Ontario Interactive Digital Media Tax Credit: What Should You Know?

The Ontario Interactive Digital Media Tax Credit (OIDMTC) is a refundable tax credit for eligible corporations in Ontario who have invested in qualifying digital media technologies or have digital games expenditures. The development and the marketing of these eligible educational games or entertainment games must be intended for children under 12.

In this article, the corporate tax accountants at T2inc.ca in Ontario explain how your corporation can claim the OIDMTC with ease.

Who is eligible for the OIDMTC?

As an Ontario corporation, you must receive a certificate of eligibility through Ontario Creates online.

To be eligible for the OIDMTC, your corporation must:

• Have a permanent operating address in Ontario and be a Canadian business
• Have invested or used an eligible digital media product at their Ontario address
• Not be exempt from any tax limitations under Part 3 of the Ontario Taxation Act of 2007
• Not be a labour-sponsored venture capital business during the tax year

If your business is a large digital game corporation, you must also:

• Have a permanent operating address in Ontario which includes the production of digital games and their development
• Not be a large corporation where the majority of shares is held by, or its capital stock is outstanding because of a single individual

During a single tax year, a corporation cannot claim the OIDMTC if they also claim:

• Ontario computer animation and special effects tax credit
• Ontario film and television tax credit
• Ontario production services tax credit

What expenditures qualify for the digital media tax credit?

The OIDMTC qualifying expenditures includes the following:

1. You are a corporation who develops or markets their own digital products may claim up to 40% of expenditures as a credit
2. You are a corporation who develops digital products as a fee-for-service may claim up to 35% of expenditures as a credit
3. You are a corporation who:
   1. Incurs a minimum of $1 million of eligible Ontario labour expenses during a 36-month period for any contracted fee-for-services done in the province of Ontario for an eligible game
   2. Develops specialized digital games which incur $500,000 of eligible Ontario labour expenses throughout the tax year. Specialized digital game corporations should have a minimum of 80% of payroll run through Ontario or have their annual gross revenues be of 90% or more attributable to developing games

Eligible products include the digital game, software, and the wage labour incurred during a tax year attributable to the eligible product and pay within 60 days before the tax year ends.

The eligible remuneration of expenditures that a qualifying corporation can claim is 100%.

Due to Covid-19, labour expenditures incurred during 2020 tax year has been extended for 24 months. Any eligible labour expenditures are also allowed if: the employee is remote working in Ontario and has an Ontario permanent address, and the business has an operating address in Ontario.

Note: The Canada Revenue Agency will only process the OIDMTC once all forms are submitted including the Ontario Creates certificate.

How to claim the interactive digital media tax credit

To claim the OIDMTC, you need to include Form 560 and Form 5 with your T2 corporate tax return. You must also include your certificate that you must receive from Ontario Creates.

Form 560

Using Form 560: Ontario Interactive Digital Media Tax Credit, you can claim each eligible product or digital game.

Form 5

Using Form 5’s line 462, the Tax Calculation Supplementary form for corporations, you can add in the amount you are claiming from Form 560.

How to claim the interactive digital media tax credit

As a digital games corporation in the province of Ontario, you have the opportunity to claim tax credits from the Government of Canada for the development and marketing of eligible games for children under the age of 12. This is a great investment for your business with even better rewards during tax time.

If you would like to claim any unused credits, call on T2inc.ca’s corporate tax accountants in Toronto. Contact us today to get ease of mind with your T2 tax return.