OVERVIEW – Information on financing the SR ED ( SR&ED) R & D tax credit in Canada . Finance Research and Film tax credits accelerate cash flow and working capital for two great Canadian government programs
Financing the SR&ED R&D Tax Credit, or Media and Film Tax Credits is, in our opinion, equivalent to the ‘ second coming ‘. A bit of a play on words, but signifies the added benefit that a tax credit loan brings to the already good news inherent in a tax credit claim in these two solid Canadian programs. Let’s dig in.
While there’s been a few times over the last years when everyone, ourselves included, tried to figure out where SR ED was going it turns out that a lot of those changes simply solidified the program. While it’s unclear whether the Billions of $ that the government provides via refundable tax credits will see a reduction in usage it’s absolutely clear on the other hand that the program is still in full force.
Yes, when it comes to R&D credit calcs some of the rates have dropped, and capital assets are no longer eligible – but truth be told the majority of claims have never really included the capital asset spend . Simply speaking the Scientific Research Experimental Development Program is still the largest program out there to allow Canadian business owners and financial mangers the ability to recoup their R&D spend.
Business owners can accelerate, or initiate that ‘ second coming ‘ by financing their SRED claim. While there seems little doubt that the government is committed to speeding up claim approvals ( they have level of service standards around claim receipt acknowledgement /processing and reviews ) this whole process in many cases can takes months and up to a year for the owner/manager to await the cheque for their claim.
Financing the claim simply accelerates the whole process – and super accelerations kicks in if you choose to finance next years claim – now! That’s done by accrual financing, allowing you to start cash flowing next years spend!
The other industry that also generates Billions of dollars in refundable (and financeable!) claims is the entertainment industry in Canada. Although we say ‘ Canada’, approved joint ventures/co-ventures can also utilized tax credit programs and of course financing.
The tax credits that come with film/TV/ animation are a key part of any total financing package in the industry. They in many cases form the largest part of the total finance package. Ontario, BC and Quebec based productions garner the majority of the action, but almost all provinces participate. Using Ontario as example owners/producers can opt for any of the three major programs in place, OPSTC/OFTTC and OCASE.
FINANCING SR&ED and MEDIA TAX CREDITS
We comfortably can talk about bridge loan financing for both of these two programs because of key similarities. Those include:
1. Claims are either prepared by a specialty accountant or consultant in each area (SRED consultant / Film Tax Credit Accountant
2. Both Financings require a simple application with appropriate back up including a copy of the claim, any previous claim experience etc
3.Claims are typically financed at the 70% range of the total value of the combined Federal and Prov. claim
4. Financings are structured as Bridge loan with no payment being made during the duration of the loan
The main security in the financing is the claim itself
If you want to accelerate that ‘ Second Coming ‘ of a tax credit, i.e. the cash! seek out and speak to a trusted, credible and experienced Canadian business Financing Advisor with a track record of success who can assist you with your finance needs in this unique area of Canadian business finance.
Author: Stan Prokop – founder of 7 Park Avenue Financial
Originating business financing for Canadian companies, specializing in working capital, cash flow, and asset based financing. In business 10 years – has completed in excess of $90 Million of financing for Canadian corporations. Core competencies include receivables financing, asset based lending, working capital, equipment finance, franchise finance and tax credit financing.
Info re: Canadian business financing & contact details:
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Canadian Business Financing