Interactive Digital Media Tax Credit Frequently Asked Questions
Budget 2018 proposes to extend the Interactive Digital Media Tax Credit by five years to August 31, 2023. The following will help answer your questions about the interactive digital media tax credit (IDMTC).
Interactive Digital Media (IDM) Product
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?
We evaluate three characteristics of the product 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.
- 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.
- 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.
- 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?
A corporation can register for a tax year if, in that tax year, it meets all of the following requirements:
- has a permanent establishment in B.C.
- is a taxable Canadian corporation throughout the year
- has more than $100,000 of eligible salaries and wages
- its principal business is developing interactive digital media products, or
- all or substantially all of its business consists of:
- developing interactive digital media products, and/or
- providing eligible activities to corporations that have a permanent establishment in B.C. and whose principal business is developing interactive digital media products.
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
- 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
What happens if there is a corporate reorganization?
A corporation should advise the Income Taxation Branch in writing of any corporate reorganization that triggers a year end. A corporation must register for each tax year for which it wants to claim the IDMTC.
How will principal business be determined?
A corporation's principal business is a question of fact that will be determined in respect of a particular tax year based on all available information and the supporting information provided to the Income Taxation Branch with the Interactive Digital Media Tax Credit Application for Registration (FIN 568) (PDF).
Does a corporation need to register for each tax year?
Yes. Your corporation must register with the Ministry of Finance for each tax year that it wants to claim the IDMTC. To register, complete the Interactive Digital Media Tax Credit Application for Registration (FIN 568) (PDF) and submit the application together with supporting documents and the application fee to the address provided on the form.
Claiming the IDMTC
What are eligible salaries and wages?
IDMTC eligible salaries and wages must be:
- incurred on or after September 1, 2010 and before September 1, 2018
- 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.
Total eligible salaries and wages for the year must be greater than $100,000 (pro-rated for short tax years) for a corporation to be eligible to register for the IDMTC.
The IDMTC is calculated based on eligible salaries and wages minus any assistance, other than federal SR&ED, received.
How does a corporation determine an employee is resident in B.C. for the IDMTC?
Corporations are required to gather documentation to support the B.C. residency of an employee whose salaries and wages are being claimed for purposes of the IDMTC. In cases where an individual is no longer employed, supporting information gathered at the start of employment is acceptable, provided that after reasonable enquiry, the corporation has no reason to believe the residency status of the individual changed by December 31 of the year preceding the end of the corporation's tax year. For example, if a corporation mails a T4 to an address outside of B.C., this would suggest that the individual may no longer be a B.C. resident for the purposes of the IDMTC claim for that tax year.
What salaries and wages are specifically excluded?
IDMTC eligible salaries and wages 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
- Amounts paid to contractors or sub-contractors
Can salaries and wages paid by a corporation be claimed for the IDMTC and the film and television tax credit (FTTC)?
No, salaries and wages that are included in the IDMTC claim of any taxable Canadian corporation are not eligible for any of the film and television tax credits (FTTC) or any of the production services tax credits (PSTC). Labour expenditures for purposes of both the FTTC and the PSTC exclude all salaries and wages for which an IDMTC has been claimed.
Who is a specified employee?
A specified employee of a corporation is an individual:
- who owns, directly or indirectly, 10% or more of the issued shares of any class of the capital stock of the corporation
- who does not deal at arm's length with the corporation
What are eligible activities?
Eligible activities are the activities undertaken by the corporation that are attributable to the development of an IDM product. Examples of eligible activities include design, artwork, animation and project management.
An eligible activity does not include marketing, human resource services, administrative support services or management services.
How is directly attributable determined?
- Whether an employee's salary and wages are directly attributable to eligible activities in respect of the development of an IDM product is a question of fact based on the duties performed by the employee, not on the employee's job title.
- Salary and wages are directly attributable to an eligible activity if there is a direct link between the salary and wages and a specific eligible activity. This link may be determined for an employee by reviewing job descriptions, contracts, time sheets or other detailed documentation.
- Only the portion of the employee's salary and wages which are directly attributable to eligible activities may be claimed. For example, if an employee works 70% of the time on non-eligible activities, then only 30% of the employee's salary and wages would be considered directly attributable to eligible activities. The allocation method used must be reasonable, clearly documented and applied consistently.
Who administers the IDMTC program registration?
The Income Taxation Branch processes the registration application. If a corporation disagrees with a decision to refuse or cancel its registration, an appeal should be brought in the Supreme Court within 120 days after the date of any notice of that decision.
Who administers the IDMTC claim and refund process?
The Canada Revenue Agency (CRA) reviews and audits claims and issues refund cheques where appropriate. If a corporation disagrees with the amount of the credit assessed by the CRA, a Notice of Objection should be filed with the CRA within 90 days of the date of the Notice of Assessment.
Can a corporation claim a B.C. SR&ED tax credit and the IDMTC?
No, a corporation that claims a B.C. SR&ED tax credit for a tax year is not eligible to register for the IDMTC. A corporation can not apply for the IDMTC for only part of the year. A corporation may claim either the B.C. SR&ED tax credit or the IDMTC for any tax year.
A corporation may apply a B.C. SR&ED tax credit carry-forward from another year to the tax year for which the corporation also claims an IDMTC.