Entertainment and Media Tax Clip: Ontario enhances its Interactive Digital Media Tax Credit (August 20, 2009)

The Ontario Interactive Digital Media Tax Credit (OIDMTC) is a refundable tax credit that reduces the cost of developing interactive digital media products, such as video games, certain electronic products and interactive websites, in Ontario.

The OIDMTC is for eligible Ontario labour expenditures and marketing and distribution expenses claimed by a qualifying corporation for an interactive digital media product that:

  • Has the primary purpose of educating, informing or entertaining and must achieve this purpose by presenting information in at least two of the following ways: text, sound and image or
  • Is developed under a fee-for-service arrangement

The 2009 Ontario budget proposes the following three permanent enhancements to the OIDMTC for qualifying expenditures incurred after March 26, 2009.

  1. Higher credit rates
    OIDMTC rates will increase to:
    • 40% for all qualifying corporations, regardless of size, that develop and market their own eligible products, up from 30% for small corporations and 25% for large corporations
    • 35% for corporations that develop eligible products under a fee-for-service arrangement, up from 25%
  2. Eligible labour expanded
    Corporations will be allowed to claim 100% of payments to eligible arm's length contractors that are attributable to the salaries and wages of the contractor's employees, up from 50% for corporations that develop and market their own products and from nil if the eligible products were developed under a fee-for-service arrangement.
  3. More fee-for-service arrangements eligible
    The OIDMTC will be extended to digital media game developers that incur a minimum of $1 million of eligible labour expenditures over a 36-month period for fee-for-service work performed in Ontario in respect of an eligible product. The requirement to deal at arm's length with the purchaser and to develop all, or substantially all, of the eligible product in Ontario will not apply to developers that meet the minimum expenditure test.

PricewaterhouseCoopers' comments
These measures demonstrate Ontario's commitment to the importance of the growing digital media sector. They will be welcome in the entertainment and media industry. In particular, the enhanced credits will further reduce the after-tax cost of developing interactive digital products in Ontario, making the province an even more attractive jurisdiction to carry on these activities.

For more film, video and digital media incentives, see PricewaterhouseCooper's The Big Table of Film and Video Incentives and Big Table of Digital Media and Animation Incentives, which will be updated for recent enhancements shortly.