Interactive Digital Media Tax Credit Frequently Asked Questions
The following will help answer your questions about:
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.
For tax years that end on or after February 22, 2017, a corporation can register for a tax year if, in that tax year:
- It has a permanent establishment in B.C.,
- It is a taxable Canadian corporation throughout the year, and
- 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:
- Its principal business is developing interactive digital media products
- 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
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, 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.
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
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.
The following will help answer your questions about the IDMTC relating to AR/VR.
Interactive Digital Media (IDM) Product
Is an AR/VR product an IDM product under the current legislation?
Yes. An AR/VR product can be an IDM product under the current legislation if it meets the legislative requirements of an IDM product, including that the AR/VR product be “used interactively”.
What is “used interactively” for an AR/VR product?
The words “used interactively” describe the communication between an individual and a computer. Based on the ongoing interaction between the user and the computer there may be many different end results or unique experiences for each user. For an AR/VR product, a computer may include devices capable of providing an individual with an interactive experience. For example, a smartphone, virtual reality headset, haptic feedback device or virtual retinal display could be considered a computer for an AR/VR product. An IDM product must enable the user to become a participant, not simply a reader or spectator.
A product must be used interactively by an individual. Does that mean AR/VR products designed for business or manufacturing purposes are excluded?
An individual working for a business or manufacturer may use an IDM product interactively for the benefit of that business. The AR/VR product will still be considered an eligible IDM product, provided all the requirements of an IDM product are met.
What are the characteristics of an AR/VR product that is intended to be used interactively by individuals?
We evaluate three characteristics of the AR/VR product to determine if it’s intended to be used interactively by individuals: feedback, control and adaptation. These characteristics are not strictly defined, but serve as an important guide in the evaluation. A description of each is given below:
Feedback: Feedback is the response given by the program to the user. For example, application software that uses a smartphone’s camera and GPS capabilities to allow a user to search and find hidden AR/VR objects. Points may be accumulated for successfully locating hidden objects.
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, a user can input variables and visualize through the use of a virtual reality headset where to optimally build a bridge. The user would be able to manipulate the VR scene to allow for forecasting or testing scenarios based on various placements of that bridge.
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 product may be considered to be adaptive when a product’s simulated objects react to the environment (whether physical, virtual or augmented) that they are placed in. For example, a product that adjusts where or how a virtual 3D image is displayed based on the location of objects in the vicinity of the area the 3D image has been placed in may be considered to be adaptive.
Examples of AR/VR Products
Below are specific examples of AR/VR products. The examples are for illustration only and do not indicate the eligibility of a particular proposed AR/VR product or industry. Each proposed product is subject to review and assessment to determine eligibility.
The user is able to adjust parts of a vehicle’s shape and design to see how this affects aspects of vehicle performance. Ultimately the user selects the most efficient design to minimize air friction and optimize vehicle performance.
Feedback: Based on the changes made by the user, the software will implement the resulting changes to the design and simulate the aerodynamics of the vehicle. The aerodynamics of the altered vehicle are then displayed to the user wearing the AR headset.
Control: The user wears an AR headset to virtually change the vehicle’s design shape by using a series of hand and voice commands.
Adaptation: Based on the feedback of the software, the user may consider making additional changes to get closer to the desired goals of performance thresholds. The product adapts the visual information relative to the position and location of the user to provide visual feedback of resulting air flow over the vehicle. It may even suggest shapes to reduce this drag.
This product is an eligible AR/VR product.
The user is able to walk around the entire real and virtual parts of the vehicle to gain a visual sense of the resulting air flow and vehicle performance from all angles. Based on the ongoing interaction with the AR product, the user can use the results displayed by the product to further refine design inputs in order to achieve the most streamlined design from an aerodynamics perspective. The user will have an experience that is different than the experience of other users.
An AR dinosaur exhibit for a museum allows a user to progress through the exhibit. As the user approaches designated spots, AR dinosaur images are displayed along with relevant information about the dinosaur.
Feedback: The response of the computer software to the user is limited to displaying predetermined AR images as the user reaches fixed points in the exhibit. The image may change from different vantage points but is otherwise fixed AR content for the user to observe. The user doesn’t accumulate points for progressing through the AR dinosaur exhibit or for achieving any goals.
Control: The user has the ability to approach each designated spot to prompt the AR image to be seen. Control options for the user of this product are limited to moving forward or back within the exhibit.
Adaptation: The user’s experience is limited to viewing the AR dinosaur exhibit from a designated spot. Adaptation would require the user to be able to affect, through the user’s movements, the actions of the AR dinosaur exhibit.
This is not an eligible AR/VR product.
The AR experience is the same for each user and is lacking back and forth communication between the user and the computer software. The AR dinosaur exhibit is not “used interactively” as the user is an observer or spectator rather than a participant. The user is not able to have a unique experience and make changes to the information displayed.