In the two previous posts, I discussed the basics of the Ontario Interactive Digital Media Tax Credit (OIDMTC) and the specific types of products that can qualify. Both of these posts were directed at any form of digital media product. This post is specifically directed at OIDMTC claims made in the digital gaming sector. There are two kinds of companies that are eligible for the digital game credits – qualifying digital game corporations and specialized digital game corporations. Each of these companies has access to the 35% refundable tax credit but must meet specific requirements in order to claim.
A qualifying digital game corporation is a company that meets the following requirements:
- Carries on a business that includes the development of eligible digital games, and
- Incurs at least a million dollars in Ontario labour costs during a 36 month period to develop a digital game under an agreement with a purchaser
A specialized digital game corporation is a company that meets one of the following requirements:
- At least 80% of the company’s salaries and wages for services rendered in Ontario are directly attributable to digital game development (can be more than one game), or
- At least 90% of the company’s gross revenues are directly attributable to digital game development
In addition to the above, a specialized digital game corporation must incur at least one million dollars in eligible labour expenditures that are directly attributable to eligible digital game development in a taxation year.
There are three key benefits to claiming digital games versus other digital media products:
- You are not required to develop 90% or more of the product
- The digital game does not need to be completed in order to be claimed The purchaser corporation does not need to be dealing at arm’s length with the corporation
In addition to these, if you are a specialized digital game corporation, you can apply to the Ontario Digital Media Corporation on an annual basis for the costs incurred in that year.
There are two types of eligible costs for both qualifying and specialized digital game corporations.
- 100% of wages and salaries of employees for work performed in Ontario
- 100% of payments made to arm’s length contractors for work performed in Ontario provided that the contractors are one of the following:
- Personal services corporation for the services performed by the sole shareholder
- Partnerships for the service performed by one of the partners
Costs that are specifically denied for purposes of the digital game credits are contractor costs paid to other multi-employee taxable corporations for services of their employees. The reason being that these corporations should be claiming the credit on their own.
As you can see, qualifying under this credit can be quite beneficial as can qualifying under the OIDMTC rules. If you think you qualify for either of these credits, be sure to look for the next blog instalment where I will discuss the application process, documentation requirements and expectations.
Until next time, keep your head up and don’t let tax or cash flow problems get you down. After all, the professionals at Welch are only a phone call (613-236-9191).
Joshua Smith, CPA, CA
Manager, Business Incentives