Ontario Interactive Digital Media Tax Credit
Ontario-based interactive digital media companies have many options when it comes to accessing government funding for software production projects. In addition to federal grants and incentives, the Ontario Creates (formerly OMDC) also offers provincial funding programs to extend support for innovative software development and commercialization projects. These include digital media grants and tax credits designed to reduce project costs and make Ontario a more investment-friendly jurisdiction for media companies.
One of Ontario Creates’ main supports, the Ontario Interactive Digital Media Tax Credit (OIDMTC), provides a funding option for companies seeking to recover a portion of labour, marketing, and distribution expenses. These expenses must be tied to activities already executed, either for the previous year or past years where there is sufficient documentation to demonstrate project expenses.
Ontario businesses can claim up to 35%-40% of project costs and receive a tax credit to offset annual corporate taxes.
To receive an Ontario digital media tax credit, applicants must ensure first that they meet all program qualifications. This includes being an Ontario-based interactive digital media (software) developer. All projects/products being submitted for tax credits must be digital applications, including games, that rely on user input.
Ontario Interactive Digital Media Tax Credit: Support Streams
Ontario’s Interactive Digital Media Tax Credit provides retroactive funding to support the province’s growing software, gaming, and related interactive media sectors. This includes direct support for four types of projects:
- Non-Specified Products (up to 40% of project expenses): Products developed internally and sold to one or more arm’s length parties where no formal development contract occurred;
- Specified Products (up to 35% of project expenses): Products developed internally and sold to one or more arm’s length parties where there was a fee-for-service contract supported;
- Digital Games Developed by Qualifying Digital Game Corporations (up to 35% of project expenses): Specifically for digital games, this stream can provide support for projects that incur over $1 million in eligible labour expenses over a 36-month period; and
- Digital Games Developed by Specialized Digital Game Corporations (up to 35% of project expenses): Specifically for digital games, this stream can provide support for projects that incur over $1 million in eligible labour expenses over a 12-month period, AND have at least 80% of the total salaries and wages incurred for services rendered in Ontario, or have at least 90% of the corporation’s gross revenues for the year are directly attributable to the development of digital games.
Eligibility for the Ontario Interactive Digital Media Tax Credit
To claim the Interactive Digital Media Tax Credit in Ontario, businesses must:
- Be incorporated in Canada (may either be Canadian or foreign-owned);
- Maintain annual revenues less than $20 million and total assets less than $10 million;
- Develop an eligible product at a permanent establishment in Ontario; and
- File taxes in Ontario.
Types of Projects Eligible for the Interactive Digital Media Tax Credit
Products that may be eligible for the Ontario Digital Media Tax Credit include, but are not limited to:
- Digital Games;
- Mobile Applications; and
- Child-focused e-learning products.
How to Access the OIDMTC Software Tax Credit
To claim the OIDM tax credit for software developers, companies must receive a Certificate of Eligibility from the Ontario Media Development Corporation to signify that the project is eligible for funding. To do this, participants must apply to Ontario Creates within 18 months of the project being completed.
Certificates of Eligibility can then be submitted to the Canada Revenue Agency along with completed tax documentation to claim the OIDMTC.
Alternate Option: Ontario Digital Media Grants
Another way to access Ontario digital media funding is through government grants. As opposed to tax credits, digital media production grants (also provided through Ontario Creates) can provide funding for projects set to occur in the future.
While tax credits provide retroactive funding for past activities, Ontario Creates’ grant funding program, the Interactive Digital Media Fund (IDMF), looks ahead to the and can offset up to 50% of project expenses. Like tax credits, grants provide non-repayable funding. However, businesses must apply in advance of project start dates and receive formal approval before the project begins.
To learn more about the Interactive Digital Media Tax Credit or Ontario’s government grant for digital media development, please contact Mentor Works.