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Digital media tax credits spawning cottage industry in Ontario

Recall: Ontario has a tax credit of 35 or 40% for work done by companies (regardless of country of origin) using Ontario-based labour (and certain other expenses). These credits are charmingly called Ontario Interactive Digital Media Tax Credits (OIDMTCs). We discussed here that there are certain requirements to qualify for the credit.

A couple of clarifying points: there are eligible products and specified products that qualify for OIDMTCs. Eligible products are what you'd normally think about being eligible, like interactive games or websites and the credit is 40%; while specified products relate to the work done, perhaps by an external firm like yours, to produce "eligible products" and have credit rate of 35%. As between the firm producing and the firm selling the eligible product, the rights to the OIDMTC may (or should) be decided in your service agreement.

Importantly: these are refundable tax credits, meaning pre-profit firms can take advantage of them just as much as those in the black.

Also, while you can go back in time to catch past work, there's a limit to how far back you can go, namely 37 months.

For interested companies, there are accountants, like SBLR, who can assist in applying for the OIDMTC (no small feat) and financial institutions, like the Knowledge-Based Industries group at RBC, who would consider financing your endeavours.

Proposed new tax credits for video game development in BC

The British Columbia government just announed a proposed new tax credit for the BC film and video game industries. The proposal includes:

• a credit for video game development, of 17.5% of qualifying BC labour costs
• a 33% credit on labour costs for foreign productions
• a VFX tax credit bonus of 17.5%
• a qualified BC labour expenditures cap of 60% of production costs

If passed, the credit for the video game industry would apply to game development that begins after August 31, 2010.

The purpose of the credits is to help BC compete with other provinces and countries who have actively supported the games industry.

BC government news release is here.

Our previous coverage of Ontario tax credits is here.

Ontario tax credits and assistance for tech companies

Ontario tries to show you the money (but for how long?)

In these turbulent economic times, it has never been more important to take advantage of existing government programs and tax credits. Ontario has a number of such programs and tax credits to assist emerging video game companies. With government belt-tightening in full swing, it would be wise to act quickly since, as they say, quantities are limited.

Assistance Programs:

The Ontario Media Development Corporation's ("OMDC") Interactive Digital Media (IDM) Fund is designed to provide Ontario interactive digital media content companies with access to the final piece of funding required to move their content projects into production. Successful applicants will receive a non-refundable contribution of up to $150,000 to a maximum of 50% of the project budget to create a market-ready interactive digital media content product. The deadline for applications is November 16, 2009. Almost two years ago, the Government of Ontario introduced The Next Generation of Jobs Fund ("NGJF") to support companies that would develop job-creating projects in Ontario. While companies in a broad range of industries can access the NGJF, digital media is a priority industry. Since the NGJF has been around for two years, there has likely been a material allocation of its funds (and further applications), so interested parties should act quickly before all of the funds are allocated. Finally, at least two game developers have received investments through the OMDC's Video Game Prototype Initiative.
Detailed IDM information here: http://www.omdc.on.ca/Page3215.aspx
Detailed NGJF information here: http://www.ontariocanada.com/ontcan/1med/en/nextgen_main_en.jsp

Tax Credits:

The OMDC also jointly administers with the Canada Revenue Agency a number of media related tax credits which may result in the recovery of a substantial amount of media development expenses. At least two of those tax credits may be of significant interest in the video game industry.

The Ontario Interactive Digital Media Tax Credit ("OIDMTC") is a refundable tax credit for up to 40% of eligible labour, marketing and distribution expenses. The Ontario Computer Animation and Special Effects Tax Credit ("OCASETC") is a refundable tax credit for up to 20% of eligible labour expenses. For both of those tax credits, the process involves first applying to the Ontario Media Development Corporation for a certificate of eligibility and then filing it with your T2 income tax return. The amount of the tax credit less any taxes owing is refunded to you. Generally speaking, qualifying applicants must be corporations with a permanent establishment in Ontario and eligible expenses must be consistent with the particular tax credit you are applying for and must be paid to persons in Ontario.

Detailed OIDMTC information here: http://www.omdc.on.ca/Page3400.aspx
Detailed OCASETC information here: http://www.omdc.on.ca/Page3402.aspx

Many thanks to our tax colleague Dennis Yee for his assistance with this posting