Backing a winner: Digital games tax break
Digital games have been increasing in an incredible speed. But this growing industry still requires some tax strategies to make sure it goes along the right side.
The business of delivering interactive entertainment and digital games is one of the industries that is increasing at one of the quickest rates all over the world. The income generated by the digital games sector in Australia increased by 22% between the years 2020 and 2021, reaching a total of $226.5 million, and the industry was responsible for the employment of more than 1,300 workers.
It has been estimated that the worth of the world’s digital gaming industry is greater than $250 billion USD. It is also an area that the government wants to increase growth in, and one of the ways that they want to do this is by creating a new tax credit that will apply to businesses that work in this industry. Another way that the government wants to boost growth in this area is by increasing the minimum wage.
Beginning on the first of July in 2022, the business will be eligible for a Digital Games Tax Offset that will allow it to deduct thirty percent of any qualified expenses incurred during development work carried out in Australia. Each individual company or group of enterprises is restricted to making a yearly claim of no more than $20 million (which is roughly equivalent to $66.7 million in expenditures that are allowed). This restriction applies to both tax and non-tax expenditures.
In addition to the aid provided by the federal government, South Australia, Victoria, and New South Wales each provide their own state-based tax advantages for residents of their respective states. These advantages are available in addition to the assistance provided by the federal government.
Every state makes an additional 10% contribution on top of the help that is provided by the federal government, with Queensland making an additional fifteen percent contribution. The tax offset, which is typical for this industry and typically consists of a tax offset of forty percent, is assisting in the process of reestablishing Australia’s competitiveness on the international market. This is the standard practice in this sector of the economy.
Who is eligible
To be eligible for the programme, a firm must either be an Australian tax resident or the tax resident of another country that also has a permanent presence in Australia. Either way, the company must have a permanent establishment in Australia.
If the company finishes manufacturing one or more digital games within the current fiscal year, ports an existing digital game to a new platform, or completes a new digital game during that time period, the Minister of the Arts will send a certificate authorising the company to claim the offset.
In addition, if the company completes the porting of an existing digital game to a new platform, the offset will be doubled. With this certificate, the business will be able to make the claim for the offset. The act of adapting an existing digital game so that it may be played on a different platform. When determining the potential value of the tax credit that may be claimed on behalf of the taxpayer, the Minister of Finance makes use of this certificate.
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For more information on the digital games tax break, send an inquiry to the Bates Cosgrave team.