Competition is getting tougher between Ontario and B.C for the lucrative U.S. film-production business.

Early this summer, Ontario sweetened tax credits dramatically to attract more foreign production. The province was matching incentives introduced by Quebec that offer a 25 per cent tax credit on the total cost of production for films shot there.

B.C. offers its incentive on labour costs alone — traditionally only half the budget of a feature film. It also has a special incentive for digital animation and special effects work.

The Ontario and Quebec incentives effectively double the film tax credits in those provinces. As a result, business is now moving east.

"We've lost three independent feature films between $9.5 and $15 million that have all shifted out east," Shawn Williamson, a Canadian film producer based in Vancouver, told CBC News.

His company Brightlight Pictures gets half its annual revenue — more than $40 million — from making U.S. productions in B.C., Williamson said. Among its recent projects are Slither, Gunless and Fifty Dead Men Walking.

Now Hollywood is buzzing about the rich incentives in Ontario, and he said he can't afford not to operate there.

"We were in Toronto two weeks ago with this in mind to set up offices there and set up production in Ontario. When they've changed the credit the way they have, we can't ignore it," he said.

Half of Brightlight's staff will also be moving east.

The Motion Picture Industry Association of B.C. is concerned about the trend, says its chair Peter Leitch.

B.C. minister sympathetic

Leitch, who is president of North Shore Studios, says the industry is working with the provincial government to find a solution that will keep production in B.C.

"This is a much bigger situation than we've ever faced in the last 25 years, I think, in the industry," he said.

Producers have met with B.C. Culture Minister Kevin Krueger and found him sympathetic, but the minister has made no commitments to counter Ontario's move to capture a bigger share of the lucrative movie making business.

The B.C. government is looking for ways to cut its deficit and may not be in a position to offer many goodies.

Other jurisdictions, including California, are unhappy about the enriched tax credits in Ontario and Quebec.

Governor Arnold Schwarzenegger, former star of Terminator, has championed the fight against runaway film production.

In February, California introduced its first-ever incentives with a 20 to 25 per cent tax credit on lower budget films.

With files from CBC's Margo Kelly, Jeff Davies