Canadian film , television, and digital animation producers and owners continue to leverage Canada’s generous tax credit program , and are increasingly being joined by their partners and investors in U.S. and other parts of the world as the momentum in film tax credits gains traction almost on a daily basis .
The overall challenge however, hasn’t really changed – Simply put -how do owners put together a sensible financing package that includes a proper combination of debt, equity, gap, and tax credit financing that properly leverages and monetizes their production.
As consumers we tend to gravitate towards ‘ experts ‘ in any field, and that should clearly be the focus of your production when you are considering a film tax credit financing strategy in connection with your overall financing . We therefore recommend to all clients that they seek the advice and guidance of a trusted, credible, and experienced advisor in this area of entertainment finance.
One of the reasons for dealing with an expert is that, while Canada’s tax credits are currently among the best and most generous in the world, the reality is that it is a combination of a federal and provincial effort in Canada’s ten provinces – each province has varying credits, and some are more generous than others! As an example B.C.’s film incentive tax credit is currently 21%, with a 33% production services credit on labour that qualified. Although in conversations with clients we tend to more often than not discuss film tax credits, we should not forget the sister credit, ‘ digital media tax credit ‘; again using B.C. as an example that credit is 17.5%. As an example, Ontario’s production services tax credit is 25%, so you can see the subtle difference in choosing various geographies for domiciling or completing your projects.
Film tax Credits in Canada can primarily be financed in one of two ways, you can arrange financing on completion and certification of your project, or, more popular with clients, you can arrange for an accrual financing. Under this accrual financing of your tax credit you receive funds as you spend them, therefore significantly augmenting your overall working capital and cash flow strategy for your project.
In order to have your film tax credit in Canada properly financed, and as important, in a timely fashion you should focus on some key elements of criticality in advance. First of all you should be in a position to present an overall fiancé plan for your project – that should include timelines, a budget, and your ability to produce proper records around the projects special purpose entity, i.e. Ensuring your filings is up to date. Most productions we see are domiciled under a separate legal entity for the project.
When submitting a tax credit for financing consideration, either when filed, or using our accrual financing scenario you should ensure the numbers have been vetted by a proper accountant, one with entertainment credibility and experience. That simply helps validate the numbers and ensure that you can obtain maximum loan to value for your project. Generally tax credits are financed, when filed, at 70% or more of their overall value – accrual financing tends to be a lower loan to value because of some of the final uncertainties around the size and quality of the filing.
Film, TV, and digital animation productions in Canada can be significantly assisted by a proper tax credit financing strategy.