What are some tax credits for Canadian digital media companies?

Joseph Mauceri, Manager, R&D Tax Incentives Practice, KPMG

The Scientific Research and Experimental Development program (SR&ED) offers Canadian companies both federal and provincial tax credits for expenditures relating to eligible SR&ED activities.

The work must be advancing the understanding of technology and should address technological uncertainty through  systematic investigation. Whether your company is developing new products/processes or improving existing products/processes you may qualify for up to 73 cents on the dollar of internal labour expenditures.

The Ontario Interactive Digital Media Tax Credit (OIDMTC) is a refundable tax credit of up to 40 percent, available to companies that develop a digital product that either informs, educates or entertains the end user.

The digital product cannot promote the products or services of the corporation and must be developed 90 percent or more in Ontario by the corporation.  There are a several other criteria that must be met, however the aforementioned rules are the most crucial.

Typical products include console games, mobile games, certain mobile applications, e-learning products, online newspapers/magazines, and entertainment websites.

Applicants can claim expenditures going back 37 months from the date of product completion.

Companies can submit a claim for OIDMTC for any tax year that is not statute-barred (typically 3-4 years).  For certain products, an additional $100,000 in marketing and distribution expenditures are allowed to be claimed.  There are also certain rules specific to companies that develop video games for a related party.

Some additional sources of funding include:
·         Federal Industrial Research Assistance Program (IRAP)
·         Ontario Co-operative Education Tax Credit (OECT)
·         Ontario Computer Animation and Special Effects Tax Credit (OCASE)
·         B.C., Manitoba, New Brunswick, Nova Scotia, PEI, and Quebec Digital Media Tax Credit