By Andrew Petrozzi
The simplicity of B.C.’s new interactive digital media tax credit (IDMTC) will help ensure industry can adopt it with little cost or difficulty this fall, according to a tax lawyer working with the local video game development industry.
Mike Coburn, a partner in Davis LLP’s tax practice, said the 17.5% tax credit on eligible labour costs, which came into effect September 1, is the simplest in Canada.
“The legislation itself, as far as tax legislation goes, is pretty short,” said Coburn, who is also a member of the firm’s video games and interactive entertainment law practice group. “About six pages all told. It’s pretty easy to read.”
The province has provided an online FAQ document to answer questions about the credit, but it has yet to publish the guide (FIN 568G) to filling out the application form necessary to register for the credit.
While the application form (FIN 568) is available, the province has not yet said how much the fee to apply for the credit will be. That’s expected to be set this October. The form to claim the credit (Schedule 429) is still being developed.
Coburn said there’s less need for a guide because the credit is relatively straightforward compared with those in other provinces.
“You look at Quebec and Ontario who are perceived to be the main competitors. They have sub-credits and a 40% credit on some activities and 35% for others and caps of $500,000 on some activities and $100,000 allowed for marketing and some different elements to their overall credit schemes, whereas, at least for now in B.C., we’re pretty much 17.5% labour. No marketing, no administration and no caps.”
Coburn said industry awareness of the credit is high and suspects it will quickly be assimilated into the business plans of eligible companies.
“One of the positive elements that the province is trumpeting is that this, in some ways, would be a replacement for what you might otherwise apply for a SR&ED [scientific research and experimental development] credit, which is a perfect example of something that can be very difficult to negotiate.”
Coburn said he would be surprised if any “substantive” issues arise from the IDMTC, but thinks “narrow” issues around defining what services are eligible could arise.
He said he has thus far receive no calls from his clients on the IDMTC.
“The mechanics of the credit and the way it has been structured are pretty user friendly.”
Howard Donaldson, chairman of the BC Interactive Task Force, said the organization has remained in touch with the provincial finance ministry and provided feedback on developments in policy.
He said the task force is hosting a September 23 information session for industry at Propaganda Games that will include Ministry of Finance officials.
“BC Finance will administer the approval of company applications to qualify under the program,” explained Donaldson.
“CRA [Canada Revenue Agency] will administer the tax incentive claims annually.
“For companies with a partial first year, it’s most likely going to be more favourable to claim B.C. SR&ED and in subsequent years claim full year of digital media tax credit.”
A company must register annually with the Ministry of Finance for each tax year for which it wants to claim the credit. The credit must be claimed no later than 18 months after the end of the tax year in which the eligible salaries and wages are incurred. On June 25, the government defined an “eligible activity” as it applies to the credit and, more importantly, specified what products it doesn’t include under the meaning of “interactive digital media product,” including those classified by the Entertainment Software Rating Board as “adults only.”
According to Coburn, the tax credit’s simplicity represents a trade-off compared with other provincial credit schemes.
“On the one hand, you would say we wouldn’t mind having more sub-categories, because maybe it would expand the pool of money available, but the upside of having it narrow as compared to other provinces is it is easier to deal with. For now, I would say it is probably the most user-friendly credit in Canada because it is the simplest.”