142 lines
13 KiB
Markdown
142 lines
13 KiB
Markdown
---
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title: 'S6: Tax Credits & Funding'
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collection: Cooperative Foundations
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path: 'Cooperative Foundations/Hub Adaptations/Ontario/S6: Tax Credits & Funding'
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parentDocument: Ontario
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outlineId: 32d7ced9-87f3-458a-a9bb-9f4c06bcff98
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createdBy: Jennie R.F.
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---
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:::info
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This section covers Ontario-specific tax credits, funding pathways, and structural advantages for cooperative game studios.
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:::
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## OIDMTC at 40% for self-published games
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The Ontario Interactive Digital Media Tax Credit (OIDMTC - and if you must say it out loud, try: `OY-duhm-tick`) is the single biggest financial incentive for Ontario game studios. It's a refundable tax credit, meaning you get money back even if you owe no tax. For studios that develop and self-publish their own games, the credit is 40% of eligible Ontario labour expenditures, with no annual cap. Fee-for-service work (contract development for other studios) earns 35%. On top of the labour credit, the non-specified (self-published) stream lets you claim up to $100,000 in marketing and distribution expenses per product, which the other streams don't allow.
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A few timing things that change behaviour:
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* You have 18 months from the end of the tax year in which a product was completed to file the OIDMTC application. Miss the window and the credit is gone! Do not miss the window!
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* If your studio has been quietly developing without claiming, check whether any completed products are still inside that 18-month window. T2 returns are generally open to refund adjustments for three years, but don't count on it. The OIDMTC deadline is its own thing and strictly enforced.
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* The credit is administered through Ontario Creates (which issues the certificate) and CRA (which processes the credit on Schedule 560 of your T2). Ontario Creates charges an administration fee of 0.15% of eligible expenditures, subject to a minimum and maximum.
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If you want to take advantage of this credit, you need to incorporate as for-profit. A non-profit co-op could be considered tax-exempt, which would disqualify it from the OIDMTC entirely. Every program in this section requires for-profit incorporation.
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One caveat: no explicit guidance on co-operative corporations appears in the OIDMTC guidelines. A for-profit co-op filing T2 returns should qualify, but get written confirmation from Ontario Creates before your first application. Write them well in advance, replies can take weeks.
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## The 80/25 rule and why members must be on payroll
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To claim the OIDMTC, at least 80% of total development labour must be Ontario labour (paid to employees, or to certain Ontario individual contractors and sole proprietors without employees of their own), and at least 25% of total development labour must be wages paid to employees of the claiming corporation. Worker-members must be on payroll receiving T4 slips.
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If your co-op treats its members as independent contractors, you fail the 25% employee test and lose the credit entirely.
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This ties back to the compensation models you just discussed. However you structure wages and surplus distribution, the payroll foundation is non-negotiable if you want the tax credit.
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According to our accountant, the CRA is also increasing enforcement on worker misclassification generally. They're actively auditing corporations where the incorporated person would otherwise be classified as an employee. In a worker co-op with multiple members on payroll, this risk is lower than for a one-person corp, but the principle holds. *Members work on payroll, not on invoices.* You cannot contract to your own co-op.
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## Stack OIDMTC with SR&ED (and OITC)
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OIDMTC isn't the only credit open to you. If any of your development involves real "technological uncertainty" (custom tools, techniques without known solutions, novel pipelines), that work can be claimed under the federal SR&ED program for a 35% refundable credit at the CCPC enhanced rate, plus another 8% refundable credit through the Ontario Innovation Tax Credit (OITC) on the same SR&ED expenditures. You can claim OIDMTC and SR&ED in the same year, but you can't double-count the same dollars. Any OIDMTC you receive counts as government assistance and reduces the SR&ED expenditure base, and labour you've already claimed under SR&ED can't also be claimed under OIDMTC. The practical move is to allocate experimental R&D to SR&ED and regular game production to OIDMTC, and to keep the timesheets clean enough that your accountant can tell which is which.
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The full breakdown, including IRAP, CMF Experimental Stream, and a worked stacking example, is in the [Ontario Funding Landscape](https://wiki.ghostguild.org/doc/eba4ff2c-fe24-43dd-be92-bacaffb6e308) article. Get this 💰.
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## Patronage dividend deduction
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Co-ops have a real advantage here. Under Section 135 of the federal Income Tax Act, co-ops can deduct patronage dividends paid to members from taxable income. For a worker co-op that distributes its surplus based on hours worked, this can reduce corporate-level taxation substantially.
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Members report the patronage dividends as personal income, so the money still gets taxed, just at the personal rate instead of the corporate rate plus the personal rate. Wrinkle: Patronage dividends are reported on a T4A, and the co-op may be required to withhold 15% under Part XII of the ITA on amounts above $100 per member per year. *Talk to a co-op-literate accountant before your first allocation* so the withholding doesn't surprise you.
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Patronage dividends stack on top of the federal small business deduction and the Ontario small business deduction, both of which a worker co-op should generally qualify for as a Canadian-controlled private corporation (CCPC). The combined effective rate on the first slice of active business income is low to begin with, and patronage dividends can bring the corporate-level tax further down. Specific rates move year to year, so check current numbers with your accountant.
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Note that the patronage dividend deduction is a federal mechanism, not an Ontario one. There are no Ontario-specific tax exemptions exclusively for co-ops. What Ontario adds on top is the OIDMTC and the general business environment.
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## Two things worth knowing early
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Another couple of tips from our accountant:
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* Pick a fiscal year end that isn't December 31. August 31 works well for studios. As a CCPC claiming the small business deduction, you get three months after your year end to pay any corporate tax owing, and six months to file the T2 return. An August year end puts your filing deadline in February, right when you're preparing personal taxes for the April 30 deadline. That overlap lets you plan across both returns, which helps when you're deciding how much to distribute as patronage dividends vs. retain in the co-op.
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* If you receive a one-year grant partway through your fiscal year, the portion covering work in the next fiscal year can be recognized as income in that year under accrual accounting. Keep the grant agreement on file and track expenses against the grant period carefully. CRA increasingly cross-checks information returns like T4 and T4A slips against income and sales-tax filings, so keep your grant, payroll, and HST reporting consistent with each other.
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## Two more things to set up
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* **WSIB.** Once worker-members are on payroll, most Ontario studios are required to register with WSIB (within 10 days of hiring the first worker, in theory). Executive officers (president, secretary, treasurer) aren't automatically covered outside the construction industry, but they can opt into coverage through WSIB's optional insurance. This is the most commonly forgotten piece of the payroll setup.
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* **HST.** You have to register for HST once you exceed $30,000 in taxable supplies in a single calendar quarter OR over four consecutive calendar quarters, and you have 29 days after crossing the threshold to register. Below $30K you can register voluntarily, which lets you claim input tax credits on your expenses. Most studios benefit from registering early.
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---
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## Ontario Creates funding pathway
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The practical path for a new co-op studio:
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### 1. Futures Forward ($20K, entry point)
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Non-repayable grant, up to 75% of eligible costs. Designed for studios where key people have fewer than three years of professional interactive digital media experience. You must complete approved training first, delivered through Interactive Ontario, Hand Eye Society, or other partners. Futures Forward requires "a for-profit company" and excludes non-profits. Confirm your eligibility well in advance with Ontario Creates.
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👇🏻
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### 2. IP Fund Pre-Production ($15K-$50K)
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Next step after you have a prototype. Requires at least one person with 3+ years IDM experience, 51%+ copyright ownership, and 75%+ Ontario spend.
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👇🏻
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### 3. IP Fund Production ($50K-$500K)
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Main production funding. Acts as "last-in" funder, meaning all other financing must be committed at time of application.
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*You should claim the OIDMTC throughout this entire pathway.*
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## CWCF supports
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* Technical Assistance Grants (up to $4K): covers hiring co-op developers, lawyers, and consultants during the startup phase. Requires CWCF membership.
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* Tenacity Works Fund: term loans for worker co-ops that need startup or growth financing. Verify current loan limits and member capital contribution requirements directly with CWCF before planning around them.
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* Common Good Capital: through CWCF, members may be able to hold qualifying co-op shares inside a self-directed RRSP or TFSA, which creates a personal tax advantage while capitalizing the co-op. The mechanics depend on the shares meeting qualified investment rules and on using a self-directed plan trustee that will accept them, so it's less push-button than it sounds. Worth a conversation with CWCF early if you want to use it.
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## Bank with a credit union
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The big banks tend to get confused by co-op share structures. FirstOntario's CreativeArts division, Alterna Savings, Meridian, and DUCA are the usual suggestions. Setting this up takes longer than a regular business account, so start before you need it.
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---
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## Resources
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**OIDMTC, SR&ED, and related tax credits**
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* [Ontario Interactive Digital Media Tax Credit (Ontario Creates)](https://www.ontariocreates.ca/tax-incentives/oidmtc) - program overview, rates, 80/25 rule, marketing cap
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* [Ontario Interactive Digital Media Tax Credit (CRA)](https://www.canada.ca/en/revenue-agency/services/tax/businesses/topics/corporations/provincial-territorial-corporation-tax/ontario-provincial-corporation-tax/ontario-refundable-media-tax-credits/ontario-interactive-digital-media-tax-credit.html) - federal administration of the provincial credit
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* [OIDMTC 80/25 rule and application deadline (Ontario Creates deck)](https://www.ontariocreates.ca/uploads/Tax_Credits/ENG/OIDMTC/Interactive-Ontario-93-Specified-non-Specified-OIDMTC-Presentation.pdf)
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* [T2 Schedule 560 - Ontario Interactive Digital Media Tax Credit](https://www.cchwebsites.com/content/pdf/tax_forms/ca/en/t2sch560.pdf)
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* [SR&ED tax incentives (CRA overview)](https://www.canada.ca/en/revenue-agency/services/scientific-research-experimental-development-tax-incentive-program.html)
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* [Ontario Innovation Tax Credit (CRA)](https://www.canada.ca/en/revenue-agency/services/tax/businesses/topics/corporations/provincial-territorial-corporation-tax/ontario-provincial-corporation-tax/ontario-innovation-tax-credit.html)
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* [Ontario Small Business Deduction (CRA)](https://www.canada.ca/en/revenue-agency/services/tax/businesses/topics/corporations/provincial-territorial-corporation-tax/ontario-provincial-corporation-tax/ontario-small-business-deduction.html)
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**Patronage dividends and co-op taxation**
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* [Income Tax Act - Section 135 (Patronage Dividends)](https://laws-lois.justice.gc.ca/eng/acts/I-3.3/section-135.html)
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* [CRA: Patronage allowances (withholding and T4A reporting)](https://www.canada.ca/en/revenue-agency/services/tax/businesses/topics/payroll/payroll-deductions-contributions/special-payments/patronage-allowances.html)
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**Corporate deadlines and payroll obligations**
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* [When to file your corporation income tax return (CRA)](https://www.canada.ca/en/revenue-agency/services/tax/businesses/topics/corporations/corporation-income-tax-return/when-file-your-corporation-income-tax-return.html)
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* [Balance-due day and corporate tax payment deadlines (CRA)](https://www.canada.ca/en/revenue-agency/services/tax/businesses/topics/corporations/corporation-payments/paying-your-balance-corporation-income-tax.html)
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* [WSIB: how to register your business](https://www.wsib.ca/en/businesses/registration-and-coverage/how-register-your-business)
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* [WSIB: optional insurance for executive officers](https://www.wsib.ca/en/operational-policy-manual/optional-insurance)
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* [Employer Health Tax - tax exemption details](https://www.ontario.ca/document/employer-health-tax-eht/tax-exemption)
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**Ontario Creates funding programs**
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* [Futures Forward (IP Fund)](https://www.ontariocreates.ca/our-sectors/interactive/interactive-digital-media-fund/ontario-creates-idm-fund-futures)
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* [IP Fund - Interactive Content guidelines (Pre-Production & Production)](https://www.ontariocreates.ca/uploads/Industry_Initiatives/ENG/Content-and-Marketing/IP-Fund/IP-Fund-Interactive-Guidelines-EN.pdf)
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**CWCF and co-op finance tools**
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* [CWCF Technical Assistance Grants](https://canadianworker.coop/technical-assistance-grants/)
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* [Tenacity Works Fund](https://canadianworker.coop/funding/tenacity-works-fund/)
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* [Common Good Capital - RRSP/TFSA program](https://canadianworker.coop/rrsp-program-overview/)
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