Ontario’s digital media production industry provides the province with substantial economic benefits. Digital media contributes over $1.5 billion to the Ontario economy on an annual basis and provides full-time employment to more than 16,000 Ontarians.
To enhance the competitiveness of Ontario corporations producing digital media, the Ontario Media Development Corporation (OMDC) created and administers the Ontario Interactive Digital Media Tax Credit, a refundable contribution for eligible labour, marketing, and distribution expenses. Up to 35-40% of project expenses can be claimed to offset business taxes through this credit.
Between 2014 to 2015, 156 applications to the Ontario Interactive Digital Media Tax Credit were approved. Based on these successful applications, over $133 million was awarded through business tax credits.
Changes to the Ontario Interactive Digital Media Tax Credit
Updates to the Ontario Interactive Digital Media Tax Credit were announced on April 23, 2015 outlining changes such as:
- A product’s purpose must now be to entertain users, or educate users specifically less than 12 years old;
- Specific products are now excluded from tax credit funding, such as news content, search engines, databases, and blogs;
- In addition to rules that exclude the funding of promotional products, products must now generate revenue such as product sales and in-app purchases; and
- Ontario labour requirements have now changed. New program rules require that at least 80% of product labour costs are for services provided in Ontario.
Businesses Eligible for the Ontario Interactive Digital Media Tax Credit
Businesses must meet the following eligibility criteria to apply for the Ontario Interactive Digital Media Tax Credit:
- Be a Canadian corporation (either Canadian or foreign-owned);
- Develop an eligible product at a permanent establishment in Ontario;
- File taxes in Ontario;
- Annual revenues less than $20 million and total assets less than $10 million.
Ontario Interactive Digital Media Tax Credit: Product Eligibility Requirements
Non-promotional digital media products must:
- Entertain the user or educate users under 12 years old; and
- Consist of sound, text, or image-based communication.
Some of the ideal products for this program include digital games, educational resources, and virtual reality experiences. Four types of products are eligible to receive these Ontario digital media tax credits:
Specified Products
Products are developed, or in development, under terms of an agreement to sell or license to an arm’s length buyer. Product expenses are refunded by 35%.
Non-Specified Products
Products developed to sell or license to arm’s length parties. No buyer, or fee-for-service agreement shapes product development. Product expenses are refunded by 40%.
Digital Games Developed by a Qualifying Digital Game Company
Digital games are developed, or in development, under terms of an agreement to sell or license to an arm’s length buyer. Companies must have incurred a minimum $1 million in Ontario labour expenses over the previous three years for a single digital game. Product expenses are refunded by 35%.
Digital Games Developed by a Specialized Digital Game Company
Digital games are developed, or in development, by a company that has incurred $1 million in labour expenses over the previous tax year. 80% of Ontario wages and salaries must have direct support for digital game development, or 90% off annual gross revenues must be attributed to digital game development. Product expenses are refunded by 35%.
Filing Corporate Tax Returns with the Ontario Interactive Digital Media Tax Credit
Prior to claiming the Ontario Interactive Digital Media Tax Credit, businesses must apply for a Certificate of Eligibility. The application process verifies product details and assess the projects expenses. Businesses should apply for their Certificate of Eligibility after products have been completed, or at the end of their corporate tax year.