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5.8 KiB
Markdown
72 lines
5.8 KiB
Markdown
---
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title: 'S6: Funding & Tax Landscape'
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collection: Cooperative Foundations
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path: >-
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Cooperative Foundations/Hub Adaptations/Central (Ontario)/S6: Funding & Tax
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Landscape
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parentDocument: Central (Ontario)
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outlineId: 491a3f7f-f423-4db6-a3fb-521895d2468c
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createdBy: Jennie R.F.
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---
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:::info
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**Ontario Adaptation**
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This section covers Ontario-specific tax credits, funding pathways, and structural advantages for cooperative game studios. For the full deep dive, see the [Ontario Funding Landscape](/doc/eba4ff2c-fe24-43dd-be92-bacaffb6e308)article.
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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 is the single biggest financial incentive for Ontario game studios. It's a refundable tax credit – 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%.
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If you want to take advantage of this generous credit, you must incorporate as for-profit. A non-profit co-op is likely considered tax-exempt, which disqualifies it from the OIDMTC entirely. Every program in this section requires for-profit incorporation.
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One caveat: No explicit guidance on cooperative 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. And write them well in advance, it can take weeks to receive a reply.
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## The 80/25 rule and why members must be on payroll
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To claim the OIDMTC, 80% of development labour must be performed in Ontario and 25% must be paid as wages to employees (NOT contractors) of the claiming corporation. Worker-members must be on payroll receiving T4 slips. 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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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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## Patronage dividend deduction
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This is where the co-op structure has a real advantage. 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 to near zero.
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Members report the patronage dividends as personal income, so the money still gets taxed – just at your personal rate instead of the corporate rate *plus* your personal rate, avoiding double-taxation.
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Combined with the Ontario Small Business Deduction (which brings the combined federal-provincial rate to roughly 12.2% on the first $500K of active business income as of 2025 – dropping to about 11.2% by 2027 as Ontario cuts its small business rate), and then further reduced by patronage dividend deductions, the effective tax burden on a well-structured co-op game studio can be *very low!*
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## Two things worth knowing early
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Pick a fiscal year end that isn't December 31. August 31 works well for studios. CRA gives you six months after your year end to file the T2 return. (You still owe any tax at two months–the six-month window is for the paperwork.) An August year end puts your corporate 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. This requires proper documentation. Keep the grant agreement and track expenses against the grant period carefully. CRA is increasingly cross-referencing T4A slips against HST filings, so avoid sloppy recordkeeping here.
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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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#### 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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#### 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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Studios 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 ($250/year for small worker co-ops).
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Tenacity Works Fund ($15K-$50K): Five-year term loans for worker co-ops that need startup or growth financing. Requires minimum $1,000 per-member capital contribution.
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Common Good Capital: Through CWCF membership, workers can place co-op shares into Self-Directed RRSPs or TFSAs, creating a personal tax advantage while capitalizing the co-op.
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