OVERVIEW – Information on the SR&ED tax credit loan in Canada. Financing SRED and film tax credits helps cash flow your company or project
When it comes to government film credits and assessing the need for a SR&ED tax credit loan we can say we’re not huge risk takers . But we’ll ‘ bet the farm’ on your ability to finance those credits under a proven process. Let’s dig in.
So..financing your SR&ED or film credits.. what are some key elements of the process? We’re not sure whether it’s coincidence or not but they way it works is that both types of credits are financed as a bridge loan , typically without payments, for a large part of the value of your claim. That amount of financing tends to be in the 70% range vis a vis loan to value.
Paperwork and application processes are somewhat similar, notwithstanding that we’re talking about two types of tax credits – SR&ED for industry and Film, Animation and TV for the Entertainment/transmedia industries.
Tax credit financing works best when you’re prepared, via a quality claim. In the case of Sred it’s your audit trail on your actual spend, which in Canada is typically documented by yourself and your ‘ SR&ED Consultant’. The quality of both your claim (it helps if you have filed before successfully – but it’s not a requirement) and who prepared it is one of the underpinnings of successful tax credit financing. The role of the SRED consultant in the Scientific Research & Experimental Development program is matched, in the case of film, via a film tax credit accountant.
These folks help you maximize your claim, which, by the way, maximizes your financing.
Many clients we meet in the SR&ED environment file year after year. They also finance year after year by the way! They do that to maintain their competitive stance in their industry, and financing their claims allows them to continue to move forward in a financially successful manner – that’s because R&D eats cash! and financing your claim returns that cash to your business.
The Billion dollar film, TV and animation industry in Canada is also supported by tax credits, which also can be financed as we have noted. These refundable tax credits are available to Canadian producers, as well as those they have co-ventures with approved foreign partners. We suppose that’s one reason why the term Hollywood North exists!
In Canada government film credits revolve around refunding your wages and salaries paid on a project as well as being dependent on a location where your film or produce your project. The tax credits in film revolve around your choice of two different credits. Technically they are known as the ‘CANADIAN FILM OR VIDEO PRODUCTION TAX CREDIT’ as well as the ‘FILM /VIDEO PRODUCTIONS SERVICES TAX CREDIT’.
Your tax credit accountant and legal advisor will determine which credit can maximize your claim, thereby, again, maximizing your financing. Naturally some projects don’t qualify for tax credits, such as adult material, corporate productions, etc.
Actual film credit incentives vary a bit by province, and the provinces add their own provincial credit to your federal credit.
In the case of SRED and Film your tax credit is financed as a combination of both federal and province credits – thereby maximizing your financing.
No financing for a project is more difficult than putting together a budget for a film, TV or animation project. The industry has moved in cycles around themes of hedge fund participation, current CROWDFUNDING popularity, insurance gap loans, etc. But one common theme is always consistent – the tax credit part of your project is always financeable.
SR&ED and FILM are two very different genres of Canadian business. There is no ‘ Dark Side’ here … If you’re a participant in either and want to maximize your claim via financing seek out and speak to a trusted, credible and experienced Canadian business financing advisor who can assist you in cash flowing government tax credits.
Author: Stan Prokop – founder of 7 Park Avenue Financial
Originating business financing for Canadian companies , specializing in working capital, cash flow, asset based financing . In business 10 years – has completed in excess of 80 Million $$ of financing for Canadian corporations . Core competancies include receivables financing, asset based lending, working capital, equipment finance, franchise finance and tax credit financing.
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