David Rotfleisch: The Ontario Interactive Digital Media Tax Credit (OIDMTC) Explainer from a Canadian Tax Lawyer

What is The Ontario Interactive Digital Media Tax Credit (OIDMTC)?

The Ontario Interactive Digital Media Tax Credit is a refundable tax credit determined by the amount of eligible spending made by a qualified corporation for eligible goods and eligible digital games during a tax year.

What are considered eligible products for the Ontario Interactive Digital Media Tax Credit?

The four types of products allowed for claim under the Ontario Interactive Digital Media Tax Credit are as follows:

• Products that are non-specified;
• Products that are specified;
• Digital games considered eligible developed by a qualified digital game corporation; and,
• Digital games considered eligible developed by a specialized game corporation.

For children under the age of 12, this credit is focused on entertainment and instructional items. It does not apply to products like search engines, real estate databases, or news and public affairs products. Large digital firms, which include the two categories of corporations known as qualifying digital game corporations and specialized digital game corporations, are exempt from this exclusion. The OIDMTC is now available for film and television websites that a broadcaster has purchased or licensed and embedded on its website.

For a product to be eligible, the following must be present:

• For qualified products, at least 80% of all labour costs must be attributed to qualifying wages and remuneration provided to individuals or corporations operating a personal services business; and,
• A minimum of 25% of the total labour costs for eligible products must be attributed to employees of the qualifying corporation receiving qualifying wages.

Large digital game corporations, however, are exempt from the aforementioned 80/25 criteria.

The Qualifying Expenditures

For qualifying corporations, developing and marketing their own eligible products (non-specified products) qualifies them for a credit of 50% of expenses, up to a maximum of $100,000 per eligible product for all tax years. Expenses include marketing and distribution costs paid within 60 days of the end of the tax year. A qualifying corporation may claim a credit of 35% of expenses when developing specific items that are eligible under a fee-for-service agreement (specified products).

The qualifying digital game corporations may claim a 35% credit if they spend at least $1 million on eligible Ontario labour over the course of three years for fee-for-service work completed in Ontario for an eligible digital game. Also, being at arm’s length with the purchaser corporation is not required for qualifying digital game corporations.

For designated digital game firms, a 35% credit is available if they pay at least $500,000 ($1 million for tax years beginning before April 12, 2019) in Ontario labour cost each year for the development of eligible digital games. A specialized digital game corporation would typically attribute at least 80% of its Ontario payroll or 90% of its yearly gross revenues to the creation of digital games. Specialized digital game corporations are permitted to submit an OIDMTC application on an annual basis and are not obliged to enter into a purchase agreement with a third party.

How to be considered as eligible corporations?

To be eligible for the Ontario Interactive Digital Media Tax Credit, a corporation must meet the following requirements:

• the corporation must be Canadian;
• have finished developing or created an eligible interactive digital media product at a permanent establishment in Ontario;
• not qualify for a tax exemption under Part III of the Ontario Taxation Act for the tax year;
• not be under the direct or indirect control of, or in any way be related to, any corporation at any point during the tax year whose taxable income was excluded from tax under section 57 of the Corporations Tax Act (Ontario) or Part III of the Taxation Act (Ontario)

For large digital game corporations, the following are additional requirements:

• it must be a corporation that operates a business that includes developing digital games through a permanent base in Ontario; and,
• it cannot be a corporation whose main business is the provision of services to a single individual, who also owns all of the firm’s issued and existing shares of capital stock.

Tax Pro Tips: Certificate of Eligibility a Requirement to Claim OIDMTC

You must submit an online application to Ontario Creates for a certificate of eligibility prior to claiming the credit. For the entire list of qualifying goods or digital games for the tax year, only one certificate of eligibility is sent out. It should be noted that a corporation cannot apply for the Ontario Interactive Digital Media Tax Credit if it also applies for the Ontario production services tax credit, the Ontario film and television tax credit, or the Ontario computer animation and special effects tax credit. Speak to one of our knowledgeable Canadian tax lawyers in Toronto for more information if you are uncertain about your eligibility for the OIDMTC.

FAQs

Which corporations qualify for the Ontario Interactive Digital Media Tax Credit?

A Canadian corporation (Canadian or foreign owned) that creates an eligible product at a permanent location in Ontario that it operates, and submits an Ontario tax return, is referred to as a qualifying corporation. Qualifying digital game corporations and specialized digital game corporations are examples of large digital corporations that are eligible and exempt from the 80/25 regulations.

Which products fall within the OIDMTC’s eligibility criteria?

Non-specified products, specified products, eligible digital games created by a qualifying digital game corporation, and eligible digital games developed by a specialized digital game corporation are the four categories of products that can be claimed under the OIDMTC. Digital games, mobile apps, and kid-friendly e-learning materials are just a few examples of the interactive digital media product types that could qualify for the tax credit. However, the tax credit is not available for operating system software.