Finance Minister Charles Sousa unveils the cover of the budget at the Old Credit Brewing Co. Ltd. in Port Credit, Ont., last Wednesday. Beer and capital spending may have made headlines, but buried inside the budget was a major rethink of the way the province supports media development by local companies, narrowing the purview of a rebate whose costs had ballooned.Frank Gunn/The Canadian Press
Ontario's video game companies are declaring victory after a much sought-after reform to a digital media tax credit was unveiled in last week's provincial budget.
Beer and capital spending may have made headlines, but buried inside the budget was a major rethink of the way the province supports media development by local companies, narrowing the purview of a rebate whose costs had ballooned. As of last Friday, the Ontario Interactive Digital Media Tax Credit only applies to "entertainment products and educational products for children under the age of 12," according to the budget documents.
The old rules simply stated that digital media had to "Entertain, educate and inform," definitions broad enough to apply to almost anything posted to the Internet. Former tax professionals said major corporations like banks, insurance companies, news organizations (papers), manufacturers, marketing firms and others had increasingly found legal ways to claim a growing share of the credit for their work developing apps and other digital projects.
The new rules crack down on so-called outlier projects, interactive content created for training or educational apps for adults, for instance. The budget goes further to specifically reject eligibility for digital media dedicated to news and public affairs, real estate databases, search engines and products that are purely promotional.
"I think it's not just victory, it's a great decision," said Albert Lai, CEO of London, Ont.-based Big Viking Games, who has been an outspoken critic of non-media companies who were claiming money under the credit. "I think it's a battle the community has been fighting for a long time."
The Liberal government signalled in late 2014 that spending on the OIDMTC was spinning out of control and would have to be contained. The credit rebates up to 40 per cent of the labour and marketing costs of a finished digital media project. The most recent figures released suggest the credit paid out $86-million in rebates in 2013-14 and was projected to rise above $100-million in 2014/15. That's up dramatically from just $38-million in 2010.
The budget, released last Thursday by Finance Minister Charles Sousa, trims several credits with an aim to save $100-million in 2015-16, $205-million in 2016-17 and $240-million in 2017-18. The programs that take the biggest haircuts are the Apprenticeship Training Tax Credit (projected to save $95-million in 2017) and the OIDMTC, projected to save $55-million a year as soon as 2016. There were also trims to several film and television credits.
"This was a budget constraint enterprise … I think we dodged a bullet here, it could have been a lot worse," said Peter Miller, chair of the not-for-profit trade group Interactive Ontario, who lobbied to keep the credit's scope broad to support growth in digital media but was also untroubled by the rising costs associated. "Those of us in the business of supporting credits say that's good, you want the economic activity, you get back in income tax far more than goes out in tax credits."
Michael Coteau, Minister of Tourism, Culture and Sport, said Ontario continues "to have one of the most generous cultural media tax credit programs both nationally and internationally."
"When compared to Quebec and B.C., our main domestic competitors, Ontario will remain the most competitive jurisdiction in the country," he said. "Moving forward with these changes will support the sector as it continues to create good jobs, build a highly skilled work force and grow our economy right here in Ontario."
More detailed rules for the revised credit will be coming down as early as this week in a bulletin from the Finance department.
"I think the grey area for us, and likely many others, is how they choose to define 'promotional,'" says Mary Sorrenti, vice-president of operations and finance for Game Pill Inc., which makes video games and co-promotional products for broadcasters and other brands. GamePill has one project still waiting for approval, which means that the new rules will be used to judge if it's a fit for the credit.
For Mr. Miller, the reforms are as simple as closing a loophole.
"Accountants were very aggressively promoting the ability for you to access these credits. The government realized that's not where they wanted the credit to go."
Indeed, the tax and government financing consultants at Teeger Schiller Inc. tweeted that the credit "is now essentially a thing of the past."
The Globe and Mail is a recipient of the credit. Another media company, Postmedia Network Canada Corp., has also received the credit.
Shane Dingman