Don’t Worry : It’s Normal To Finance Sr&ed Tax Credits Or Your Film TV And Animation Credits
OVERVIEW – Information on the financing of the SR&ED ( SR ED) Research & Development Tax Credit . SRED and Film credits credits can be financed to help ‘ cash flow’ your expenses and provide valuable working capital
The Research and Development SR&ED tax credit , along with film financing credits can be maximized in another way. That way? You can finance both of these credits for cash flow needs. While not everyone in Canada these days agrees with these two very generous programs, it’s safe to say those firms that use them do in fact appreciate them and often also don’t recognize they can be financed. Let’s dig in.
To be clear, we’re talking about 2 specific programs in two VERY different industries – The SRED program in the industrial/tech economy, and the various film, animation, and TV tax credits that are available to the entertainment / Transmedia industry.
Billions is given out in SR&ED each year, and hundreds of millions are provided to the Transmedia industry in Canada.
Let’s first focus on the SR ED program. Many clients we deal with have faithfully filed claims every year – while in some cases many feel that a large number of those who qualify haven’t even heard of the program or consider it too time consuming. We can only speak for ourselves, but if the government was handing out those billions of $ to our competition we’d be first to get in line.
One thing that is very common to both the SR ED and media tax credits is who prepares them. In the case of the former it’s a SR&ED consultant. His or her goal is to maximize your claim, which became more of a challenge in the last few years as the govt tightened up the program. When you finance your research and development SR ED credit a certain amount of weight in the approval process is always given to the quality and reputation of the preparer of the claim.
The software industry in Canada is a huge user of SR&ED credits. After all someone has to pay for all that ‘ bleeding edge development that is begging to be commercialized. In the case of media and film credits its all about utilizing the right program among several that pertain to incentives provided to the industry. It’s interesting to note that it is very possible to use a SRED credit for gaming software, again re-enforcing the need for a great SR&ED or Media accountant.
In the case of the media tax credits the above role falls on the tax credit accountant, a specialized and focus individual or firm who maximizes your claim on your budgets based on numerous criteria that must be met and can be exploited for a richer claim. So as un – exciting as it might seem to many , when it comes to preparing, and financing tax credits in Canada ‘ beancounters ‘ rule!
An interesting part of the whole tax credit preparation and financing scenario is the fact that your firm (in the case of SRED), or your production (in the case of film, media, animation) does not necessarily have to be profitable or in the case of SR&ED successful. You must have to validate that it was money properly spent under the auspices of the program.
It’s all about ‘ the spend’ when it comes to tax credits and maximizing the financing around them. If your financials and budget can validate your research (SR&ED) or your production budget (film) tax credits can be financed in two key ways. For both types of credits it’s almost a co incidence that they are financed in the same manner. Claims that you’ve prepared and filed already are typically financed at the 70-75% level of their full value.
In both cases the financing structure typically used is a ‘ bridge loan‘. The good news here is no payments are typically made by the applicant, and things are ‘ settled up ‘ on final approval of the claim by the SRED or film authorities (CRA and your province). At that time a typical claim has you receiving the balance of your claim, i.e. the other 30%, less financing costs.
Because only a very small handful of niche divisions of our banks actually will consider a tax credit financing a large amount of tax credits in both sectors are financing by non bank entities with people and expertise pertaining to each type of credit.
If you’re looking to maximize the full benefit of tax credits in Canada (via financing them!) seek out and speak to a trusted, credible and experienced Canadian business financing advisor who can assist you with your needs.
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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