We often encounter companies who are not aware they are eligible for both the Scientific Research and Experimental Development tax credit (SR&ED) and provincial Digital Media Tax Credits (DMTC). Information Technology companies that build digital media products can often be eligible for both, but they may not explore both options for a variety of reasons – time constraints, budget constraints, uncertainty about the application process, or the misconception that they aren’t eligible. The programs are quite different, but together they constitute considerable claim opportunities.
DMTC is, in most cases, a refundable tax credit for eligible expenditures related to eligible products – essentially, wages and remuneration for interactive digital media (IDM) products. The definition of IDM varies for each province, but commonly claimed products include digital games and e-learning platforms. For SR&ED, instead of assessing the end product, it’s about evaluating the technological uncertainty involved in the work and the scientific processes being used to solve the problem.
With the exception of British Columbia, government regulators allow companies to submit claims for both programs. Here are three things you should keep in mind when applying for SR&ED and DMTC together:
You can’t claim the same expenditures
The government doesn’t allow double-dipping with their various tax credit and incentive programs, so you can’t claim the same hours on SR&ED and DMTC. SR&ED has a higher tax recovery rate (70% in most cases) than the various DMTC programs, but some development expenditures may not be classified as R&D expenses. Any development work that wasn’t claimed on SR&ED (content development, for example) can likely be claimed for DMTC. Subtracting the expenses claimed on one application from the other can add a layer of complexity to the process, but it’s well worth the effort.
If you already applied for SR&ED and not DMTC, it’s not too late
SR&ED is claimed annually with an 18 month deadline from the fiscal year end, while most provincial DMTC programs are claimed in the tax year following the product completion date. For DMTC, there is usually a longer look-back period, allowing you to claim products that you think are off the table.
SR&ED is focused on innovation, while DMTC is focused on commercialization
R&D and commercialization are very different things, but they are both challenges that all companies need to address. This is part of what differentiates the two programs: SR&ED does not require a completed product, while DMTC often does; SR&ED claims are focused on innovation, while DMTC is more encompassing (sometimes allowing companies to claim marketing and distribution expenditures.) Both are invaluable resources for companies to get the additional funding they need to go global.
BeneFACT Consulting Group is Canada’s largest independent SR&ED firm with a full-time staff of over 60 employees. We have dedicated departments for both SR&ED and DMTC, simplifying the process for claimants who are eligible for both programs. If you have any question(s), please do not hesitate to give us a call toll free at 1-855-TAX-BACK (829-2225).