The current generous tax incentives provided by federal and provincial governments in Canada assist productions as an integral part of the overall financing strategy that any project employs.
Film, TV, and animation projects are financed in exactly the same manner as any type of business financing in Canada - by that we mean there is an equity component, and a debt component. It is of course incumbent on the owners to determine the optimal amount, or 'mix 'of owner capital and borrowed funds. The financing of tax credits is a part of the overall debt side of the production, but it is critical to note that the financing of your tax credit is not a debt or a loan - it is simply the monetization of the tax credit that is owed to you by the government. You are essentially factoring, or monetizing that asset.
Let's use a quick example of a production that is financed, say for a million dollars. You as the owner assume a 500k equity position and the other 50% will come from international distribution and pre -sales. Your tax credit on the production could well be in the 400,000.00$ range based on the current generous legislation in place. You have therefore recovered, and are able to utilize a very significant portion of your over all budget.
Financing a tax credit can be done at two different time periods - naturally the logical one is of course at time of filing and final certification .However, many of our clients are surprised to hear that tax credits can be financed on an accrual basis if your project qualifies. The qualifications are for an accrual type financing are not as harsh as one would thing - they are actually common sense qualification. They include your teams experience, successful utilization in the past of tax credits, and, as important your proven ability to budget and document your projects.
We again re iterate that tax credit financing is available for the three major revenue streams of the industry - name film, television, and digital animation - the latter being non existent years ago and becoming more popular all the time with the advent of new media. Growth in these three areas of entertain continues to be explosive and partially resistant to the global economic slowdown.
Hollywood North, aka 'CANADA 'continues to view the tax grants available in Canada as a great way to subsidize any projects production cost. The utilization of a tax credit naturally enhances overall equity returns on invested capital, and it is safe to say many productions in film, TV and animation might never see the light of day without the monetization and receipt of tax credits.
Naturally tax credit financing itself is only one component of an overall financing strategy - other components include:
Lease back deals on copyrights
Your ability to pre-sell projects overseas
However, it is very safe to say tax credits are an integral component of an entertainment financing strategy.
So how do you finance your tax credit? Clients ask ... again we stress common sense fundamentals. Locate a credible, experienced, and trusted advisor in this niche area of business finance. Ensure you have a proper team in place, i.e. accountant, lawyer, etc , preferably with a track record in assisting your documentation and certification of your project .Financing of tax credits can generate anywhere to 40- 80% of your actual or projected tax credit filing . Funds can be used for a general purpose, and are repaid in full when the government clears and pays your tax credit claim. Maintaining proper paperwork and up to date certifications and filings is essential.
We strong recommend a tax credit financing strategy to enhance the overall cash flow and working capital viability of your independent or studio projects in TV, movies and digital animation- talk to a film tax consultant today!