Ontario Interactive Digital Media Tax Credit (OIDMTC)

Ontario Interactive Digital Media Tax Credit (OIDMTC) is sponsored by Government of Ontario. The OIDMTC is a refundable tax credit for Ontario corporations that develop interactive digital media products.

Ontario Interactive Digital Media Tax Credit (OIDMTC) Ontario Interactive Digital Media Tax Credit (OIDMTC) Ontario Interactive Digital Media Tax Credit (OIDMTC) https://www. ontariocreates.

ca/tax-incentives/oidmtc The Ontario Interactive Digital Media Tax Credit (OIDMTC) is a refundable tax credit based on eligible Ontario labour expenditures and eligible marketing and distribution expenses claimed by a qualifying corporation with respect to interactive digital media products. How much is the Tax Credit?

The OIDMTC is a refundable tax credit available to qualifying corporations for expenditures related to the creation of eligible interactive digital media products. A 40% tax credit is available for eligible Ontario labour expenditures and eligible marketing and distribution expenses incurred by qualifying corporations that develop and market their own products (known as “non-specified products”).

The credit is 35% on eligible Ontario labour expenditures for products developed under a fee-for-service arrangement (known as “specified products”). A 35% credit on eligible labour expenditures is also available to qualifying digital game corporations and specialized digital game corporations (see large digital game corporations below).

There is no limit on the amount of eligible Ontario labour expenditures which may qualify and there is 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.

A qualifying corporation is a Canadian corporation (Canadian or foreign-owned), which develops an eligible product at a permanent establishment in Ontario operated by it, and files an Ontario tax return.

Corporations that are prescribed labour-sponsored venture capital corporations under the regulations made under the Income Tax Act (Canada) and corporations that are exempt from tax or are controlled directly or indirectly by a corporation exempt from tax are not eligible for the OIDMTC. What Types of Products Are Eligible for the Tax Credit?

There are four types of products that can be claimed under the OIDMTC: non-specified products, specified products, eligible digital games developed by a qualifying digital game corporation, and eligible digital games developed by a specialized digital game corporation.

Types of interactive digital media products that may be eligible for the tax credit include, but are not restricted to, digital games, mobile applications and e-learning products for children. Operating system software is not eligible for the tax credit.

A product must be an interactive digital media product whose primary purpose is to entertain users or educate children under 12, and that achieves its primary purpose by presenting information in at least two of: (i) text, (ii) sound and (iii) images. The OIDMTC regulations exclude certain types of products, including most websites.

Please note that where products were commenced before April 24, 2015 that are not eligible under the new regulatory requirements of April 23, 2015, qualifying corporations may claim a tax credit but are limited to eligible expenditures incurred on or before April 23, 2015 when calculating their OIDMTC claim .

An eligible product must meet a quantitative rule known as the 80/25 rule which is based on labour costs of the company developing the product. The 80/25 rule is based on two concurrent labour tests and both must be met. 25% of the total development labour to create the product must be attributable to eligible wages of employees of the qualifying corporation.

Also 80% of the total development labour to create the product must be attributable to eligible wages and eligible remuneration paid to individuals, personal corporations, or sole proprietorships that do not have employees.

Large Digital Game Corporations Qualifying digital game corporations are those that incur a minimum $1 million of eligible Ontario labour costs over a three- year period for fee-for-service work done in Ontario that is directly related to the development of a digital game. Qualifying digital game corporations would not be required to be at arm’s length with the purchaser corporation and do not have to meet the new 80/25 rule.

Specialized digital game corporations are those that have either 80% of Ontario payroll or 90% of annual revenues attributable to interactive digital media game development with a minimum of $1 million of Ontario labour expenditures in the taxation year directly attributable to the development of eligible digital games.

Specialized digital game corporations are entitled to file an annual OIDMTC application and would not be required to contract with an arm's length purchaser and do not have to meet the new 80/25 rule. What Expenditures Are Eligible? The credit may be claimed with respect to qualifying Ontario expenditures which include eligible labour expenditures and marketing and distribution expenditures (for non-specified products only).

Eligible labour expenditures include salaries and wages for employees and remuneration paid to arm’s length persons who are not employees. For specified and non-specified products, “persons” may include individuals, partnerships and corporations.

Please note: for eligible digital games developed by qualifying digital game corporations and specialized digital game corporations, remuneration does not include amounts paid to another taxable Canadian corporation for the services of its employees.

Eligible Labour expenditures must also be paid to individuals resident in Ontario, directly attributable to the development of the eligible product, and paid for services rendered at a permanent establishment in Ontario. Eligible labour expenditures incurred in the three-year period prior to the completion of the product can be included in the OIDMTC claim.

Up to $100,000 of eligible marketing and distribution expenditures related to a non-specified product can be included. Eligible marketing and distribution expenses are those incurred in the 24-month period prior to the completion of the eligible interactive digital media product, and those incurred in the 12 months following the completion of the product.

Expenditures that have already been claimed as eligible Ontario labour expenditures cannot be claimed as marketing and distribution expenditures. For specified products and eligible digital games developed by qualifying digital game corporations or specialized digital game corporations, qualifying expenditures are restricted to eligible labour expenditures and do not include marketing and distribution expenditures.

How is the Tax Credit Administered? The OIDMTC is jointly administered by Ontario Creates - an agency of the Ministry of the Provincial Government of Ontario - and the Canada Revenue Agency. Application is made to the Ontario Creates for a certificate of eligibility, which the qualifying corporation files with the Canada Revenue Agency together with its tax return in order to claim the OIDMTC.

The amount of the credit, net of any Ontario taxes owing, will be paid to the qualifying corporation. If the qualifying corporation does not owe any taxes, the full amount will be paid out. Specialized & Qualifying Digital Game Corporations (sections 93.

2 and 93. 1 - OIDMTC). Click here to download the presentation .

Interactive Ontario 93 Specified non-Specified OIDMTC (video). Click here to download the presentation. A recording of the most recent information session is available above.

Attending an Information Session is not a substitute for reading the Guidelines. Please read the Guidelines. Non-Specified and Specified Products Specialized and Qualifying Digital Game Corporation Claims Specified and Non-Specified Expenditure Breakdown Example Specified and Non-Specified Expenditure Breakdown Specialized Digital Game Expenditure Breakdown (93.

2) (NEW) Qualified Digital Game Expenditure Breakdown (93. 1) Combined Expenditure Breakdown (93. 2 & 93) (NEW) Example Combined Expenditure Breakdown (93.

2 & 93) (NEW) * PLEASE NOTE: CANADA REVENUE AGENCY (CRA) ADMINISTERS BOTH FEDERAL AND ONTARIO CORPORATE TAXES. THE CRA IS THE FIRST POINT OF CONTACT FOR ALL CORPORATE TAX ENQUIRIES (1 833 446-0934). Note: This sheet is a general guide and may not be relied upon in order to determine eligibility or the amount of an anticipated credit.

Please consult the OIDMTC legislation and regulation for further details. Please see information on CRA’s website . 1.

Are costs for medical and/or health and safety personnel required due to COVID-19 eligible costs for tax credits? What about expenses related to testing for COVID-19 and extra cleaning and sanitation costs? 2.

Are costs for personal protective equipment (PPE) required due to COVID-19 eligible costs for tax credits? 3. Are suspension, severance or relief payments eligible expenditures for tax credits?

What about retention payments to induce an individual to remain with the product while it is stalled? 4. Will deposits or advances paid to vendors be eligible costs for tax credits where those amounts have been forfeited due to COVID-19?

5. Are employees and contractors who work remotely eligible labour for purposes of the OIDMTC tax credit? 6.

Is CEWS considered assistance for purposes of the Ontario tax credits? 7a. Specified and non-specified products s.

93: My interactive digital media product has stalled and will never be completed because of COVID-19. Can I still claim the OIDMTC on the expenditures my company incurred before we were shut down? 7b.

Qualifying digital game corporation s. 93. 1: My digital game has stalled because of COVID-19 and will never reach the minimum labour thresholds required for a qualifying digital game corporation.

Can I still claim the OIDMTC on the expenditures my company incurred before we were shut down? 7c. Specialized digital game corporation s.

93. 2: My digital game has stalled because of COVID-19 and will never reach the minimum labour thresholds required for a specialized digital game corporation. Can I still claim the OIDMTC on the expenditures my company incurred before we were shut down?

8. My product has been completed but my company had to make changes due to COVID-19 so we weren’t able to meet all of the tax credit eligibility requirements. Have any eligibility requirements been waived due to COVID-19?

This version of the FAQs has been updated to provide information regarding appeals (see # 3 and # 4 in the OTHER QUESTIONS section). Numbering may have changed. Frequently Asked Questions 1.

Are partnerships eligible to apply? No. Only a qualifying corporation may apply - that is, it must be a corporation incorporated in Canada (though it may be Canadian or foreign controlled) and it must have a permanent establishment in Ontario. There are other restrictions; please see the OIDMTC Information/Application Package.

2. Does the corporation's type of business matter? Generally, when applying for specified and non-specified products under section 93 of the Taxation Act, 2007 , to be considered a qualifying corporation, the type of business activities is not restricted to interactive digital media product development.

However, if your company is applying as a digital game corporation under section 93. 1 or 93. 2 then the nature of your company’s business does matter.

Under section 93. 1 a qualifying digital game corporation carries on a business that includes the development of digital games in Ontario. Under section 93.

2 a specialized digital game corporation carries on a business that includes the development of digital games in Ontario where the corporation has incurred a minimum of $1 million in eligible labour expenditures in the year on one or more digital games and either a) at least 80% of the total salaries and wages incurred by the corporation in the year for services rendered in Ontario are directly attributable to the development of digital games, or b) at least 90% of the corporation’s gross revenues for the year are directly attributable to the development of digital games.

3. Is co-development eligible? As outlined in the OIDMTC regulations, in order for a product to be eligible for the OIDMTC the product must meet a quantitative rule based on the total development labour to create the product incurred during the 37-month claim period.

If you are applying for the OIDMTC your company must demonstrate that 80% of the total development labour to create the product is attributable to eligible wages of your employees, and eligible remuneration paid by you to arm’s length individuals or their personal corporations or sole proprietorships. Also, 25% of the total development labour to create the product must be attributable to eligible wages paid to your employees.

Please note: eligible wages and eligible remuneration for the 80/25 rule must be paid for work performed in Ontario by Ontario residents. It is possible for some co-development to take place on a product. The 80/25 rule allows for up to 20% of the total development labour costs to be incurred and paid by another corporation.

In such a co-development scenario there will still only be one applicant who will be able to demonstrate that they’ve met the 80/25 rule for OIDMTC eligibility. The only exceptions to the 80/25 rule are for qualifying digital game corporations under section 93. 1 or specialized digital game corporations under section 93.

2: Under section 93. 1 applicants do not have to meet the 80/25 rule. Instead, to be eligible under section 93.

1 you must be a qualifying digital game corporation meaning that you carried on a business that includes the development of digital games in Ontario AND incurred a minimum of $1 million in eligible labour expenditures on a digital game under an agreement with a purchaser corporation during a 36-month period that ends in the tax year. Under section 93. 2 applicants do not have to meet the 80/25 rule.

Instead, to be eligible under section 93.

2 you must be a specialized digital game corporation meaning that you carried on a business that includes the development of digital games in Ontario, where your company incurred a minimum of $1 million in eligible labour expenditures in the year on a digital game(s) and either a) at least 80% of the total salaries and wages incurred by your company in the year for services rendered in Ontario are directly attributable to the development of digital games, or b) at least 90% of your company’s gross revenues for the year are directly attributable to the development of digital games.

1. What are the four types of products that can be claimed? There are four types of products that can be claimed for the OIDMTC: non-specified products, specified products (meaning products developed under a fee-for-service arrangement), digital games developed by qualifying digital game corporations and digital games developed by specialized digital game corporations.

2. What is the difference between non-specified and specified products? Non-specified products are developed by your company for sale or licence to one or more arm’s length parties who have not previously entered into an arrangement with your company for development of the product.

Specified products are developed by your company under the terms of an agreement between your company and an arm’s length purchaser corporation for sale or licence by that purchaser to one or more arm’s length parties. Specified products are essentially developed under a fee-for-service arrangement.

Non-specified products receive a higher OIDMTC rate of 40% on eligible expenditures, while specified products receive an OIDMTC rate of 35% on eligible expenditures. PLEASE NOTE: whether it’s a non-specified or specified product, your company must demonstrate that they meet the 80/25 rule for the product. 3.

What is the difference in categories between non-specified and specified products vs digital games developed by a qualifying or specialized digital game corporation? A qualifying digital game corporation carries on a business that includes the development of digital games AND incurs $1 million in eligible labour expenditures in a 36 month period on a digital game under an agreement with a purchaser corporation.

Unlike non-specified and specified products, a digital game developed by a qualifying digital game corporation can qualify for the OIDMTC even if a) the corporation did not meet the 80/25 rule for the digital game, b) the digital game is not completed, and c) the corporation is related to the purchaser corporation for whom the digital game is being developed.

Qualifying digital game corporations receive a 35% OIDMTC on eligible expenditures incurred after March 26, 2009.

A specialized digital game corporation carries on a business that includes the development of digital games, where the company has incurred $1 million in eligible labour expenditures in the year on a digital game(s) and either a) at least 80% of the total salaries and wages incurred by the corporation in the year for services rendered in Ontario are directly attributable to the development of digital games, or b) at least 90% of the corporation’s gross revenues for the year are directly attributable to the development of digital games.

Unlike non-specified and specified products, a digital game developed by a specialized digital game corporation can qualify for the OIDMTC even if a) the corporation did not meet the 80/25 rule for the digital game, b) the digital game is not completed, and c) the corporation is related to the purchaser corporation.

Specialized digital game corporations can file annually and receive a 35% OIDMTC on eligible expenditures incurred after March 26, 2009. 4. What kinds of products are eligible under the OIDMTC regulations of April 23, 2015?

Products that may be eligible for the OIDMTC include, but are not restricted to, digital games, mobile applications, certain websites, and e-learning products for children. The OIDMTC regulations have narrowed the primary purpose requirement for eligible specified and non-specified products. Previously a product’s primary purpose could be to inform, educate or entertain users.

Under the OIDMTC regulations of April 23, 2015, a product’s primary purpose must be to entertain users or educate children under the age of 12. The OIDMTC regulations exclude most websites.

Websites would only be eligible if more than 50% of the site hosts any of the following: one or more digital games; content related to a film, television or internet production (see OIDMTC regulation 34(6)) ; one or more virtual or augmented reality experiences; and/or content that is designed to educate users who are under 12 years of age.

The former 90% developed-by rule (which required the applicant company to have developed all or substantially all of the product themselves) has been replaced with a new 80/25 rule.

The 80% test requires that 80% of total development labour costs to create the product be for work performed in Ontario and paid as eligible salaries or wages to applicant’s employees and eligible remuneration to personal corporations and individuals providing services as part of sole proprietorships with no employees. This 80% test applies to all products certified as eligible on or after April 24, 2015.

The 25% test requires that 25% of the total development labour costs must be paid as eligible salaries or wages to employees of your company for work performed in Ontario. This 25% test applies to all products that apply for certification on or after April 24, 2015. The OIDMTC regulations of April 23, 2015 state that specified and non-specified products must now have a revenue generating stream.

Revenue generating streams include: the sale of the product, fees for the use of the product, including licence and subscription fees, in-product purchases, arm’s length third party advertising, and the sale or license of another product developed by the applicant that can reasonably be considered an extension or upgrade of the product being claimed.

Please note: There is no specific amount of revenue that needs to be generated in order to be considered eligible. Also for specified products the agreement between your company and the Purchaser corporation to develop the product cannot be used to satisfy the requirement of having a revenue generating stream. The product must be used by the Purchaser corporation to generate revenue.

Products that only have development labour costs incurred after April 23, 2015 must meet all of the new eligibility requirements stated in the OIDMTC regulations. 5. What kinds of products are ineligible under the OIDMTC regulations of April 23, 2015?

The OIDMTC regulations of April 23, 2015 exclude certain types of products that provide any content that is: news, current events or public affairs programming; opinion, commentary or advice; or weather or market reports.

Other types of ineligible products are: products produced primarily for industrial, corporate or institutional purposes including vocational training products or products that educate or inform employees; products that are primarily a reference material or otherwise designed to be used as a resource for finding information, such as a guide for equipment or software, a dictionary or a map; products that aggregate content from various internet sources; products that are a search engine; products that are a blog; and products that are primarily a database, including a real estate or recipe database.

Primarily means more than 50%. Products that fail the 80% or 25% tests will not be eligible for the OIDMTC. See P4 above.

Products where the majority of the content on the product is also hosted on a website that is not eligible under the new rules would be considered ineligible. See description of eligible websites in P4 above.

Specified and non-specified products will not be able to claim eligible expenditures incurred after April 23, 2015 due to any of the following: the product primarily informs the user, the product does not have a revenue generating stream (see P4 above); the website is not one described in OIDMTC regulation 34 (5) 9ii (see P4 above) Products that are primarily promotional are not eligible for the OIDMTC.

Products that primarily promote the applicant’s products or services, the Purchaser corporation’s products or services, or any third party’s products or services will be considered promotional. Ontario Creates reviews all the content on a product, development and marketing documentation, and examines how the product is used by individuals to determine if a product is primarily promotional.

Products used primarily for interpersonal communication are not eligible for the OIDMTC. 6. Would a website based on a talk show be eligible for the OIDMTC?

No. Talk shows have always been ineligible for OCASE, OFTTC and OPSTC and this continues to be the case despite recent Federal changes to the Canadian Film or Video Production Tax Credit. Websites based on talk shows are also excluded for purposes of the OIDMTC. 7.

What if my company began work on my product prior to April 23, 2015? Should your product not be eligible under the new requirements of the OIDTMC regulations of April 23, 2015, but your product has development labour costs incurred prior to April 24, 2015, your product may be reviewed under the pre-Budget rules.

In that case, you will be limited to claim eligible expenditures incurred on or before April 23, 2015 to calculate your OIDMTC. (However, please note that the 80% test will apply to all products regardless of the date the activities and costs were incurred. The 25% test will also apply for products for which the application for certification was received by Ontario Creates on or after April 24, 2015.)

8. What types of website structures are ineligible for the OIDMTC? Ontario Creates’ administration of OIDMTC reflected the Ministry of Finance’s general policy interpretation that a website embedded in a third party’s website is not a complete interactive digital media (IDM) product and is therefore ineligible for OIDMTC support under s.

93 of the Taxation Act, 2007. However, it has come to the attention of the Province that business models in the film and television industry often require that websites purchased or licensed by a broadcaster be integrated within the broadcaster’s website for a seamless user experience.

In recognition of this industry-specific business model, the Ontario Ministry of Finance proposes to make a policy change to the eligibility of certain embedded websites based on film, television and internet productions. This policy change, subject to the approval of Cabinet, would be implemented by way of regulatory amendment, effective November 1, 2017.

Primarily host content related to film, television or internet production; Meet the eligibility requirements of section 34 (5) 9ii of O. Reg.

37/09 General under the Taxation Act 2007; Have been purchased or licensed by a broadcaster; Are embedded in the broadcaster’s website; and Have not received a certificate of eligibility or a letter of ineligibility before November 1, 2017 would be considered eligible for the OIDMTC provided Ontario Creates is reasonably assured that the product would meet all of the tax credit eligibility requirements if the purchaser or licensor permitted the product to be distributed as a separate product.

Please note: Not all embedded websites based on film, television or internet productions will be considered eligible as they must meet all the eligibility requirements for website products with costs after April 23, 2015. See OIDMTC regulation section 34 (5) 9ii.

For all other types of website products (other than those described in OIDMTC regulation 34 (5) 9ii): In order for product development work to be eligible for the OIDMTC, an applicant must develop a completed interactive digital media product. A component of an interactive digital media product is not eligible for the OIDMTC because it is not a completed product.

“Wrapped, “embedded”, “nested, or “framed” website content is not eligible for the OIDMTC. Mini-sites and microsites are not eligible for the OIDMTC as they are not complete products. Mini-sites and microsites are a separate page of a website that has a different URL than its home page and is used to provide information about, or to promote, something that is related to the home page.

For example, a large software corporation may create a microsite with its own URL to feature a tech blog. When the user goes to that URL address it takes them to a tech blog page that is integrated into the software corporation’s main website. The microsite is one of many pages that make up the corporation’s website.

If a web product can demonstrate it functions independently and is not integrated into another website, can be licensed to arm’s length users, has its own URL, and operates using its own content management system (“CMS”) platform or software, then that web product may be considered a completed interactive digital media product for the purposes of the OIDMTC.

From the standpoint of a product review, Ontario Creates looks at the technical structure and development, the business model, how users (i.e. members of the public) access the product, and user experience of a product to help determine if something is a complete interactive digital media product or a component of another product. 9. Are products like webisodes, or mobisodes eligible?

Webisodes or mobisodes are not eligible interactive digital media products for the OIDMTC. Webisodes or mobisodes are considered content that could be featured on, or part of an interactive digital media product such as a website or mobile app, but they are not complete interactive digital media products in their own right. 10.

Is an online catalogue type of site developed in Ontario eligible? No. As stated in the OIDMTC regulations, eligible products must meet the primary purpose test to entertain users or educate children under 12.

Also, most website products will be excluded with the exception of those that primarily host: digital games; content related to film, television or internet productions; virtual or augmented reality experiences; and/or educational products directed at children under the age of 12. Pre-Budget 2015 rules stated that to be eligible, a product’s primary purpose must be to inform, educate, or entertain.

Therefore interactive digital media products that primarily present, promote or sell products or services are not considered eligible even prior to Budget 2015. Ontario Creates will interpret “primarily” to mean “more than 50%”. Note that informing by presenting products and/or services for sale is considered promotional.

11. Is an online social networking site type of product eligible? No. The OIDMTC regulations exclude certain types of products, including most websites.

Websites would only be eligible if the site primarily hosted: digital games; content related to film, television or internet productions; virtual or augmented reality experiences; and/or educational products directed at children under the age of 12. As well, the OIDTMC regulations restrict eligibility to those products whose primary purpose was to entertain users or educate children under 12.

It should be noted that often social networking websites are made up of user generated content. If the website was primarily (more than 50%) used for interpersonal communication it would not be eligible. For example, a product like Facebook would not be eligible for the OIDMTC.

Some products that apply for the OIDMTC and have a social networking component may still be eligible if those products also feature a significant amount of other content created by the applicant corporation that meets the primary purpose. Ontario Creates reviews all the content presented, including any user generated content to determine the primary purpose of the product. 12.

How do I determine the product completion date? The product completion date is the date when the product is shelf-ready, accessible, online, and/or available for exploitation. This date must be consistent with the product development documentation.

Ontario Creates reviews the product as of this date to determine eligibility. Note that maintenance expenditures or bug fixes are not eligible for OIDMTC as they are not considered part of product development. 13.

Is content required in the product as of the completion date to be eligible? Yes. As of the product completion date, the product must contain content that presents information in at least two of text, sound, and images, and the content must meet the primary purpose test.

14. Can a new version of the same product be claimed? OIDMTC is a content based credit, so a version of the product with different content can also be eligible, as long as the new version is significantly different.

The difference can be the content, the underlying technology, or a combination of the two. New versions of website products are restricted to being claimed only every two years. 15.

Do different versions of a product need to be submitted as separate products in an OIDMTC claim? Yes. Each version of a product that is developed for a specific platform should be submitted as a separate product in an OIDMTC application, i.e. Product A (Android), Product A (iOS), Product A (Blackberry).

Each version of a product should have separate cost allocations and may also have different start and completion dates. 16. Can a different language version of the same product be claimed?

No. If the only change between product versions is the language of the text, video, and/or audio, this is not considered a significant enough difference for Ontario Creates to consider them to be separate or new versions of products. 17. How do I demonstrate an online product was developed for sale or licensing?

There are different ways