Previously, we discussed the eligibility of different multimedia titles in regards to the Quebec Multimedia tax credit and the different refund rates applicable to the labour expenditures for different multimedia categories.

Today we’ll look more closely at the labour expenditures and what’s eligible.

Deduct Other Grants or Tax Credits

Before you calculate labour expenditures, it’s important to deduct any amounts received from government or non-government assistance from your eligible expenses. For instance, if an employee. who earns $75,000, was claimed at 60% of his salary for the SR&ED tax credit, then the portion of his salary that you could claim for the Multimedia tax credit would be 40% or $30,000. This rule applies to employees, shareholders and contractors.

Eligible Employees

After you’ve deducted any other assistance you’ve received from the salaries or wages of employees, you can claim the remaining expenditures for any employee who is directly involved in producing the multimedia title, such as designers, programers, writers etc. You’ll notice this list includes people not normally eligible for SR&ED, so the Multimedia Tax Credit is a nice compliment to R&D focused subsidies. Employees involved in the promotion or distribution of the title, such as marketing or sales, are ineligible.

Non-Arm’s Length Contractors

Like employees, you can claim the full amount of a non-arm’s length contractor’s fees, once you’ve deducted any portions that have been claimed in other government or non-government assistance programs. The contractor must be based in Quebec and be directly involved in producing the multimedia title.

Arm’s Length Contractors

For Quebec based arm’s length contractors, 50% of the eligible portion of their fees can be claimed.

The Quebec Multimedia tax credit is definitively worth looking into if you produce multimedia titles such as video games and interactive software as it provides a generous refundable tax credit of up to 37.5% on labour expenses. To apply or find out more about this credit that is managed by Investissement Quebec, you can visit their website at: http://www.investquebec.com.

The Quebec tax credit for multimedia titles can provide a refund of between 26.25% – 37.5% on labour costs for eligible multimedia producers.

This credit is primarily aimed at video game developers, but other multimedia titles can qualify if they meet the criteria that they are interactive and contain at least three of the following four types of data: text, sound, still images, moving images. Video is counted as one data type, and not two (i.e., sound and moving images). Some examples of eligible titles include video games, simulators and educational software.

What’s an Eligible Multimedia Title?

Eligible titles fall into two categories. The first category (Category 1) is defined as being a multimedia title that was produced without an order (i.e., not commissioned) and that is intended to be marketed to a wide audience using a structured marketing plan. Category 1 titles are eligible for a 30% refund on eligible labour expenditures.

An example of a category 1 title could be a video game development company that develops a new game on its own, without receiving an order for it from a third party.

Startups working in mobile gaming or online/casual gaming should not overlook this tax credit. You can fund some expenditures not covered in SR&ED for example. It’s true that this program was created back in the day when companies were publishing CD-ROM games (remember those?) but with the right application you should be receiving this tax credit.

Category 2 titles include other types of multimedia that don’t fall into Category 1. These titles are eligible for a 26.25% refund on eligible labour expenditures.

Some examples of a category 2 title include a title that was developed with an order (e.g., a movie producer hires a development company to produce a video game based on the movie), or a title that was developed for a specific purpose and that is meant to be marketed to a smaller or targeted audience (e.g., a company hires a developer to create a multimedia title for educational purposes within the company or for its clients).

So if you do contract work for clients that involves building a game or a multimedia educational training tool, you should be eligible for this tax credit. As with all client work, make sure it is clear whether you or the client has the right to apply.

Note that multimedia titles intended to promote a company’s products or services are ineligible in either categories, as are any titles that encourage violence, sexism and discrimination.

French Version Bonus

Category 1 titles can benefit from an additional 7.5% bonus on labour expenses if a French version of the multimedia title is produced. This can bring the total refund for a Category 1 title to 37.5%.

In our next post, we’ll elaborate on what labour expenditures are eligible. In the meantime, you can learn more about the Quebec tax credit for multimedia titles by visiting the Investissement Quebec website.

When you file your corporate tax forms (T2 and C0-17), you will need to include 4 additional forms when claiming SR&ED in Quebec; 2 federal and 2 provincial forms. Here is a quick overview of each tax form you’ll need and where to get them.

Quebec Forms

RD-222V

First, you need to complete the RD-222 – Deduction Respecting Scientific Research and Experimental Development Expenditures.

This form calculates the total allowable expenditures by adding all labour salaries, contract payments and capital costs (if you’re using the traditional method for calculating overhead costs). Any R&D expenditures not claimed in the previous year are then added and deductions are made to the total expenditures such as deducting the previous year’s SR&ED refund and other government assistance received. The RD-222 allows you to choose how much of the allowable expenditures you wish to use in the current tax year should you decide to defer a portion in the upcoming fiscal year.

Note that corporations are obligated to file this form in French; only individuals can file the form in English.

RD-1029.7-V

The RD-1029.7 Tax Credit for Salaries and Wages (R&D). This form calculates your refund based on your eligible rate; either 37.5%, 20% or 17.5% (for individuals).

As with the RD-222, corporations must file this form in French.

Federal Forms

The following federal SR&ED forms are required regardless of which province you are filing in.

T661

The T661 allows you to state your expenditures and describe your project(s) in detail. If you opt to use the proxy method (as opposed to the traditional method) for estimating overhead costs, this form takes you through the steps of calculating overhead using 65% of employees’ salaries.

A guide to completing the T661 can be found here: The T4088 Guide

Schedule 31

Finally, you will need to complete Schedule 31, which is part of the corporate T2 tax form. This form will calculate your SR&ED refund and your Investment Tax Credit (ITC).

These 4 forms should be filed with your tax returns, but can also be filed at a later date; you have 18 months from the end of your fiscal year to file them.