Film tax credit financing in Canada is a unique and specialized type of financing. While many of the larger film, tv, and digital media firms in Canada are aware of and are utilizing this type of financing, many smaller and independent firms are either unaware that the financing exists, or alternatively know there are substantial tax credits, but were not aware that they can be monetized into immediate cash flow for either project completion, or even moving on to your next project.
All of this activity stems from federal and provincial legislation that was recently amended to increase tax credits to Canadian firms in the three aforementioned sectors:
Digital Media – i.e. Animation, etc
All these program obviously boost Canadian content and help foster Canadas reputation in the industry, and the government, both at the federal and provincial level seems keenly comfortable that these tax credits and incentives, which are non repayable in most cases (yes we said non repayable) generate additional tax and revenue for Canada many times in excess of the tax credit values.
While federal legislation is of course standardized across the country each province has different organizations under different ministries to handle the provincial portion of the grants.
In Ontario as an example you can claim tax credits for 6 different credits – but did you know that if properly claimed you can generate immediate cash flow and financing of these film credits. (The six credits are: Production services/book publishing/sounds recording/interactive media/film and tv/computer animation).
How can these credits be financed ask our clients? Simply speaking if you have valid tax credit claims and the proper certificates in place you can monetize these into immediate cash flow. From a terminology perspective we can almost say that you are monetizing, factoring, or discounting your claim now based on cash flow you will receive from the federal and provincial authorities. In effect they are accounts receivable now on your special purpose entities (i.e. your current project/production) balance sheet.
Clients also ask what qualities or additional information must be in place in order to generate immediate financing of your tax credit. The answer is that you must have your affairs in order, namely the ability to confirm your eligibility, ensuring you have the right certifies either in place or set to be in place, and of course maintain proper records showing your disbursements, etc.
In certain cases , where proper documentation is available and has the ability to be maintained ‘accrual financing ‘ is also available – by that we mean cash flow is made available during your production prior to final certification . This is a true temporary cash flow and working capital benefit for many independent type productions.
A recent paper by the prestigious firm KPMG referred to these tax credits as ‘hidden money ‘. We would point out that the financing of these credits is in fact the true hidden money that could be the final spoke in your productions wheel!
In summary, if your project is eligible for tax credits take advantage of them. If you wish to monetize those credits immediately into additional working capital and cash flow then speak to a trusted, credible and experienced firm in this area. It’s a great cash flow and working capital strategy in one of Canada’s most exciting industries.