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Film Financing via Tax Credits - Two Critical Necessities for Independent Film Financing

Guest post by: Stan Prokop

Article Overview: Film financing via tax credits - Information on how Canadian film , television and digital animation projects can be financed through effective use of tax credit financing at point of filing or in advance of production .

Film Financing via Tax Credits - Two Critical Necessities for Independent Film Financing

Independent Film financing via tax credits is a significant component of an independent production in film , well as televison and digital animation, those latter two gaining significant traction .

There are two critical necessities for the financing of your film:

1. Your ability to ensure you pre qualify for tax credits

2. Your access to capital as an additional resource for cash flow via the tax credit

Provincial and Federal tax credit programs in Canada have never become been more generous and accessible. We have met with a number of industry players, both individuals and corporations who have U.S. vested interests and have expressed a sincere desire to access financing for their productions and ensuring they qualify under appropriate certifications.

It goes without saying that major studios in the U.S. and Canada generally have the wherewithal to finance their own productions via their own resources, which are often quite significant. But if you are an independent production, or a smaller player in the scheme of things then you should view the tax credit financing as a key part of your overall financing strategy. It certainly is cheaper and often less time consuming considering the amount of time we have heard you might be spending on raising ' equity ' for your productions .

We recently ran into a situation where a major U.S... Movie which was produced in Canada and qualified in the various areas re Canadian content was financed critically under the monetization of the tax credit. It was interesting that the actual tax credit was being pitched to private high net worth individuals who were being promised a 15% return based on the validity of the actual credit and the funds that were due under that claim.

Using film and tv as our prime examples capital for projects tends to be raised by owner equity, international distribution, and tax credits that can very easily be in the 30-40% range for the entire production ' below the line' budget .

Its perhaps a larger example in terms of dollar value, but what we are of course saying is that if you have a $10,000,000.00 budget and have a proper legal entity, ownership, and accounting in place you can easily qualify for a 3 to 4 Million dollar non repayable tax credit .

More importantly many clients don't realize their claim is financeable, so they ' wait' for the cheque which is dependant on the review and auditing of their filing, as well as the timelines that might come from waiting many months after the initial filing .

Is there an alternative. There certainly is. If you are working with a credible, experienced, and trusted advisor in this area you can generate funds for your tax credit as soon as it's filed! Does it get any better than that - Actually it does. In the right circumstances, if you have a credible, experienced management team, solid industry representation re an accountant or lawyer, you can actually apply to get the funds prior to even filing the final claim. That is true cash flow and working capital generation.

The overall growth in DVD, home downloads, and cross marketing with other players allows Canadian productions to benefit significantly, even if the content is on a much smaller scale than large studio productions.

From a pure financial risk and reward point of view, the fact that a large part of your production is in effect guaranteed via the production tax credit , and that fact that you can monetize that claim any time you want ( if you qualify ) significantly enhances the overall financial return on investment .

As an example, we're working with one Canadian production that will use the concept of accrual tax credit financing to in effect start production on the project. We can't over emphasize the importance of proper and realistic budgets, your ability to show some industry experience in this area, as well as aligning yourself with credible parties.

Structuring your project properly via legal and accounting mechanisms, maximizing your leverage regarding tax credits that are available, and monetizing those tax credits into real money for the current or next production ensure a very viable chance of financial success for film, television and digital animation projects in Canada.

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Article Tags: film financing tax credits, independent film financing, tax credit cash flow



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