by Monica Goyal
Rarely do I look at a government initiative, and think, “Now, that’s a good idea.” But this is exactly how I feel about the Ontario Interactive Digital Media Tax Credit(OIDMTC).
The upcoming Ontario Provincial Election looks to bring new leadership to the province, whose idea of cleaning house may be to dismantle some of the great programs put in place by the previous administration. I hope that OIDMTC will not be one of those.
If you are developing a video game, web based application, or a mobile application that is a game, educational or informational product – this tax credit should be on your radar.
The eligibility requirement for the OIDMTC, unlike SR&ED, is whether the product is “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: (i)text, (ii)sound and (iii) images” (OIDMTC FAQ).
The OIDMTC will reimburse you up to 40 per cent of costs associated with development, content, and sales and marketing. If you qualify for this tax credit, you will be reimbursed for labour expenses (including design and development), and up to $150,000 of marketing and distribution.
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Furthermore, this tax credit will crystallize as a refund, so for a tax year where you’re not profitable, you will get a refund. If you are a busy entrepreneur, several companies will file the tax credit on your behalf.
Here are some things you may want to consider:
- To be eligible for the tax credit, all contractors and employees must be fromOntario. So those of you considering outsourcing tasks like coding and testing to companies outside of the province may want to reconsider.
- Have your contractors, or other employees fromOntario, fill out a Tax Credit Declaration of Residency / Consent Form along with all the other forms they’re going to have to fill out when you hire them. This will help when you are preparing your OIDMTC claim.
- You can claim sales and marketing expenses up to $150,000. I don’t know of any other tax credits that will reimburse these costs, and it is surprisingly insightful considering sales and marketing can be a significant cost.
- The OIDMTC can also cover content and design. Again, another win for the small tech startup. If you produce web or mobile apps, you know that a good chunk of change can be sunk into these things. Many companies differentiate from each other just on design. With the OIDMTC tax benefit, you can consider splurging a bit on that more expensive designer.
- This is a tax credit for digital media. So your product needs to be not a tool, but interactive content. It cannot just be a program that does a task for someone. A blog, for example, is not interactive content and would most likely not qualify as an expense for the tax credit. Apps that just serve up content, such as a search engine, or an aggregator would not qualify for the tax credit.
For more information about the OIDMTC at http://www.omdc.on.ca/Page3400.aspx.
Monica Goyal is a Toronto-based lawyer and a technology entrepreneur who founded My Legal Briefcase,