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 eligible interactive digital media products in Ontario. For those 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 eligible product.
Who is Eligible?
A qualifying corporation is a Canadian corporation (that is Canadian or foreign-owned), that develops an eligible product at a permanent establishment in Ontario operated by it, and files an Ontario tax return. A qualifying small corporation meets these criteria as well, and had 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 now two types of products that can be claimed under the OIDMTC: eligible products and specified products. 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 an eligible product (other than specified products) 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 purchaser 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.
Digital Media Game Exceptions*
Digital media game developers that incur a minimum $1 million of eligible labour expenditures after March 26, 2009 over a 3 year period for fee-for-service work done in Ontario would not be required to be at arm's length with the purchaser corporation, or to develop all, or substantially all, of the product.
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.
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. "Persons" may include individuals, partnerships and corporations. For eligible remuneration expenditures incurred prior to March 26, 2009 see chart below.
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 an eligible 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 qualifying expenditures are restricted to eligible labour expenditures and do not include marketing and distribution expenditures