Ontario Interactive Digital Media Tax Credit
What Is It?
The Ontario Interactive Digital Media Tax Credit (OIDMTC) is a refundable tax credit based on eligible Ontario labour expenditures and eligible marketing and distribution expenses claimed by a qualifying corporation with respect to interactive digital media products.
How much is the Tax Credit?
The OIDMTC is calculated as 40% of eligible Ontario labour expenditures and eligible marketing and distribution expenses incurred after March 26, 2009 by qualifying corporations, regardless of size of corporation, to create "non-specified" interactive digital media products in Ontario. For qualifying corporations applying for an OIDMTC on “specified products” – products developed under a fee-for-service arrangement –the OIDMTC tax rate is 35% on qualifying expenditures incurred after March 26, 2009. For expenditures incurred prior to March 26, 2009 see chart below for applicable tax credit rates.
There is no limit on the amount of eligible Ontario labour expenditures which may qualify and there are no per-project or annual corporate limits on the amount of the OIDMTC which may be claimed. Eligible marketing and distribution expenses are capped at $100,000 per non-specified product.
Who is Eligible?
A qualifying corporation is a Canadian corporation (Canadian or foreign-owned),which develops an eligible product at a permanent establishment in Ontario operated by it, and files an Ontario tax return. A qualifying small corporation must meet these criteria, as well as show, during the preceding taxation year (on an associated company basis), neither annual gross revenues in excess of $20 million nor total assets in excess of $10 million.
Corporations that are prescribed labour-sponsored venture capital corporations under the regulations made under the Income Tax Act (Canada) and corporations that are exempt from tax or are controlled directly or indirectly by a corporation exempt from tax are not eligible for the OIDMTC.
What Types of Products Are Eligible for the Tax Credit?
There are four types of products that can be claimed under the OIDMTC: non-specified products, specified products, eligible digital games developed by a qualifying digital game corporation, and eligible digital games developed by a specialized digital game corporation. To be eligible for the OIDMTC, a product must be an interactive digital media product whose primary purpose is to educate, inform, or entertain, and that achieves its primary purpose by presenting information in at least two of: (i)text, (ii)sound and (iii) images. Types of interactive digital media products that may be eligible for the tax credit include, but are not restricted to, games, educational and informational products. Operating system software is not eligible for the tax credit.
In addition, the following requirements must be satisfied for a product to be a non-specified product of the qualifying corporation: all or substantially all of the product was developed in Ontario by the qualifying corporation; the product was not developed under a fee-for-service arrangement; the product is not used primarily for interpersonal communication; the product is not used primarily to present or promote the qualifying corporation; and the product is not used primarily to present, promote or sell the products or services of the qualifying corporation.
Specified products are interactive digital media products that are developed under a fee-for-service arrangement, under the terms of an agreement between the qualifying corporation and an arm’s length purchasing corporation for the purpose of sale or license by the purchaser to one or more persons who deal at arm’s length with the purchaser. All or substantially all, of the product must be developed in Ontario by the qualifying corporation. The development of the product must be completed by the qualifying corporation after March 23, 2006.
New for Digital Media Game Corporations
The OIDMTC is available at a 35% tax credit rate to qualifying digital game corporations that incur a minimum $1 million of eligible Ontario labour costs over a three- year period for fee-for-service work done in Ontario that is directly related to the development of a digital game. Qualifying digital game corporations would not be required to be at arm’s length with the purchaser corporation, or to develop all, or substantially all, of the eligible product. Eligible expenditures are those incurred after March 26, 2009.
The OIDMTC is also available at a 35% tax credit rate to specialized digital game corporations that have either 80% of Ontario payroll or 90% of annual revenues attributable to interactive digital media game development with a minimum of $1 million of Ontario labour expenditures in the taxation year directly attributable to the development of eligible digital games. Specialized digital game corporations are entitled to file an annual OIDMTC application and would not be required to contract with an arm's length purchaser, or to develop all, or substantially all, of the products included in the claim. Eligible expenditures are those incurred after March 26, 2009.
What Expenditures Are Eligible?
The credit may be claimed with respect to qualifying Ontario expenditures which include eligible labour expenditures and marketing and distribution expenditures (for non-specified products only). Eligible labour expenditures are 100% of salaries and wages for employees and 100% of remuneration incurred after March 26, 2009 and paid to arm’s length persons who are not employees. For specified and non-specified products, “persons” may include individuals, partnerships and corporations. For eligible remuneration expenditures incurred prior to March 26, 2009 see chart below. Please note: for eligible digital games developed by qualifying digital game corporations and specialized digital game corporations, remuneration does not include amounts paid to another taxable Canadian corporation for the services of its employees.
Eligible Labour expenditures must also be paid to individuals resident in Ontario, directly attributable to the development of the eligible product, and paid for services rendered at a permanent establishment in Ontario. For those products completed after March 25, 2008, eligible labour expenditures incurred in the three-year period prior to the completion of the product can be included in the OIDMTC claim. For products completed prior to March 26, 2008, eligible labour expenditures incurred in the two-year period prior to completion can be claimed.
Up to $100,000 of eligible marketing and distribution expenditures related to a non-specified product can be included. Eligible marketing and distribution expenses are those incurred in the 24-month period prior to the completion of the eligible interactive digital media product, and those incurred in the twelve months following the completion of the product. Expenditures that have already been claimed as eligible Ontario labour expenditures cannot be claimed as marketing and distribution expenditures.
For specified products and eligible digital games developed by qualifying digital game corporations or specialized digital game corporations, qualifying expenditures are restricted to eligible labour expenditures and do not include marketing and distribution expenditures.
How is the Tax Credit Administered?
The OIDMTC is jointly administered by the Ontario Media Development Corporation (OMDC) - an agency of the Ministry of Tourism, Culture and Sport - and the Canada Revenue Agency. Application is made to the OMDC for a certificate of eligibility, which the production company files with the Canada Revenue Agency together with its tax return in order to claim the OIDMTC. The amount of the credit, net of any Ontario taxes owing, will be paid to the qualifying corporation. If the qualifying corporation does not owe any taxes, the full amount will be paid out.
* PLEASE NOTE: CANADA REVENUE AGENCY (CRA) ADMINISTERS BOTH FEDERAL AND ONTARIO CORPORATE TAXES FOR TAXATION YEARS ENDING AFTER DECEMBER 31, 2008. THE CRA IS THE FIRST POINT OF CONTACT FOR ALL CORPORATE TAX ENQUIRIES (1 800 959-5525).
Note: This sheet is a general guide and may not be relied upon in order to determine eligibility or the amount of an anticipated credit. Please consult the OIDMTC legislation and regulation for further details.