British Columbia’s new interactive digital media tax credit was introduced in the province’s March 2010 budget. The new refundable credit applies to interactive digital media products developed in British Columbia between September 1, 2010 until September 1, 2015.
The credit is a refundable credit equal to 17.5% of eligible salaries and wages incurred by qualifying corporations in the development of interactive digital media products, i.e., those designed for use by an individual to educate, inform or entertain, and capable of presenting information in at a minimum of two of the following formats: text, sound and images. Qualifying corporations are companies whose principal business is the development of interactive digital media products or the provision of eligible activites to such a business.
Can a Corporation claim the IDMTC and BC SR&ED Tax Credit?
No, a corporation that claims a BC SR&ED tax credit for a tax year is not eligible to register for the IDMTC. A corporation can not apply for the IDMTC for only part of the year. A corporation may claim either the BC SR&ED tax credit or the IDMTC for any tax year.
Bottom Line for SR&ED claimants:
A company can claim the Federal SR&ED Tax Credit and either the BC SR&ED or the IDMTC. So we will need to analyze at each claim which BC program is most beneficial to claim. The question is whether 17.5% of IDMTC eligible salaries is greater than 10% of 165% (salaries plus proxy) of eligible salaries for SR&ED.
Determining eligible activities would probably also be necessary for non-games companies.
An Interactive Digital Media (IDM) product means an interactive product developed in British Columbia, made for use by an individual, the primary purpose of which is to educate, inform or entertain, and must be capable of presenting information in at least two of the following forms: text, sound and images. This may include, but is not limited to video games.
Products, as described in the IDMTC Regulations, that are:
- operating system software;
- designed to be used for interactive communication;
- classified by the Entertainment Software Rating Board as “AO” (adults only);
- designed for marketing or promoting an entity, product or idea; or
- which may be contrary to public policy.
How to Claim the Credit
To claim the credit, we’ll need to register (form FIN58), pay an application fee complete form SCH 429, British Columbia Interactive Digital Media Tax Credit and Schedule 5 of the T2 Corporation Income Tax Return and submit them to the Canada Revenue Agency. As of March 2011 form 429 has not been published. As a result a temporary the credit application process is in place. Please call or email Ruth Spink, RSG’s Digital Media Department for the most recent update. We are in regular contact with the BC Finance Department.
Once available, a form SCH 429 and T2 must be filed with the Canada Revenue Agency (CRA) within 18 months of the end of the tax year in which the IDMTC is being claimed. Late filed claims will not be processed by the CRA.
Eligible Salaries and Wages
IDMTC eligible salaries and wages must be:
- incurred on or after September 1, 2010;
- directly attributable to eligible activities (Examples of eligible activities include design, artwork, animation, and project management) ; and
- paid to individuals who were resident in BC on December 31 of the year preceding the end of the corporation’s tax year.
Total eligible salaries and wages for the year must be greater than $100,000 (pro-rated for short tax years) for a corporation to be eligible to register for the IDMTC.
Eligible salaries and wages are reduced by any assistance, other than federal SR&ED program
Cannot also be claimed for Film Tax Credits
IDMTC eligible salaries and wages do not include:
- (like SRED) Amounts paid to specified employees based on profits or a bonus or in excess of five times the year’s maximum pensionable earnings (more information may be found at: http://www.cra-arc.gc.ca/limits/);
- (like SRED) Amounts paid to employees for performing: marketing; human resource services; administrative support or management services; and
- Amounts paid to contractors or sub-contractors
- Stock options;
Revenue Services Group
Revenue Services Group is Western Canada’s largest and fastest growing Scientific Research and Experimental Development (SR&ED) professional services firm.
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