Film tax credit financing has existed in Canada for a number of years now. The good news is that this sought after financing has just been enhanced in a variety of ways thanks to additional enhancements to film and TV tax credits, that now also include the animation, multimedia, and gaming productions.
While some of the tax credits vary by province there is a clear bottom line – film tax credits are available, and you can finance them in a bridge loan /factoring manner. That financing allows you to complete projects, enhance the financial ability of the project, and even better, move on to the next project with additional capital!
In Ontario recently the government passed legislation that increased availability of Computer Animation Credits. For example, labour expenditures which are qualified and vetted increase to 100% for arms length employees who don’t have incorporation status – for example – ‘ freelancers ‘.
Another significant change is the government removed the requirement that eligible projects in animation and visual effects did not have to be created mostly with digital technologies.
Well that’s the good news on availability of the tax credit itself. How does the production owner monetize that credit into real cash flow and working capital – i.e. the ‘ bridge financing ‘that we mentioned earlier.
As most Canadian business owners and financial managers know the financing in such niche areas in Canada is not a widespread financing source. This is best described as boutique or niche financing with only a small handful of players participating. To maximize your financing in this area seek out the resources and experience of a credible financing advisor with tax credit financing expertise.
The amount financed, or advanced to your project under you claim in general tends to be 75% of the claim value – this is not a hard and fast rule, but it’s a solid generalization based on our experience. The funds represent the combined federal and provincial claim, with the aforementioned 75% loan to value.
Another great financing feature is that in certain instances funds can actually be advanced prior to the claim and final certifications. This certainly would not be pertinent to all parties but could certainly be a great benefit to some productions.
It makes common sense to all parties, including the financier to fund claims in excess of 200k as a starting point. Many fundings are of course in the millions of dollars. In certain instances other financing could also be considered as an add on – i.e. technology financing for computers, software, etc.
Tax credit financing in Canada primarily in the past has been related to the governments SR ED program, but clearly hot new sectors are animation, gaming, virtual reality, and independent film productions.
Customers always ask us how long the financing process takes. We always estimate 2-3 weeks with the customer’s full co operating on any application, due diligence, docs and funding issues.