When discussing government grants for game developers in Canada, there are two essential programs to consider. The first, and most significant is the Scientific Research and Experimental Development (SR&ED) or SRED tax credit program.
SRED is the most significant tax credit program in Canada. Its label as a “tax credit” program confuses many business owners as the term implies that you can only redeem SRED funding against a tax balance. This is a common misunderstanding. The truth is that SRED tax credits are refundable for private Canadian companies. This means that when your claim is approved, your SRED funding comes as a cheque or a direct deposit from the Canadian government. Your company does not need to be profitable to qualify for SRED money.
SRED funding is awarded in arrears. How much SRED funding your company can receive is dependent on your company’s expenses in the previous fiscal year. In particular, the government will compensate you based on your qualifying payroll expenses, subcontractor expenses, and scrap and prototype material expenses. You receive 70% of qualifying payroll expenses back in the form of SRED grants and get back roughly 40% of subcontractor and materials expenses.
Qualifying expenses are any expenses incurred in performing qualifying SR&ED work. For game developers, it is common to claim 100% of payroll expenses for designers, engineers, and anyone involved in coding or GUI. We do not claim payroll for management, marketing, and administration personnel. You can use our SRED Calculator to input your qualifying expenses and estimate the size of your SRED government grant. We can often claim 100% of payroll expenses for designers, engineers, and anyone involved in coding or GUI under the SRED program is due to the nature of the work involved in game development.
For a company to make a valid SRED claim, it must be able to identify one or more projects that are beyond what the government considers routine work. In preparing a SRED claim, you must be able to identify a technological uncertainty that you attempted to resolve through experimentation. In game development, this is usually straightforward as, at any given time, there are often several uncertainties for which experimental work is being undertaken to resolve them.
The other government grant worth considering for game developers in Canada is the Interactive Digital Media Tax Credit (IDMTC). Each province has their own provincial IDMTC program. This post will focus on the Ontario and British Columbia IDMTC programs.
Ontario’s interactive digital media tax credit (OIDMTC) is a refundable tax credit based on expenditures incurred in creating digital products and games. Under OIDMTC, qualifying corporations can claim a credit equal to 40% of expenditures if they develop and market their own eligible products. Unlike SR&ED, this includes marketing and distribution expenses. Companies developing eligible products under a fee-for-service arrangement are eligible to claim a credit equal to 35% of expenditures.
The interactive digital media tax credit in BC (BCIDMTC) awards a smaller rebate on expenditures, but there is far less red tape, and fewer qualification attributes to be aware of. The BCIDMTC gives game development companies a rebate of 17.5% of all BC salary and wages expenditures.
The IDMTC grant in Ontario and British Columbia will affect your SRED claim. However, claiming both SRED and IDMTC will always result in more aggregate credits. In BC, it is often misunderstood that companies that claim the IDMTC can not claim SRED; however, this is only true for the BC portion of SRED. It is perfectly allowable to claim the BCIDMTC and receive federal SRED credits.
G6 Consulting is a consulting firm that guides companies through government grant programs like SRED, from educating business owners to filing the claim with the CRA. G6 only gets paid when you get your money from the government. Reach out to us today to learn more about government grants for game developers.