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Digital Content Creators: David Rotfleisch on How to Navigate the Ontario Interactive Digital Media Tax Credit (OIDMTC)

posted 6 months ago

What is OIDMTC, or Ontario Interactive Digital Media Tax Credit?

The Ontario Interactive Digital Media Tax Credit is a tax credit that can be repaid to qualified corporations based on their qualifying expenditures on eligible goods and digital games during a tax year. By offering financial incentives for businesses to create and manufacture interactive digital media products that fulfill specific eligibility requirements, this credit is intended to encourage the digital media sector in Ontario.

What kinds of products are subject to the Ontario interactive digital media tax?

Under the OIDMTC, claims may be made for the following four product categories:

  1. Non-specified items,
  2. Specified products,
  3. Suitable digital games created by Eligible digital game corporations, and
  4. Suitable digital games created by Suitable digital game corporations.

The following tax credit was designed to encourage the production of recreational and educational goods for children under the age of 12. Search engines, real estate databases, journalism, and public affairs items are a few examples of product categories that are not eligible for this credit. However, this exclusion does not apply to big digital businesses, which may be divided into two categories: qualified digital game businesses and specialized digital game businesses. In addition, the OIDMTC (Ontario Interactive Digital Media Tax Credit) is now available for cinema and television websites that a broadcaster has acquired or licensed and integrated into its website.

A product must satisfy the following criteria in order to be eligible for specific advantages or tax credits:

  • A minimum of 80% of the labor costs for the qualified product must go toward paying personal service providers, whether they are people or companies, with the proper salaries and compensation. The terms “qualifying wages” and “qualifying remuneration” apply to payments given to contractors or people who own a personal services business, respectively. Qualifying wages are earnings paid to workers who carry out their jobs in Canada.
  • Employees of the qualifying corporation must receive qualifying wages that account for at least 25% of the labor costs for the eligible product. Employers who work for the qualifying corporation in Canada are paid what is known as qualifying wages.

Large digital gaming firms, however, are exempt from the aforementioned 80/25 criteria.

What exactly are qualified expenses?

Qualifying corporations in Canada can claim a tax credit equal to 50% of their expenditures, including marketing and distribution costs paid within 60 days of the end of the tax year if they create and promote their own qualified products. The maximum credit amount for each qualifying product for all tax years is $100,000. This tax credit is applicable to non-specified items.

On the other hand, a qualified corporation may claim a tax credit equal to 35% of its expenses if it creates acceptable items under a fee-for-service agreement (defined products).

For qualified digital game firms, a 35% credit is available if they spend at least $1 million on eligible Ontario labor over the course of three years for fee-for-service work completed in Ontario for an eligible digital game. Qualifying digital gaming corporations need not be independent of the purchasing corporation.

A 35% credit is available to digital game corporations that spend at least $500,000 on labor each year in Ontario to produce qualifying digital games. For tax years beginning before April 12, 2019, this limit has been raised to $1 million. Specialized digital game companies are eligible for these credits if at least 80% of their Ontario payroll or 90% of their yearly earnings can be directly attributed to the creation of digital games. Specialized digital gaming firms are not needed to enter into a contract with a third-party buyer and are allowed to submit an annual OIDMTC (Ontario Interactive Digital Media Tax Credit) application. As a result, they are able to claim the tax credit without having to transfer the game’s rights to another business.

Who are the corporations that are eligible for the Digital Media Tax Credit?

The Ontario Interactive Digital Media Tax Credit (OIDMTC) is a refundable tax credit offered to qualified firms in Ontario that generate interactive digital media goods. A corporation must satisfy the following requirements in order to be qualified for the OIDMTC:

  • Must be a Canadian corporation: The corporation must have been established in Canada and must be recognized as a resident of Canada for tax purposes.
  • Have finished developing or created a qualifying interactive digital media item at a permanent facility in Ontario: At a permanent establishment in Ontario, the corporation had to have created a qualifying interactive digital media item. The product needs to satisfy the requirements outlined in the OIDMTC rules.
  • Not qualify as an exemption under Part III of the Ontario Taxation Act: The corporation cannot qualify as an exemption under Part III of the Ontario Taxation Act for the tax year.
  • Not be controlled by corporations that are exempt from paying taxes: The corporation cannot, at any point during the tax year, be directly or indirectly controlled by one or more corporations whose entire or a portion of their taxable income was exempt from paying taxes under section 57 of the Corporations Tax Act (Ontario) or Part III of the Taxation Act (Ontario).
  • Not be a prescriptive labor-sponsored venture capitalist corporation: The corporation must not be a prescriptive labor-sponsored venture capital corporation at any point during the tax year. This is a special kind of corporation that, according to the Ontario Taxation Act, qualifies for a number of tax benefits.

A corporation must fulfill these requirements in order to be qualified for the OIDMTC program.

 A corporation has to fulfill the additional conditions listed below in order to be eligible for the tax credit:

  • It has to maintain a company that involves creating digital games through a permanent location in Ontario. The term “permanent establishment” refers to a definite location of business in Ontario where the corporation conducts its operations.
  • It cannot be a corporation whose main business is the provision of services to a single person, who also owns all of the issued and existing shares of the capital stock of the corporation. This condition is meant to deter people from incorporating themselves just to qualify for the tax benefit.

Pro tax advice: To claim the OIDMTC, you must have a certificate of eligibility.

You must first submit an online application for a certificate of eligibility through Ontario Creates in order to be qualified for the OIDMTC. Please be aware that only one certificate is given out for each qualified product or digital game throughout the tax year. It’s crucial to bear in mind that a business cannot apply for the OIDMTC if it has previously applied for the Ontario computer animation and special effects tax Credit, the Ontario Film and television tax credit, or the Ontario production services tax credit. We advise speaking with one of our knowledgeable Canadian tax lawyers for more information if you have any concerns about your eligibility.

FAQ: Frequently ask questions

Question: What kind of businesses are eligible for OIDMTC?

Answer: A qualifying corporation refers to a Canadian corporation, regardless of whether it is owned by a Canadian or foreign entity. This corporation is required to file an Ontario tax return and produce a qualifying product at a permanent location it runs in Ontario. Large digital firms, including qualified digital game corporations and specialized digital game corporations, are further qualified for this status and are not constrained by the 80/25 regulations.

Question: What kinds of products qualify for the OIDMTC?

Answer: In order to qualify for a tax credit under the OIDMTC, a product must fall into one of four categories: non-specified, specified, eligible digital games created by qualified digital game firms, or eligible digital games created by specialized digital game corporations. Products that may qualify for the tax credit include interactive digital media products like video games, smartphone applications, and kid-targeted e-learning materials. It’s crucial to remember that operating system software is not a qualifying purchase for the tax credit.

Disclaimer:

The information presented in this article is of a general nature and may not be up-to-date as it reflects only the information available at the time of posting. It is not regularly updated and therefore may not reflect current information. This article is not intended to provide legal advice and should not be relied upon as such. It is important to note that tax situations vary depending on individual circumstances and may differ from those described in this article. If you have specific legal questions, it is recommended that you seek the advice of a qualified lawyer.

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