basic monthly charge, which you would likely incur whether you worked form home or not. You should only deduct costs that specifically relate to your business. If you have a second phone line that you use exclusively for business, however, you can deduct 100% of that cost. By the same token, you would only deduct your monthly internet expenses in proportion to how much of your time online is related to business - perhaps 25%. 
  
  
• Interest on Business Loans and Business Credit Card Interest: It's a no-brainer that interest on a typical business loan from a bank is a tax deductible business expense. However, normally, credit card interest is not tax deductible. If you make business purchases on your business credit card and incur interest, however, this credit card interest is tax deductible. That said, it's always cheaper to spend only the money you already have and not incur any interest expenses at all. 
  
  
• Car: When you use your car for local business trips, your vehicle expenses for those trips are tax deductible. Transportation expenses are considered an audit flag, however, so make sure you only take what you are entitled to and that you keep excellent records. 
  
  You can either deduct the standard mileage rate (determined annually by the IRS) or deduct your actual expenses. The standard mileage rate is the easiest because it requires minimal record-keeping or calculations. Keep track of the business miles you drive and the dates you drove them. Then, multiply the total miles by the standard mileage rate (50 cents per mile in 2010). This amount is your deductible expense. To use the actual expense method, you must calculate the percentage of driving you did for business over the course of the year as well as the total cost of operating your car during the year, including gas, oil changes, repairs and car insurance.

Making Passions More Profitable
If your business happens to be in a field that you're passionate about, a lot of things you would probably spend money on anyway become tax deductible when they are directly related to your business.  

• Publications: The cost of specialized magazines and books directly related to your business is tax deductible. For example, a daily newspaper would not be specific enough to be considered a business expense, but a subscription to the CPA Journal would be tax-deductible if you are a Certified Public Accountant (CPA). (And yes, some people are passionate about accounting.) 
  
  
• Travel: Overnight travel outside your city limits for business purposes is tax deductible. 
  
  To be considered a business trip, your trip should have a specific business purpose planned before you leave home, and you must actually engage in some business activity - such as finding new customers, meeting with clients, or learning new skills directly related to your business - while you are on the road. 
  
  Taxpayers should be particularly careful to maintain complete and accurate records and receipts for their business travel expenses and the business activities they performed, as this deduction often draws attention from the IRS. Deductible travel expenses include the cost of transportation to and from your destination (such as plane fare), the cost of transportation at your destination (such as a car rental or subway tickets), lodging and meals. You are even allowed to travel luxuriously, taking first class flights or staying at four-star hotels, but remember, it's you, not the IRS, who will be paying the bulk of your travel costs. 
  
  100% of your travel expenses for business are deductible, except for meals and entertainment, which are limited to 50%. If your trip does not involve an overnight stay, you can still deduct the cost of transportation, but you cannot deduct the cost of meals as a travel expense. If your trip combines business with pleasure, however, things get a lot more complicated. 
  
  
• Education: Any education expenses that you want to deduct must be related to your existing business - that is, not just any class is deductible, even a class meant to prepare you for a new line of work. If you are a real estate consultant, taking a course called "Real Estate Investment Analysis" to brush up on your skills would be tax deductible, but a class on film noir would not. (Learn more about paying for college in Invest In Yourself With A College Education and Pay For College Without Selling A Kidney.)

The Best Self-Employed Tax Deduction of All
One deduction in particular can make going into business for yourself particularly profitable.

• Self-Employed Retirement Plans: Self-employed retirement plans - such as SEP-IRAs, SIMPLE IRAs, Keogh plans and solo 401(k)s - are particularly valuable for reducing your tax bill now and racking up tax-deferred retirement savings for later. In 2010, you could feasibly contribute 20% of your net self-employment income (based on a maximum net income of $245,000 in 2010) plus a $16,500 elective salary deferral to a solo 401(k) - that's a total maximum contribution of $49,000! 
  
  
  Those who don't make quite as much can contribute to both a self-employed retirement plan and an IRA (as long as you are within the IRA's income phase-out limits). And, if you still have a day job where your employer doesn't offer any kind of retirement plan, starting your own profitable business will get you out of the only-$5,000-a-year rut (the maximum annual IRA contribution) and allow you to start saving more for retirement. (To keep reading on these plans, see 401(k) Plans For The Small Business Owner.)

Conclusion
Most small business deductions are a bit more complicated than can be explained in this brief overview, but this is a good introduction to the basics. Remember, any time you're not sure whether an expense is a legitimate business expense, ask yourself, "Is this an ordinary and necessary expense in my line of work?" This is the same question the IRS will ask when examining your expenses if you get audited. If the answer is no, don't take the deduction. If you're not sure, seek professional help with your tax return from a CPA. 

Quoted from: http://www.investopedia.com/articles/tax/09/self-employed-tax-deductions.asp

The Presentation

PEN Productions Inc. - A Case Study

PEN Productions has been in business from early 2002 as an incorporated company and for many years before that as a freelancing source. In the last few years PEN has grown in the scope of services and projects, it can provide to their clients world wide.

In the last several years PEN has worked on multiple TV series, AAA game titles, many TV commercials as well as mechanical animation, and tools for major companies. All of these clients have been repeat clients and have trusted PEN with their most important production needs.

PEN Productions Inc. provides customised character setup, pipeline development and user interface solutions for production. Their client base consists of companies that either have a small or nonexistent R&D and/or TD department. 
In addition to these services they also produce a wide range or products like a customisable vehicle rig, training dvd's and custom scripts. These provide an added income for the company.  

Their client growth doesn't seem to have been effected by the recession as you can clearly see in this graph.

 

source: www.penproductions.ca