The global digital games industry is an industry the government wants to support with a new tax offset. The digital games tax offset is equivalent to 30% of the company’s aggregated qualifying Australian Development expenses incurred from 1 July 2022. Companies are liable to claim up to $20 million per company per year.
Tax incentives are also available in Victoria, South Australia, and New South Wales giving an additional 10% and Queensland giving 15% on top of the federal support. For this industry, a 40% tax offset is standard. Therefore, the tax offset helps Australia come back into a competitive position.
Who is Eligible?
Companies that are Australian tax residents or foreign tax residents can qualify if they have a permanent establishment in Australia. To access the offset, the company requires to have a certificate issued by the Arts Minister after completing a new digital game, for ongoing implementation of one or more current digital games during the income year, or the porting of a digital game to a new platform. This certificate determines the offset claimed in the tax return with the Minister checking the amount of qualifying expenses. Qualifying Australian development expenses incurred by the company need to be at least $500,000 (could be above multiple years).
What is Development Expenditure?
Any expense that a company incurs for the development of the qualifying game is eligible expenditure unless it is excluded. A company implements a game by performing activities required to complete, port, update, enhance, or maintain an eligible game.
The law goes one step further by expressly mentioning employee compensation or payments made to independent contractors hired by the company to work on the game’s development (apart from bonuses associated with the company’s or the game’s performance).
Additionally notably included are prototyping and the underlying game technology. Employees who are not working on the game’s development, such as office employees or foreign contractors, are not included. Corporate expenses, including marketing, travel, entertainment, and other expenses are also included.
What Games Are Eligible?
A digital game is available for the general public over the internet and can receive a classification. However, games developed for in-house uses don’t qualify. The game shouldn’t include gambling or elements related to gambling, nor is used for promotion or commercial uses.