At the conclusion of 2014, Ontario announced as part of its 2014 Ontario Outlook and Fiscal Review, that it would be reviewing the Ontario Interactive Digital Media Tax Credit (OIDMTC). It refers to this overall endeavour as striving for “A Fair and Efficient Tax System.” While this review encompasses many taxation areas ranging from personal income tax rates to small business deductions, the OIDMTC is the only grant incentive program that is singled out for review. In this author’s opinion, OIDMTC has a limited and severely curtailed future. So, if you’re eligible, you had better apply now before it’s too late.
First introduced to provide tax credits in 2003-2004, OIDMTC is jointly administered by the Ontario Media Development Corporation (OMDC) and Revenue Canada (CRA). The program provides refundable tax credits for eligible Ontario labour expenditures and eligible marketing and distribution expenditures for businesses with annual gross revenues of less than $20 million and total assets below $10 million.
The goal of the program is to provide funding to boost and grow the interactive digital media sector in Ontario – that is, companies who develop digital games and educational software (Editor’s note: British Columbia and Manitoba have similar programs directed at similar industries). This sector is important to Ontario as it represents $134 million in annual sales and employs over 1,850 Ontarians. In 2003-2004, the program provided $1 million in support funding to the sector. In 2014-2015 the Ontario Government is predicting that it will award over $61 million in funding.
So, how is it possible to provide $61 million in funding to an industry that only generating $134 million in sales? The obvious answer is that there is a “loophole” in the wording of the tax law that enables any company, including yours, regardless of industry sector, who has spent money on developing an interactive software product, to be eligible for the grant.
This law abiding, but unintended “loophole” interpretation of OIDMTC, is why the program is under review, and you don’t need a crystal ball to know that it’s not going to be there for much longer. So, read on to see if you’re a qualifying company. And remember, now is the time to apply as your window of opportunity could be closing soon.
The OIDMTC is calculated as 40% of eligible Ontario labour expenditures and eligible marketing and distribution expenses incurred after March 26, 2009 by qualifying corporations (regardless of size) to create “non-specified” interactive digital media products in Ontario. For qualifying corporations applying for OIDMTC on “specified products” – that is, products developed under a fee-for-service arrangement – the OIDMTC tax rate is 35% on qualifying expenditures incurred after March 26, 2009. The rates vary for expenditures incurred prior to March 26, 2009.
There is no limit on the amount of eligible Ontario labour expenditures which may qualify and there are no per-project or annual corporate limits on the amount of the OIDMTC which may be claimed. Eligible marketing and distribution expenses are capped at $100,000 per non-specified product.
To be eligible for the OIDMTC, a product must be an interactive digital media product whose primary purpose is to educate, inform or entertain, and that achieves its primary purpose by presenting information in at least two of: text, sound and images. Types of interactive digital media products that may be eligible for the tax credit include (but are not restricted to) games, educational and informational products. Products whose primary purpose is to present or promote the qualifying corporation and/or the product, and is used primarily to present, promote or sell the products or services of the qualifying corporation, are not eligible.
The process to apply begins with a phone call to the Ontario Media Development Corporation where you explain your product and receive a certificate of eligibility. This certificate is then included in your corporate tax return along with the breakdown of expenses eligible for credit. Like SR&ED, this is a “refundable” tax credit, not simply a credit against taxes owing. So, in due course, you will receive a cheque from CRA for the amount due.
It’s that simple, but it may not be around much longer. So hurry up and apply as soon as you can.