The Ontario Interactive Digital Media Tax Credit (OIDMTC) is a refundable tax credit that allows companies to claim a 35-40% tax return rate on eligible expenditures related to the development of interactive digital media (IDM) products. In 2013-14 alone, the Ontario Media Development Corporation (OMDC) certified over 1100 products, amounting to $68 million in tax credits. If you’re thinking about applying to the program, there are a few things you should be aware of that will increase your chances of success.
OIDMTC was first put in place in 2005, and the guidelines for eligibility were established to allow for exploration in a nascent industry. Previously, IDM products had to have a primary purpose of entertaining, educating, or informing the user to be eligible. The program was recently changed to only include entertainment products and educational products for children aged 12 and under. The development requirement previously indicated that the applicant must prove they were responsible for 90% of work related to “product development,” a nebulous guideline that could be left up to interpretation. The new rule states that the applicant must prove they were responsible for 80% of “product development expenditures,” composed of eligible remuneration and wages (25% of which must be attributable to wages.) Restrictions on promotional products were also tightened, and companies are now obligated to prove their eligible products have a revenue generating stream, including subscriptions, fee-for-use, in-product purchasing, and third-party advertising. For more information about the recent changes, read our last blog post about OIDMTC.
Companies who haven’t applied to the program previously may be reading the new rules and think they missed their shot. If you have products that were previously eligible under the former rules, you can still claim expenditures occurring before April 23, 2015. OIDMTC claims can still be submitted for any fiscal year within three years of the Notice of Assessment date for that particular fiscal year. The 80% development rule is being applied retroactively, but the primary purpose and promotional rules are not, so keep that in mind when doing your calculations.
Provinces across the country have digital media tax credit programs, but Ontario is one of the most influential in terms of fostering growth in the IDM sector. Major game studios like Ubisoft and Electronic Arts have established development studios here in an effort to take advantage of the lucrative tax incentives and grant opportunities. Determining project eligibility in addition to calculating eligible expenditures can be a complex and multifaceted process, especially in light of the recent changes. The chances of success for an application are increased when you have experience applying in the past and understand the common pitfalls that many companies make.
All over Canada, provinces are focused on strengthening and sustaining the IDM industry. At BeneFACT, we have a dedicated team who can help you apply for these tax credits. To learn more about digital media tax credits in your province, call us toll free at 1-855-TAX-BACK (829-2225).