Who is eligible?The Ontario Interactive Digital Media Tax Credit (OIDMTC—"the Credit") may be claimed by a "qualifying corporation", which is a Canadian corporation (or a foreign-owned corporation operating in Canada) that: 1. has developed an eligible product at a permanent establishment in Ontario, 2. is required to file an Ontario Corporate Tax return, and 3. has an annual gross revenue of less than $20 million and total assets of no more than $10 million. Tax-exempt corporations, such as non-profit organizations or "labour sponsored venture capital corporations" do not qualify.
What kind of products are eligible?To be eligible for the Credit, the qualifying corporation must have developed an interactive digital media product which serves to educate, inform or entertain. The information must be presented in at least two of the following forms: text, sound or images. Examples of eligible products include web sites, CD-ROMS and DVD-ROMS. Products used primarily for interpersonal communications or for promotional purposes are not eligible. In addition, 80% or more of the labour expenses must have been incurred in Ontario and no more than 20% can contribute to development performed by independent contractors or other corporations. In addition, 25% of total labour cost must be completed by employees of the qualifying corporation.
What kind of labour expenses can be claimed?The Credit is equal to 40% of labour expenses directly attributable to the development of the eligible product. The term "development" includes concept development, product design, planning, production and testing, but excludes product launch. However, the Ontario government has proposed in its 2000 budget that the Credit also apply to marketing and distribution expenses of up to $100,000 in addition to the labour expenses related to development. The labour expenses encompass 100% of all salaries paid by the qualifying corporation to its employees after June 30, 1998, but only 50% of all remuneration paid by the qualifying corporation to non-employees after May 4, 1999. Non-employees may include individuals, partnerships or corporations, as long as:
How Does a Company Apply for the Credit?
To obtain the Credit, the product must be completed and all related expenses must have been paid. The qualifying corporation must submit an application to the Ontario Media Development Corporation ("OMDC")Applications will only enter the queue to be reviewed on a first come, first served basis. In an effort to streamline our tax credit administration process, please note that starting April 1, 2011, the OMDC is implementing a mandatory policy that all OMDC tax credit applications must be submitted via our Online Application Portal and all requested documents must be uploaded through the OMDC portal. A red Asterix * beside a field in the application form, or beside checklist items for requested documents indicates that those items are mandatory and must be completed or those specific documents must be attached in order to proceed with the application. The March 26 2009 Budget Proposed OIDMTC enhancements related to OIDMTC rates and digital game development are included in this form. Only 1 application per fiscal year can be filed. For applications that include specified and non-specified products applications must contain all products completed in that fiscal year. For example, for a July 31 2008 fiscal year end, an interactive digital media product completed on February 2 2008 would be submitted in a 2008 fiscal year OIDMTC claim, whilst a product completed on July 1 2009 would be submitted in a 2009 fiscal year OIDMTC claim. For qualifying digital game corporations making an OIDMTC claim under section (93.1) the application can be made to OMDC after the end of the 36-month period in which the applicant has incurred a minimum of $1 million in Ontario labour expenditures in respect of an eligible digital game. For specialized digital game corporations making an OIDMTC claim under section (93.2) the application can be made to the OMDC at the end of the taxation year in which the applicant has incurred a minimum of $1 million of Ontario labour expenditures in respect of eligible digital game activities that are directly attributable to the development of eligible digital games. Applications can be made for prior fiscal years as long as that fiscal year is not statute barred. To determine statute barred status, the applicant can contact Canada Revenue Agency (CRA). If not statute barred, the applicant can amend a previously filed tax return with CRA, with the amount of the OIDMTC certificate entered. It is the applicant's responsibility to ensure that they are not statute barred from amending a tax return for a previous fiscal year. If you have any questions relating to the eligibility or the calculation of the Credit, please contact any of the tax credit lawyers at Media Funds and request a free consultation.
Ontario Interactive Digital Media Tax Credit
The Ontario Interactive Digital Media Tax Credit (OIDMTC) is a 40 per cent refundable tax credit available to eligible corporations for qualifying expenditures incurred to foster and encourage innovative interactive digital media products in Ontario. This Budget proposes to improve accessibility to the OIDMTC. Effective for eligible products completed after May 11, 2005, the requirement that eligible corporations demonstrate a minimum 90 per cent copyright ownership in the eligible product would be relaxed, provided that the product is not developed under a fee-for-service arrangement. However, as proposed in the 2015 Ontario budget, as of April 23, 2015, a new rules called the 80/25 test is based on labour costs which states that 80% of total development labour costs to create the product be for labour performed in Ontario and paid to your Corporation's Ontario resident employees (T4), and eligible remuneration paid to arm’s length personal services corporations, and individuals providing services as part of a sole proprietorship with no employees. Furthermore, 25% of total development labour costs to develop the interactive digital media product must be paid to your Ontario based employees for work performed in Ontario.