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Creative Finance Techniques That Work In Film Tax Credit Financing In Canada

By Author: Kenneth Hall

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If your production in film, television or digital animation requires financing then Film Tax Credits in Canada are solid ways to augment your overall finance plan. In order to finance your credits your tax credit certificates must of course qualify for Canadian content in the appropriate categories and must satisfy the rules set out by Ottawa and your province relative to personnel and production costs.
In the last couple years the government has made a commendable effort to streamline the application processes for film tax credits and we must remind readers that these credits apply equally to the television and digital animation areas.
In the digital animation areas you might also be eligible for SR&ED credits under what is known as the Scientific Research and Experimental Development program. This is without a doubt Canada's largest program for tax credits, far surpassing the film, TV and animation area
Financing of productions can be very traditional or very creative, but without a doubt tax credits can play a key role in either total finance strategy. Typically productions are financed in the following manner: Non studio producers, i.e. the independents arrange distribution and pre-sales of the project. Typically you are entering into an agreement to give the other party the rights to display your production via TV, DVD, etc in that particular geography.
Many pre-sales budgets we have seen show a best case and worst case pre-sales scenario. The pre-sale financing are, in effect, promissory notes to your special purpose entity for this production. The next financing challenge is to 'finance' those promises to pay for a number of different finance entities, including banks, specialized firm finance firms in Canada, etc. In Canada 2 or 3 of the nations banks are somewhat actively involved in this area - while others shun the industry as too high risk for traditional lending.
You of course are also required to post a completion bond covering cost over runs and the ultimate completion of your project.
Film tax credit financing is one of the final elements of your overall finance strategy. Your tax credit is, in Canada, in essence a government subsidy, so why shouldn't you take advantage of it. Tax credits finance a very large part of what is known in the industry as the 'below the line 'budget. These are, in effect, your actual production expenses.
You therefore must ensure your production qualifies for the right expenses, and typically those are validated by an accountant or firm with entertainment accounting experience. By utilizing a Canadian actor component, as well as technicians and other resources you have set your project up to both qualify for the tax credits, and, then more specifically to cash flow or sell these credits.
In order to finance your credits you should have an overall finance plan, and a strategy for the equity and debt components of your production. Validate your budgets and ensure your productions have the required 'points' in order to qualify. Film tax credits can be financed on filing, or, more popularly, as you spend funds, which are then reimbursed via the tax credit financing.
Speak to a trusted, credible, and experienced film tax consultant around your ability to maximize and capitalize on this critical strategy within 'Hollywood North', aka Canada!


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