The gamification trend is likely to explode in the next few years, presenting developers with a range of growth opportunities. Design and development require capital, however, and eligible companies looking to sharpen their competitive edge can’t afford to leave cash on the table because they don’t know about the programs, aren’t sure whether they qualify, or simply haven’t bothered to apply.
What are the rules?
The key provinces offering tax credits for eligible digital media initiatives are British Columbia, Manitoba, Ontario, Quebec, and Nova Scotia. They offer a range of refundable tax credits for labour-based expenditures, often including 100 percent of salaries and wages paid to employees and contractors.
Importantly, these tax incentives are not about actual gambling and the exchange of real money, so lotteries and casinos, as well as any promotional games they create to actively promote gambling, are not eligible. Instead, these tax credits apply to games, apps, and multi-media products and websites that educate, inform, and entertain the end-users.
The Ontario Media Development Corporation (OMDC) offers numerous tax credits to incent film, animation, and interactive media developers based on labour expenditures incurred in the province of Ontario. The most relevant to games and apps development being the Ontario Interactive Digital Media Tax Credit (OIDMTC), “a refundable tax credit of 35 or 40 percent of eligible Ontario expenditures for interactive digital media products created in Ontario.”
Companies applying for this credit must develop an interactive digital media product, which can include interactive websites, kiosks, handheld games or eLearning products. The rules for qualifying and taking advantage of this credit are:
1. The purpose of the product must be to educate, inform or entertain the end user.
2. Ninety percent or more of the product has to be developed in the province of Ontario.
3. It must be interactive. 4. It must not be promotional in nature,
i.e. intended to promote the products or services of the company.
If your company specializes in development of games, apps or interactive websites, make sure you’re not missing out on tax credits that could reduce your overall cost of development and make your product more competitive in the marketplace.
[In 2011-2012, there were over 200 applications submitted for the Ontario Interactive Digital Media Tax Credit (OIDMTC). About 120 were approved, with an estimated tax credit value of $270 million.]
By Alex Dhanjal (firstname.lastname@example.org) is a tax partner with KPMG LLP, and Lesley Luk (email@example.com) is a Senior Manager in KPMG’s audit practice. KPMG can be found online at www.kpmg.com.