Business Adviser

Digital Media and IT Innovations Can Net Tax Savings

By Ed Bartucci
Partner, KPMG Enterprise, Toronto

Innovation is critical for the success of your information technology or your digital media company. Not only can investing and developing in technology and new products or processes help your business thrive in a competitive field, but they can also help you tap into tax savings.

The government’s Scientific Research and Experimental Development (SR&ED) program offers many different tax incentives that can help offset some of the cost of innovation. Getting familiar with these incentives can help your company take full advantage of the tax benefits of carrying out innovative activities.

Types of activities that generate tax savings

A substantial number of activities your company may have already undertaken could be eligible for tax incentives. Our work for information technology and digital media companies has found eligible tax incentives in:

• Software programming relating to processing speed, performance or connectivity
• Wireless and telecom applications
• Communication protocols
• Internet security and content delivery
• Advanced mathematical modeling
• Artificial intelligence
• Stand-alone and online digital media applications and games involving e-learning
• Device form factor improvements.

Investigate provincial incentive programs

Some provinces also offer additional incentives. For example, BC Interactive Digital Media Tax Credit is a refundable tax credit equaling 17.5 percent of qualifying BC labour costs for interactive digital media products produced in British Columbia.

Likewise, the Ontario Interactive Digital Media Tax Credit is a refundable credit of up to 40 percent that applies to digital media products designed to educate, inform or entertain individuals. The credit applies on salaries that are not included in a SR&ED claim, plus certain marketing expenses. Other incentives available in Ontario include the Ontario Sound Recording Computer Animation and Special Effects Tax Credit, Apprenticeship Training, and Co-op Education Tax Credits that often are available for digital media companies.

Further benefits for SR&ED activity are also available to qualifying companies in Quebec, Alberta, New Brunswick, Nova Scotia, Newfoundland, Saskatchewan and Manitoba.

What qualifies?

In general, under the SR&ED tax incentive rules, the following costs are potentially eligible for benefits:

• Salaries
• Contractor payments
• Materials
• Payments to universities and research organizations
• Capital assets purchased or leased
• Certain overheads.

For example, in Ontario, for every $100 of salary related to eligible activities, your Ontario-based company could be entitled to up to $39 in tax credits or refunds. Small- and medium-sized Canadian controlled private companies could be entitled to up to $73 in tax credits or refunds.

You can use the tax savings available from these innovation incentives to help increase your bottom line and working capital so your information technology or digital media business can continue to grow. We can help you identify areas for potential savings and help you meet the various requirements and deadlines of these incentives.

Business Adviser is published by KPMG Enterprise™ specifically for owners and executives of private companies. KPMG Enterprise is a network of professionals devoted exclusively to helping business owners and entrepreneurs build value and grow thriving enterprises. kpmg.ca/enterprise.