I often run into situations where a client has claimed maximum SR&ED tax credits but continues to develop digital products that don’t fit the SR&ED program. It is often surprising to them to learn that there is an additional credit available in Ontario for interactive digital media products. The credit, known as the Ontario Interactive Digital Media Tax Credit (OIDMTC), is a refundable credit available to all Canadian corporations. The basic details of this credit will be discussed in this post. I will post additional information in the coming weeks to provide specific details about the types of qualifying projects and costs.
The first question I get is always: How much is the credit worth?
The OIDMTC is a 40% refundable credit, meaning that even if the company loses money in the year the claim is made, the Ontario government will provide a refund equal to 40% of eligible expenditures.
The second question becomes; Do I qualify?
In order to qualify for the OIDMTC a corporation must be a Canadian corporation, this means that it needs to be incorporated in Canada, but can be Canadian or foreign owned. The corporation must have a permanent establishment in Ontario and cannot be controlled by a corporation that is exempt from tax (charities, not-for-profits, etc.).
The third question is inevitably; Do any of my products qualify?
A qualifying product will have the following characteristics:
- Primary purpose to educate, inform or entertain the user
- Primary purpose is achieved by presenting the information in at least two of text, sound or images
- The product is intended for individuals to use
- Through interaction with the product, the user can choose what information is presented and the form and sequence in which it is presented
- At least 90% of the product must be developed in Ontario
- The products primary purpose is not promotional
- The products is not used primarily for interpersonal communication
The fourth question; What costs can I get a credit for?
There are two main categories of eligible expenditures; the first is eligible labour expenditures incurred in Ontario. This includes salaries and wages of employees as well as remuneration paid to contractors. The second is marketing and distribution expenditures (up to $100,000 per qualifying product).
I will close this initial blog with a couple of items of note. The first is the fact that the OIDMTC is claimed on a product basis not a tax year basis. As a result you are allowed to capture eligible labour expenditures for the 37 months preceding product completion. Marketing and distribution expenditures can be captured for the 24 months preceding and 12 months following product completion.
The second note is with respect to timing, this credit is very valuable but due to staffing concerns and the increased applications for this credit payout of the amount is expected to be between 12 and 18 months. For this reason, filing the claim as soon as your product is completed is ideal to minimize your wait time for cash.
If a 40% refundable credit is something that interests you, stay tuned for my next blog that will provide more details of specific products that qualify.
Joshua Smith, CPA, CA
Manager, Business Incentives