Film tax credit financing has existed in Canada for several years. The good news is that this long-awaited financing has just been improved in several ways thanks to additional improvements to the tax credits for film and television, which now also include animation, multimedia and game productions.
While some of the tax credits vary by province, there’s one clear bottom line: movie tax credits are available, and you can finance them through a bridging/factoring loan. That financing allows you to complete projects, improve the financial capacity of the project, and even better, move on to the next project with additional capital!
In Ontario, the government recently passed legislation that increased the availability of computer animation credits. For example, labor expenses that are rated and vetted are increased to 100% for self-employed employees who do not have a status of incorporation, eg, ‘self-employed’.
Another significant change is that the government removed the requirement that eligible projects in animation and visual effects did not have to be created primarily with digital technologies.
Well, that’s the good news about the availability of the tax credit itself. How does the production owner monetize that credit in real cash flow and working capital, ie the ‘bridge financing’ we mentioned earlier?
As most Canadian business owners and financial managers know, financing in such niche areas in Canada is not a mainstream funding source. This is best described as boutique or niche funding with only a small handful of players participating. To maximize your financing in this area, seek the resources and expertise of a credible financial advisor with experience in tax credit financing.
The amount financed or advanced for your project under your claim generally tends to be 75% of the claim value; This is not a hard and fast rule, but it is 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 funding feature is that in certain cases funds can be advanced prior to claim and final certifications. This certainly wouldn’t be relevant to all parties, but it could certainly be of great benefit to some productions.
It makes good sense for all parties, including the funder, to fund claims over 200k as a starting point. Many financings are, of course, in the millions of dollars. In certain cases, other types of financing could also be considered as a complement, for example, financing of technology for computers, software, etc.
Tax credit funding in Canada has in the past been primarily linked to the government’s SR ED program, but clearly hot new sectors are animation, gaming, virtual reality and independent film productions.
Clients always ask us how long the financing process takes. We always estimate 2-3 weeks with full client cooperation on any applications, due diligence, documents, and financing issues.
Film tax credit financing, or tax credit financing in general, is a great way to pool financing, raise short-term working capital, etc. Talk to an expert to guide you through that process!
