We read very recently that critics of film tax credit financing in the U.S. ( This was in Philadelphia ) felt strongly that the benefits of tax credit financing were negligible and did in fact not stimulate economic growth or tax revenue .
We certainly don’t intent to weigh in on U.S. politics, but it seems very clear that the Canadian governments , both federal and provincial still strongly feel that the economic benefits of the recent tax credit increases over the last year or two in fact do bring in some cases a multiple of 5-10 times in financial benefits to the government . The bottom line is that film, television and digital animation credits in Canada are some of the most generous in the world, and these credits play an integral part in the financing of many productions in our aforementioned 3 key entertainment areas.
In order to stay on top of film TV and digital animation financing it is necessary to understand key elements of tax credit financing in the Canadian environment. Financing of a production can be a daunting, frustrating, and complex journey. Ultimately you want to also ensure you have access to an experienced, credible and trusted financing advisor in this specialized area of finance.
Two key strategies are most commonly used in tax credit financing - essentially the actual financing of a tax credit when it is certified and in fact filed, and , equally ,or perhaps more popular, the financing of tax credits now on the assumption they will be certified and eligible for government financing . This 2ndprocess we have describe here could be called ‘accrual tax credit financing ‘.
As a producer, director, or owner of a project (Perhaps you are all three?!) you want to ensure you interpret the different tax credits properly – that will allow you to maximize the financing you are eligible for.
Most commonly use also want to set up a separate legal entity for each project, one that allows you to maintain specific and separate legal and financial records for that project.
As unpopular it might be to focus on areas such as payment of taxes, keeping filings up to date, etc you must ultimately attend to these key issues as they are intrinsic to the proper financing of a tax credit.
The financing of a tax credit is clearly one of the most innovative methods in which you can generate valuable cash flow and working capital for your production. In many cases other parts of your debt and equity financing will always come back to your ability to both generate tax credits, and even moreso, finance them in a timely and economical fashion.
When you utilize a film finance tax strategy you are in effect helping to reduce part of the complexity of the film financing process. We can’t keep forgetting that our advice also refers to television and digital animation credits also.
Monetizing your film tax credits demonstrates your ability to ensure you are exploring the latest trend in entertainment finance – While equity and banking credit are more challenging to obtain then ever the tax credit finance strategy clearly creates a win for all parties . It monetizes a great source of financing, and the fact that you are not giving up expensive equity or taking on additional leverage debt clearly makes for a positive financing strategy. No payments are made on tax credit financings, and your advance is ultimately set off against final receipt of government funds, which can be sometime in the future.