If you’ve developed an interactive website, mobile application or any digital media product in Ontario, you’re in luck! With the Ontario Interactive Digital Media Tax Credit (“Digital Media Tax Credit”), you can recover up to 40% of your eligible labour expenses and up to $100,000 of your marketing and distribution expenses. This Digital Media Tax Credit can be a perfect fit for companies whose work may not qualify for the SR&ED (“Scientific Research & Experimental Development”) program.
As with anything else in life, there is a catch with this tax tip: you have to apply for the Digital Media Tax Credit. While this may sound simple, the application is not automatic. In fact, the application process includes eighteen separate deliverables which serve to establish whether or not you meet the detailed criteria used by the Ontario Media Development Corporation (OMDC), to determine your eligibility for the Digital Media Tax Credit.
While some of the deliverables are simple to prepare, others may be quite challenging. In all cases it is crucial to plan ahead. For your reference, we’ve provided a few suggestions that may help ease the application process for the Digital Media Tax Credit.
A Guide to Digital Media Tax Credit Eligibility
Only the work of Ontario taxpayers is eligible to be claimed through the Digital Media Tax Credit. When you hire employees who might be involved in work for which you will later claim the Digital Media Tax Credit, have them complete a Tax Credit Declaration of Residency / Consent Form along with the other forms they’ll be filling out when you hire them. This form is used to prove that the employee in question was an Ontario taxpayer while he or she did work on the Digital Media Tax Credit eligible product. You’ll need one of these forms for each of your employees who worked on the project.
Ensure that all agreements that you may have with other parties as to who owns the rights to your products are in writing. This is important because you will have to demonstrate that you either own the product and the right to sell or license it, or that you developed the product for your direct customer who will sell or license it.
As part of the Digital Media Tax Credit claim process, you will need to submit design and technical specification documentation for your product. You may need to supplement this with flow charts, functional design documents, descriptions of user experiences, and other technical documentation. You should follow proper development practices and document your work so that it both benefits your team as you go through the design and development of the product and supports your Digital Media Tax Credit claim.
A business and marketing plan will be needed so that you can support the claim that either you or your direct customer will be selling or licensing the product. If no formal business plan exists, compile documents that show how the business is run and who the product is sold to. Your Digital Media Tax Credit application needs to show that these factors were considered before the product was created – our team based out of Toronto can assist you in preparing for this application.
While this article highlights some of the documentation required to support a Digital Media Tax Credit claim, the list of deliverables that a company must produce with the application is quite comprehensive. Nonetheless, the Digital Media Tax Credit should not be overlooked as the potential for a 40% return on labour as well as marketing and distribution expenses (capped at $100,000) as this can provide valuable funding for your business and your digital media products.
SRJ Chartered Accountants Professional Corporation are Chartered Accountants in Toronto & Mississauga who specialize in helping individuals and corporations reduce taxes and tax planning. If you want to learn more about how we ensure you pay less tax, complete the Digital Media Tax Credit application correctly and for additional tax tips contact us at firstname.lastname@example.org or 416-898-4235.
You may also contact us in regards to the HST housing rebate Ontario. SRJ has helped a lot of clients recover their money paid in GST/HST.