OVERVIEW – Information on SRED funding and digital media tax credit and film financing in Canada . Use tax credits to cash flow your government programs – Everyone else is
Tax Credit financing in Canada. Certainly any form of a business tax credit conjures up images of Canadian business as ‘ pigs at the trough’ – taking maximum advantage of government programs in a manner that connotates greed.
So what is our point today? Simply that utilizing valid government programs such as the SR&ED program, or the digital media tax credit designed for film and animation projects is simply smart business sense. And when you finance these very legitimate and established programs you’re simply ‘ cash flowing’ those two government programs to ensure business and economic sense. Let’s dig in.
No one doesn’t admit there are ‘ naysayers’ around these two programs. In fact the SRED (Scientific Research Experimental Development) program went through what can be only called a major overhaul in the last year or two. When all the dust settled though Canadian business owners were still eligible for approximately 40% or so of their R&D expenses via a tax credit.
Most people probably agree that the biggest change under the program, and it certainly affects the financing amount quite a bit, is the end of being able to get credit for equipment assets under the program covered. So that typically in the past has included computer equipment, lab equipment etc that was obviously needed for the research.
However, even if you back that component out the SRED credits are still very valuable, and, when financed, provide a strong source of cash flow and working capital for firms committed to spending. And to make out point, one of Canada’s leading business publications stated awhile back that a solid portion of growing companies in Canada used SRED tax credits and financing thereof for almost 1/4 of all their external financing needs.
SR&ED funding in Canada is a very basic process. Claims are generally financed at 70% of their total federal and provincial level. Transactions are structured to maximize finance benefits for your firm – the structure is really a bridge loan, without payments, that gives you cash today for your tax credit tomorrow. Simple as that. That allows companies to access valuable working captial prior to the government doing their usual thing on validated your claim, and processing your annual return, etc.
Oh, and by the way, the biggest new trend in SRED funding is the ability to cash flow next years credit now. There’s a double cash flow advantage!
Changing lanes very quickly, let’s recap the Digital media tax credit used for film and animation projects in Canada’s media and Transmedia industry. It’s not secret to most that Canada enjoys the nickname HOLLYWOOD NORTH.
Canada’s film tax credit industry pulls in hundreds of Canadian and foreign producers because we have what can only be described as ‘ healthy ‘ tax credits that help fund productions. And these, as we have noted, are financeable! So when you see a movie that looks like ANYTOWN USA it just in fact might be the corner of YONGE AND DUNDAS in Toronto, or STANLEY PARK in Vancouver, or Montreal’s Laurentians.
Canada recognizes the contribution in revenue, taxes, and image enhancement by this industry; As such productions get tax credits for the amount they spend in Canada for production spending, and to certain degrees cast and crew, etc
The film tax credit is financeable also, and often is the final straw in a total financing package that allows the production to move forward. Other elements include producer equity, pre-sales, advertising budgets, etc.
While SRED and film tax credits are hardly related relative to their respective industries they are financed in pretty well the same manner – IE bridge loans funded based on specific amounts as validated by a good film tax accountant that maximizes your spend credit .
Film and Media projects in Canada tend to be out of Toronto, Montreal and Vancouver. In fact the provincial domains of those three great cities compete fiercely for your tax credit business, as most politicians seem to believe their provinces recoup tenfold in economic activity.
So, bottom line, we can sit around all day and talk about PIGS AT THE TROUGH, or MANNA FROM HEAVAN. Our point is simple. SRED and Film tax financing maximizes these two legitimate and available programs. Utilize them while you can to enhance your business success.
Seek out and speak to a trusted, credible and experienced Canadian busines financing advisor who can assist you in your tax credit financing 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.
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