Interactive Digital Media Tax Credit

The interactive digital media tax credit (IDMTC) is for eligible registered corporations that develop interactive digital media products in B.C. qualified expenditures in connection with SR&ED activities in Canada are entitled to receive an investment tax credit. The credit is calculated as 17.5% of eligible salary and wages incurred in the tax year.

Businesses can claim the credit no later than 18 months after the end of the tax year in which the eligible salaries and wages are incurred.  The credit is fully refundable, but is first applied against total income tax payable. There are no carry-back or carry-forward provisions.

What is an Interactive Digital Media Product?

An interactive digital media product (IDM product) is designed to be used interactively by an individual and:

  • Consists of a combination of application files and data files, in a digital format, that are integrated and are intended to be operated together,
  • Is designed primarily to educate, inform or entertain the user,
  • Is capable of presenting information in at least two of the following forms:
    • Text
    • Sound
    • Images
  • Is intended to be used interactively by individuals, and
  • Is developed in British Columbia

but does not include a prescribed product.

Some examples of IDM products are:

  • Video games
  • Educational software
  • Edutainment products
  • Simulators

For the purpose of the IDMTC, products that are not intended to be used interactively, such as blogs, online magazines or newspapers, slide shows, videos or PowerPoint presentations, video streaming applications, and social media products are not IDM products.

Interactive Digital Media (IDM) Product

What is “used interactively”?

The words “used interactively” describe the communication between an individual and a computer. The communication can range from a technical interaction on a primary level (menus, cursors, etc.) to verbal exchanges with a computer. An IDM product must enable the user to become a participant, not simply a reader or spectator.

What are the characteristics of a product that is intended to be used interactively by individuals?

Three characteristics of the product are evaluated to determine if it’s intended to be used interactively by individuals: feedback, control and adaptation. These characteristics are not strict conditions but serve as an important guide in the evaluation.

  1. Feedback: Feedback is the response given by the program to the user. For example, interactive educational software would comment on the user’s test results, give the right answer, point out a weakness or suggest that the user review a particular chapter.

  2. Control: The user has a degree of control over a product when the user can influence and affect the way in which the program unfolds. For example, the user can make choices, implement a strategy, move objects, use logical reasoning, reconstitute a whole or modify or create an image.

  3. Adaptation: A product adapts to the user’s needs if the program’s action depends on a number of situations that have been provided for within the program. The program could offer several scenarios, but the specific action will take into account the user’s level of ability. It could also incorporate decision trees or databases leading to a search for information and subsequent processing of it.

Which corporations can register for the IDMTC?

For tax years that end on or after February 22, 2017, a corporation can register for a tax year if, in that tax year:

  1. It has a permanent establishment in B.C.,
  2. It is a taxable Canadian corporation throughout the year, and
  3. Its eligible salary and wages are at least $2,000,000,
    Its eligible salary and wages are between $100,000 and $2,000,000 and either one or both of the following applies:
    1. Its principal business is developing interactive digital media products
    2. All or mostly all of its business consists of providing eligible activities to a corporation that has a permanent establishment in B.C. and whose principal business is developing interactive digital media products or whose eligible salary and wages are at least $2,000,000

Which corporations cannot register for the IDMTC?

A corporation cannot register for a tax year if, for that tax year, it:

  • Is a labour-sponsored venture capital corporation
  • Has a registered employee share ownership plan
  • Is a registered employee venture capital corporation
  • Is a registered small business venture capital corporation
  • Is a registered eligible business corporation and whose tax year ends on or before February 21, 2017
  • Is controlled, directly or indirectly in any manner whatever, by one or more of the above corporations
  • Claims a B.C. scientific research and experimental development (SR&ED) tax credit
  • Carries on a personal services business

Claiming the IDMTC

What salaries and wages are specifically excluded?

IDMTC eligible salaries and wages must be:

  • Incurred on or after September 1, 2010 and before September 1, 2023
  • Directly attributable to eligible activities, and
  • Paid to individuals who were resident in B.C. on December 31 of the year preceding the end of the corporation’s tax year.

The IDMTC is calculated based on eligible salaries and wages minus any assistance, other than federal SR&ED, received.

What salaries and wages are specifically excluded?

IDMTC eligible salaries and wages do not include:

  • Stock options
  • Amounts paid to specified employees that are:
  • Amounts paid to employees for performing marketing services, human resource services, administrative support or management services
  • Amounts paid to contractors or sub-contractors

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