Film Accounting Glossary
Refundable tax credit
What is a refundable tax credit?
Also called refundable credit.
A refundable tax credit is an incentive paid out in cash to the extent it exceeds the claimant's tax liability, which makes it usable by a production entity that owes little or no tax in the jurisdiction.
It is the most valuable common credit structure because it does not have to be sold at a discount, though it can still be borrowed against while the claim is processed. Payment follows the jurisdiction's audit of the final cost report.
Example
A $2.1M refundable credit is paid in cash beyond any local tax liability, so a single-purpose production entity that owes nothing still receives the full amount. No discount, no broker, and it can still be borrowed against while the claim is audited.
Figures are illustrative, chosen to show the mechanics rather than to quote market rates.
Where you'll see it
Claimed after wrap on an audited final cost report, and the most valuable common credit structure because it does not have to be sold.
Common mistake
Treating refundable and transferable credits as equivalent. A refundable credit pays face value in cash; a transferable one has to be sold at a discount.
Related questions
- What makes a tax credit refundable?
- The jurisdiction pays out the amount by which the credit exceeds the claimant's tax liability, so an entity owing no local tax still receives cash.
- Why is a refundable credit worth more than a transferable one?
- Because it does not have to be sold. There is no buyer discount and no broker commission, so the production realizes close to face value.