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Tax Credits and Deferrals |
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Samantha Traub
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A major portion of the financing for a production usually comes from federal and provincial tax credits. Unfortunately, tax credit proceeds become available only after the production expenditures have been incurred and the production’s tax returns have been filed and often audited. As a result, producers frequently look to lenders to interim finance the anticipated tax credit proceeds so that the necessary funds are available to cash-flow the production.
Deferrals Often the financing plan for a production allows for a portion of the budget to be provided through deferrals. Generally, where a production is not fully financed through other sources, a producer may choose to fill this gap by deferring its own fees, or asking cast or crew to defer their fees until additional funds become available, or the production produces profits from which those deferred fees can be paid. Deferrals are sometimes also used as a way for the producer to interim-finance the tax credits without the help of a lender. For example, if the financing plan contemplates that the total tax credit proceeds will be $200,000, the producer may seek to defer payment of $200,000 worth of fees under the budget until the tax credit proceeds are received. Deferrals are also requested by lenders and broadcasters in cases where no completion guarantee is in place. The broadcaster and/or lender may require that the producer defer its fees until delivery of the production. It should be noted that deferrals may “grind down” the amount of the tax credits which may be realized in respect of a project; to the extent that payees defer payments, the amount of such deferred payments will not be included in the productions’ cost base and the amount of eligible labour costs will be similarly reduced. We recommend producers seek the advice of their accountants and legal counsel when dealing with deferrals to ensure there are no negative tax consequences for the production or the individuals deferring fees. For an example of a financing plan for a low-budget film, see Sample Financing Plan .
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