In my previous post, I discussed the basics of the Ontario Interactive Digital Media Tax Credit (OIDMTC). This post discusses the specific types of products that can qualify. There are three types of products that qualify for OIDMTC credits; non-specified products, specified products and digital games. Each of these products has specific rules related to the type and amount of expenditures that qualify for credit purposes. As digital games have very specific rules in comparison to the other two products, I will leave them for a future post.
Non-specified products are those that are prepared by a company to be sold or licensed to arm’s-length parties. Common examples of these types of products include educational websites and online non-promotional magazines. A company can receive a 40% refundable tax credit on eligible salaries and wages as well eligible marketing and distribution costs incurred to develop a non-specified product.
Specified products are those which are developed under an agreement with an arm’s length purchaser corporation. The product must be for sale or licensing to people who deal at arm’s-length with the purchaser. Companies developing specified products can receive a 40% refundable credit for eligible salaries and wages incurred.
As discussed in my previous post, 90% of the development of the products listed above must be completed in Ontario. The Ontario Digital Media Corporation (ODMC) has specific guidelines for what does and does not constitute 90% development. Some items that are often used as evidence by companies but are not accepted by the ODMC are as follows:
- Copyright ownership does not determine development
- Hours spent on certain tasks do not determine development
- Amounts paid for services rendered does not determine development
The ODMC will look at some of the following details to determine if the 90% developed in Ontario rule is met:
- Description and schedule of development outlining tasks required to create the entire product
- Details of who did the work as well as where and when it was done
- Details of the tasks to create content and technology included in the product
- Tasks performed by contractor corporations with more than one employee are scrutinized to determine their percentage developed (hopefully not more than 10%)
To support the 90% developed rule you may want to consider keeping some of the following documentation:
- Labour schedules detailing the who, what and where of the work
- Gantt Chart scheduling the development activities and timeline
- Invoices from arm’s length contractors describing the work performed
- Contracts for those contractors that do not provide detail on their invoices
- History of the development of the product detail all those involved and how they were involved
The determination of developed in Ontario is easy for those companies that develop the entire project in house with only Ontario employees but can be difficult when outside contractors or interprovincial employment occurs. This determination is key though and can be managed at the start of a products development with the right planning.
Keep watching for the next OIDMTC post discussing digital games and the benefits to qualifying under these rules. For more information on this post, please contact Joshua Smith at firstname.lastname@example.org.
Joshua Smith, CPA, CA
Manager, Business Incentives