SR ED R&D financing, as well as the film finance credit often has some clients we meet ‘ drawing a blank’ when it comes to how to monetize either one of these two significant programs.

The reality is that either tax credit provides significant cash flow power, and the ability to finance you credits either before, or after they are filed represents your ability to beat the ‘waiting game’ as it pertains to the government approving, and processing your refund chq. Let’s dig in.

The SR&ED program, for those who follow or have a vested interest in it has been turned upside down and inside out in the last year or two. It got to the point where the govt did what they do well (?), which is commissioning a report on the validity and benefits of the program to the govt and claimants.

Given that the government provides funds for these two programs in the Billions of dollars it’s no surprise the R&D credit program came under significant scrutiny. Since the thousands of claimants under the program are in the SME (small / medium enterprise) sector they have become significantly dependent on the program the changes out of the government study (‘The Jenkins Report’) were fairly dramatic, both positive and negative. They included:

Significant emphasis on the real government ‘ pay back’ on the program

Simplification of the application process

Elimination of certain of the credits under the program – i.e. capital expenditures (The main deductions center around payroll and contractor expenses)

Strong focus on who exactly is preparing the claims (aka ‘ Sred Consultants’) and how compensation is charged

The program is primarily for private firms and doesnt discriminate when it comes to industry, geographical location,

FILM TAX CREDIT FINANCING:

While some might say the SR&ED program doesnt maximize Canadian investment in research the converse is probably true when it comes to the film finance credit. (Film finance credits include movies, TV, animation and digital effects) The ‘ Hollywood North’ nickname for Canada didn’t come by chance; hundreds of productions have been filmed or produced here because of the tax credit investment climate.

The three largest cities, Vancouver, Toronto and Montreal all have booming media business.

The financing challenges on any project in any media category are significant. The right film tax credit, when maximized with the assistance of a good tax credit accountant delivers anywhere from 30-50% of total financing required.

The 3D industry is a booming example of the Canadian film industry. Spending by Cdn and co production partners is in well over a billion dollars in VFX areas.

FINANCING YOUR SR&ED or FILM TAX CREDIT:

Tax credit financing is most often structured as a bridge loan. To the benefit of the borrower no payments are required during the duration of the loan and the loan is collapsed as soon as your refund chq comes in. While some banks participate in this type of financing many producers and foreign co production partners seek commercial financing expertise outside the banks.
If you are looking for true financing of a SR ED or Media tax credit seek out and speak to a trusted, credible and experienced Canadian business financing advisor who can assist you with your cash flow needs in this area.