Ontario Interactive Digital Media Tax Credit
Highlights
This program is designed for businesses like yours that develop interactive digital media products. It offers a refundable tax credit of up to 40% on eligible Ontario labour expenditures and marketing and distribution expenses. This means you can get a significant portion of your costs back, which can be reinvested into your business.
Key Benefits:
- 40% tax credit on eligible labour expenditures for non-specified products.
- 35% tax credit for specified products and digital games.
- No limit on the amount of eligible Ontario labour expenditures.
- Up to $100,000 for marketing and distribution expenses per non-specified product.
Applying for this program can provide your business with substantial financial support, making it easier to manage development costs and expand your market reach. The application process is straightforward, and as a qualifying business, you stand to benefit greatly from this opportunity.
Financing Details
Type of Financing: Tax Credit
Repayment Terms and Interest Rates:
- This is a refundable tax credit, so there is no repayment term or interest rate.
Eligible Expenses:
- Ontario Labour Expenditures: Salaries and wages for employees, and remuneration paid to arm’s length persons who are not employees.
- Marketing and Distribution Expenses: For non-specified products, up to $100,000 can be claimed. These expenses must be incurred within 24 months prior to and 12 months following the completion of the product.
Ineligible Uses of Funds:
- The funds cannot be used for operating system software.
- Marketing and distribution expenses are not eligible for specified products and digital games developed by qualifying or specialized digital game corporations.
Fees:
- There are no direct fees associated with claiming this tax credit. However, administrative fees may apply for the processing of the tax credit application.
Qualifications
- Must be a Canadian corporation (Canadian or foreign-owned).
- Must develop an eligible product at a permanent establishment in Ontario.
- Must file an Ontario tax return.
- For qualifying digital game corporations:
- Must incur a minimum of $1 million in eligible Ontario labour costs over a three-year period for fee-for-service work done in Ontario.
- For specialized digital game corporations:
- Must have either 80% of Ontario payroll or 90% of annual revenues attributable to interactive digital media game development.
- Must incur a minimum of $1 million in Ontario labour expenditures in the taxation year directly attributable to the development of eligible digital games.
Must meet the 80/25 rule for specified and non-specified products:
- 25% of total development labour must be attributable to eligible wages of employees of the qualifying corporation.
- 80% of total development labour must be attributable to eligible wages and eligible remuneration paid to individuals, personal corporations, or sole proprietorships that do not have employees.
Disqualifications:
- Corporations that are prescribed labour-sponsored venture capital corporations under the regulations made under the Income Tax Act (Canada).
- Corporations that are exempt from tax or are controlled directly or indirectly by a corporation exempt from tax.
- Products that primarily inform the user.
- Products without a revenue-generating stream.
- Products that are primarily promotional.
- Products used primarily for interpersonal communication.
- Websites that do not meet specific eligibility criteria.
- Products that fail the 80% or 25% tests.
- Products where the majority of the content is also hosted on an ineligible website.
- Products produced primarily for industrial, corporate, or institutional purposes.
- Products that are primarily a reference material or designed to be used as a resource for finding information.
- Products that aggregate content from various internet sources.
- Products that are a search engine, blog, or primarily a database.
Description
This program offers your business a refundable tax credit for creating interactive digital media products. You can get a 40% tax credit on eligible Ontario labour expenses and marketing costs for products you develop and market yourself. If you develop products under a fee-for-service arrangement, the tax credit is 35% on eligible labour expenses.
The tax credit covers a wide range of products, including digital games, mobile apps, and e-learning tools for kids. There is no cap on the amount of eligible labour expenses you can claim, making it a substantial benefit. However, marketing and distribution expenses are capped at $100,000 per product.
This program is a great opportunity to reduce your development costs and invest more in your business. The tax credit is refundable, meaning you get the money back even if your business doesn’t owe any taxes. This can significantly improve your cash flow and help you reinvest in growing your business.
Program Steps
Gather Required Documentation: Prepare the following documents:
- Financial statements
- Business plan
- Proof of eligible Ontario labour expenditures
- Proof of eligible marketing and distribution expenses (if applicable)
- Payroll reports, T4s, and contractor agreements for top-paid individuals
- Chain of title documentation (e.g., trademark/copyright registration, development agreements)
Complete the Application Form: Fill out the Ontario Interactive Digital Media Tax Credit (OIDMTC) application form available on the Ontario Creates website.
Submit Application to Ontario Creates: Submit your completed application form and all required documentation to Ontario Creates through their Online Application Portal.
Wait for Certificate of Eligibility: Ontario Creates will review your application and issue a Certificate of Eligibility if your application is approved.
File Tax Return with CRA: Submit your T2 Corporation Income Tax Return along with Schedule T2SCH560 and the estimated OIDMTC amount to the Canada Revenue Agency (CRA).
Submit Certificate to CRA: Once you receive the Certificate of Eligibility from Ontario Creates, submit it to the CRA either through the “T2 attach-a-doc” feature, My Business Account portal, or by mail/fax to the appropriate CRA tax centre.
Receive Tax Credit: The CRA will process your claim and issue the tax credit amount, net of any Ontario taxes owing. If no taxes are owed, the full amount will be paid out to your corporation.