YOUR COMPANY IS LOOKING FOR TAX CREDIT FINANCING!
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You're forgiven. Simple as that. For what? For not knowing that tax credits can be financed in Canada; and we're talking about two specific ones, the SRED ( aka SR&ED) non-refundable tax incentive, as well as film, TV and animation FX credits. Tax credit financing is simple relatively unheard of unless you're familiar with the industry, or even better, have a need for cash flow and working capital for your company or specific project.
Some have called it a lucky break, whatever you choose to call it monetizing tax credits in Canada can help you access the capital needed.
As we said we're focusing on two key types of tax credits - one related broadly to the film and TV industry, and the other related to Canadian research and tax credits.
Let's focus on the former first. The Canadian government, on a combined federal and provincial level, spends hundreds of millions on what they term as incentives for the film, TV and animation industry. As the borders broaden for these genres some refer to them as ' transmedia'.
While it's no secret that government budget cutbacks are pretty well everywhere these days to the surprise of most the film/television production tax credits remain strongly in place. In Canada, these credits are a combined credit at both the federal and provincial levels. Generally speaking, all provinces have a program in place; the reality is that British Columbia, Ontario and Quebec seem to have the brunt of the action when it comes to actual content filming, production, etc.
From the government's perspective, Canada reaps economic benefits from the industry, i.e. employment, taxation, cultural attributes, etc. And if you're an American production shooting or producing in Canada you are still eligible for the tax credits, as well as the financing. At the end of the day we can simply say that the larger the production the larger the tax credit and available cash flow if you choose the financing route.
While the rules for qualifying for and calculating tax credits might be considered complex by some (not if you have a good tax credit accountant) the actual financing of these claims is a lot simpler. Being able to provide both a realistic budget, as well as domiciling your project in a special purpose entity, as well as being able to validate your actual spend via payrolls, purchases, etc is key to the financing of your claims.
Financing of film, TV and animation credits (animation credits seem to be the fast-growing part of the industry) is typically done on a ' bridge loan' type basis. Approximately 70% of your claim is advanced to your project, based on the tax credit, once you have filed. The balance is paid to your firm on receipt of your federal and provincial funds, less the financing costs which vary depending on the size of claim, quality of your project/mgmt team, etc.
Let's move on to our second type of tax credit financing we're coving today, that's the SRED program. Again, billions have been committed to the program, and despite some radical updates to the program, we can safely reiterate that your SR&ED tax credits can be financed also. Claims are financed in relatively the same manner, it 70% loan to value and no payments are made during the course of the ' bridge loan '. The most interesting part of SR&ED financing is that some newer finance innovations are in place - including the ability to finance next year's claim before you have filed. And in some cases, an actual business line of credit can be set up allowing you to draw funds for your spending. That's creativity!
And the requirements for SRED financing? It's not rocket science, unlike some of the actual research itself. You need to demonstrate you can produce business financials, your claim should be prepared by a qualified SRED consultant, and you need to be in a position to allow the claim to be collateralized if, in fact, some other financing party to your company is claiming security on the SRED. That’s usually achieved by a simple postponement of claim in favour of your SRED finance firm.
So our bottom line today - whether you're part of Hollywood North, or in the lab or on the shop floor you have access to a very powerful tax credit financing that is both creative, flexible, and provides capital for your company or project.
Seek out and speak to a trusted, credible and experienced Canadian business financing advisor who can assist you with your SRED or film/tv/video tax credit financing needs.
