Who is Eligible?
A qualifying corporation is a Canadian corporation (that is Canadian or foreign-owned), that develops an eligible product at a permanent establishment in Ontario operated by it, and files an Ontario tax return. A qualifying small corporation meets these criteria as well, and had during the preceding taxation year (on an associated company basis) neither annual gross revenues in excess of $20 million nor total assets in excess of $10 million.
Corporations that are prescribed labour-sponsored venture capital corporations under the regulations made under the Income Tax Act (Canada) and corporations that are exempt from tax or are controlled directly or indirectly by a corporation exempt from tax are not eligible for the OIDMTC.
What Types of Products Are Eligible for the Tax Credit?
There are now two types of products that can be claimed under the OIDMTC: eligible products and specified products. To be eligible for the OIDMTC a product must be an interactive digital media product whose primary purpose is to educate, inform, or entertain, and that achieves its primary purpose by presenting information in at least two of: (i)text, (ii)sound and (iii) images. Types of interactive digital media products that may be eligible for the tax credit include but are not restricted to games, educational and informational products. Operating system software is not eligible for the tax credit.
In addition, the following requirements must be satisfied for a product to be an eligible product (other than specified products) of the qualifying corporation: all or substantially all of the product was developed in Ontario by the qualifying corporation; the product was not developed under a fee-for-service arrangement; the product is not used primarily for interpersonal communication; the product is not used primarily to present or promote the qualifying corporation; and the product is not used primarily to present, promote or sell the products or services of the qualifying corporation.
Specified products are interactive digital media products that are developed under a fee-for-service arrangement, under the terms of an agreement between the qualifying corporation and an arm’s length purchaser corporation for the purpose of sale or license by the purchaser to one or more persons who deal at arm’s length with the purchaser. All or substantially all, of the product must be developed in Ontario by the qualifying corporation. The development of the product must be completed by the qualifying corporation after March 23, 2006.