Tax Credit Financing in Canada is a great alternative financing solution for Canadian firms who wish to maximize their Government tax credits. These tax credits typically arise out of the SR &ED (Scientific Research & Experimental Development) program, (commonly called SR ED) as well as various film tax credit programs that are Canadian based.
When you finance a tax credit such as SR ED you are in effect generating cash flow and working capital for your company and of course recovering monies that have already been spent! As most business owners pleasantly discover when they determine they are eligible for SR ED or film tax credits, these funds are non repayable, in effect they are grants .
The acronyms for these programs are SR & ED, FTC, and OIDMTC.
Customers that we work with typically generate financings through us after they have filed their claims. With respect to the SR &ED financings these claims are filed at the same time you file your corporate tax returns. Typically we can generate and successfully complete these financings within 14 days, sometimes it takes longer due to the complexity of the claim and other financial issues your company might be facing. It is critical there are no CRA tax arrears; otherwise your claim will be offset against the arrears. In cases where the tax arrears exist, and are smaller than your claim, we can arrange to pay Ottawa and provide you with the full financing benefits of whets left in your claim.
Canadian business owners and financial managers typically use these funds for short term working capital purposes.
In some instances, particularly in the film tax credit financing area your project can receive funds under the film tax credit financing prior to filing the final claim, provided your project can confirm eligibility. In these instances it is recommended that you can successfully prove you have filed and been approved successfully in previous years.
In cases where your corporate SR & ED claim is a first time claim there is a bit more due diligence put into the quality of the claim and your overall financial position, but categorically these claims can be filed and financing originated on a first time claim. Most companies use the services of well known SR &ED preparers, which accentuate the positive nature of your claim.
With respect to SR &ED claims that are financed, typical financing is generated at 70% loan to value. That of course simply means that you receive, on financing approval, approximately 70% of the total provincial and federal claim as working capital. These funds are repaid in entirety when you claim is adjudicated, approval, and funded by the government, so you are not paying ‘ monthly payments ‘ – you simply receive the working capital injection which is offset on final approval .
Canadian companies who are interested in tax credit financing and film credit financing should speak to an experienced advisor in this area who can assist them in the financing of the claim. It’s a great Canadian alternative financing strategy!