Terms and Definitions for the Interactive Digital Media Tax Credit
The following terms and phrases will help you understand the requirements for the interactive digital media tax credit (IDMTC) and complete the IDMTC application for registration:
- B.C. resident employees
- Directly attributable
- Eligible activities
- Eligible salaries and wages
- Permanent establishment
- Prescribed products
- Principal business
- Specified employee
- Taxable Canadian corporation
- Used interactively
B.C. resident employees are full-time and part-time employees of the corporation who were engaged in eligible activities for the tax year and were residents in B.C. on December 31 of the year preceding the end of the corporation’s tax year.
Contractors or sub-contractors are not included.
To determine if an employee is a resident in B.C. for the IDMTC, corporations may be required to gather documentation to support the B.C. residency of an employee whose salaries and wages are being claimed for the IDMTC. If an individual is no longer employed, supporting information gathered at the start of employment is acceptable if, after reasonable enquiry, the corporation has no reason to believe the individual’s residency status has 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 IDMTC claim for that tax year.
Below are descriptions of how you identify salary and wages that are directly attributable to eligible activities:
An employee's salary and wages that are directly attributable to eligible activities in respect to the development of an IDM product is based on the duties performed by the employee, not on the employee's job title.
An employee’s 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.
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.
IDMTC eligible salaries and wages must be all of the following:
- Incurred on or after September 1, 2010 and before September 1, 2023
- Paid to individuals who were resident in B.C. on December 31 of the year preceding the end of the corporation's tax year
- Directly attributable to eligible activities
Only the portion of an employee’s salary and wages that is directly attributable to eligible activities may be included. 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.
Total eligible salaries and wages for the year must be greater than $100,000 (pro-rated for short tax years) to be eligible to register for the IDMTC.
The IDMTC is calculated based on eligible salaries and wages minus any assistance, other than federal scientific research and experimental development (SR&ED) tax credits, received or expected to receive. If applicable, you should include a description of that assistance as part of the supporting documents for the tax year.
What’s not included in eligible salaries and wages
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
- 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
Permanent establishment has the same meaning as in the federal Income Tax Act and includes an office, factory or workshop in B.C.
Prescribed products include:
- Operating system software
- Products designed to be used by individuals for interactive communication
- Products designed for marketing or promoting an entity, product or idea
- Games classified by the Entertainment Software Rating Board as “AO” (Adults only)
- Products that, in the opinion of the minister, are contrary to public policy
Refer to the Interactive Digital Media Tax Credit Regulation for more information on prescribed products.
You corporation’s principal business is the development of interactive digital media (IDM) products if more than 50% of your business is developing complete IDM products. This will be determined based on all the available and supporting information you provided with your registration.
A specified employee of a corporation has the same meaning as in definition in the federal Income Tax Act. Generally, it’s an individual who:
- Owns, directly or indirectly, 10% or more of the issued shares of any class of the capital stock of the corporation
- Doesn’t deal at arm's length with the corporation
Taxable Canadian corporation has the same meaning as the definition in the federal Income Tax Act. This includes a corporation incorporated in Canada that has a permanent establishment in B.C. and is not otherwise exempt from tax.
Used interactively describes 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. The communication can range from a technical interaction on a primary level (menus, cursors, etc.) to verbal exchanges with a computer.
For an augmented or virtual reality (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 interactive digital media product must enable the user to become a participant, not simply a reader or spectator.
We evaluate three characteristics of the product to determine if it’s intended to be used interactively by individuals:
These characteristics are not strict conditions but serve as an important guide in the evaluation.
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.
For an AR/VR product, an example can be an 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.
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.
An AR/VR product example can be a user inputting variables and looking through a virtual reality headset to optimally build a bridge. The user would be able to manipulate the VR scene to forecast or test scenarios based on various placements of that bridge.
A product adapts to the user’s needs if the program’s action depends on several situations that have been provided for within the program. The program could offer several scenarios, but the specific action will consider 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 an AR/VR product, the product may 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 adaptive.