The Interactive Digital Media Tax Credit (IDTMC) is for eligible registered corporations that develop interactive digital media credit products in B.C. after August 31, 2010, and before September 1, 2023 (CURRENT deadline).
The credit is calculated at 17.5% of eligible salary and wages incurred in the tax year and is FULLY refundable. That means you are required to first apply it to income taxes payable but if you clear that balance you will still get the amount of the credit as a refund!
Here is an example, if you have $200,000 in eligible salaries and wages, you may be entitled to $35,000 in the form of this tax credit (pretty sweet right?).
The process to apply can be a little intimidating, but it is really straightforward once you get into it. The basic process is:
- Apply for the Credit Via ETaxBC
- Wait until you receive approval of your application then pay the $5,000 application fee
- Claim the credit on Schedule 429 of your Corporate Tax Return (T2) for the fiscal year your application covered.
Let’s go into these three steps in a bit more detail.
Apply for the Interactive Digital Media Tax Credit Via ETaxBC
You will apply first to be considered an eligible business for the year in which you had eligible salaries. This is done via Etax BC. If you already have a PST number you may be familiar with the Ministry of Finance (BC’s tax department’s) online website.
The first application is via this link. After the first application, you will apply through your normal Etax account (if you already have a PST account it will be the same account).
The application is used to determine whether you meet the eligibility criteria.
What is an eligible corporation?
- It has a permanent establishment in BC;
- It is a taxable Canadian corporation throughout the year;
- Eligible salaries and wages are:
- At least $2,000,000 if the tax year ends on or after February 22, 2017, OR
- Are between $100,000 and $2,000,000 and either one or both of the following applies:
You may meet the above and still be excluded. That is because there are also some businesses or activities that cause the company to be excluded. The eligible corporation CAN NOT be a labour-sponsored venture capital corporation, they CAN NOT have a registered employee share ownership plan, they CAN NOT be a registered employee venture capital corporation, they CAN NOT be a registered small business venture capital corporation; they CAN NOT be controlled, directly or indirectly in any manner whatever, by one or more of the above type corporations; they CANNOT claim a B.C. scientific research and experimental development (SR&ED) tax credit in the year for which they are claiming the IDTMC (you can only claim the IDMTC OR SR&ED tax credit for any tax year, not both) and they are CAN NOT be carrying on a personal services business.
What supporting documentation will you require for eligibility?
This list was taken verbatim from the government of BC site.
The following documents to be included during the application process include:
- A copy of your annual financial statements or interim financial statements for the tax period, including notes to the financial statements;
- A short history of the corporation, including a list of previously developed products;
- The current business plan (if available);
- A list of all current and planned interactive digital media products for the tax year, including IDM product names, descriptions, development cycles, release dates, update release dates and screen shots;
- If you provide IDM services to other corporations, a list of corporations associated with the IDM products;
- The current organizational chart;
- A list of specified employees and key employees, including short biographies;
- A list of eligible salary and wages for all employees, including employee names, job titles, total salaries, and eligible salaries;
- A list of salaries and wages attributable to each eligible and non-eligible (if applicable) product developed for the tax period. The sum of this list should reflect the total estimated eligible salaries and wages for the claim; and
- A description of any assistance, other than federal scientific research & experimental development tax credits, received by the corporation for the tax year, such as: The Canada Media Fund, The Industrial Research Assistance Program, Student training grants, and Supports received during COVID-19 pandemic.
Wait until you receive approval of your application then pay the $5,000 application fee
Once you apply, you will need to wait until your application is approved. They will also reach out if additional information is missing but this may delay approval. Once you are approved, you will receive an enrolment letter with the information you will need for the next steps. The next steps include logging in to ETaxBC and paying your $5,000 application fee.
“Wait – I have to PAY money for this credit?” Answer: Yes. While this seems significant and strange, remember the credit is quite large and is refundable. In the above example of $200,000 in eligible salaries you would still have $30,000 after taking into account the application fee ($35,000 credit – $5,000 application fee). If you do not have over $30,000 in eligible salaries and wages, then going through with the application will not be worth it. In this way it does weed out smaller wage years.
Claim the credit on Schedule 429 of your Corporate Tax Return (T2) for the fiscal year your application covered.
Once you are approved and have paid the application fee you can go ahead and claim the Interactive Digital Media Tax Credit. You will complete Schedule 429 on your Corporate Income Tax Return on which you will put your total eligible salaries.
We did not cover what is included in eligible salaries previously. Let’s review it here. The Ministry rather than say what IS included, instead says what is not included.
Eligible wages and salaries DO NOT Include:
- Stock options
- Amounts paid to specified employees that are:
- Based on profits or a bonus, or
- In excess of five times the year’s maximum pensionable earnings
- Amounts paid to employees for performing marketing services, human resource services, administrative support or management services
- Development of an animated or live action scene or series of scenes, other than a cut scene, over which the user has limited or no control
- Amounts paid to contractors or sub-contractors
For our purposes, in general, it is typically the development team that meets these criteria. In practice, this can actually be difficult if you have a small team and one person takes on multiple roles. Ideally, you have a timesheet that documents development work vs other work. However, there may be a variety of ways to break down activities.
That is the process to claim the credit. If you have any questions on claiming please reach out. We are happy to help.
Need more help? Contact Virtual Heights Accounting at https://vhaccounting.ca/contact-us/
This blog is intended for general use and understanding. Specific cases can alter recommendations which are often based on current court cases. These recommendations may evolve as new court cases or CRA interpretations become available. Thus direct professional advice is always recommended to ensure you are getting the right information for you and your business.