Tax credits, funding available to Ontario digital content developers

Digital content developers, who’ve survived the economic turmoil of past 18 months, may sense the storm is calming, and a ray of sunlight peeking through the clouds.

And maybe even a rainbow leading to a proverbial pot of gold – or at the very least some loose change to tide them over a tough time.

Investors in the digital content space are becoming more active again, say experts. If developers still fail to win money from venture funds and angel investors, they can always turn to the government — especially in Ontario.

The Ontario Media Development Corporation (OMDC) is offering both a tax credit and a fund to developers, says Jennifer Blitz, director of tax credits and financing with OMDC. “There’s still plenty money left.”

An agency of the Ontario Ministry of Culture, OMDC promotes and enhances investment, jobs and original content creation in the province’s book publishing, film and television, interactive digital media, magazine publishing and music industries.

Blitz and other capital wranglers discussed funding for digital content developers at an Interactive Ontario’s “iLunch” event in Toronto Feb. 26.

Though Toronto is no Silicon Valley, where money flows freely to developers, there are still investors out there, and tax breaks to stay alive until those capital sources are found, they say.

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Tax credits helped Nathan Gunn, CEO of Social Game Universe, stay alive while growing his company.

“It let us hold out for the best possible investment deal,” he says. “We have a few big content guys in Canada that do make big gut bets.”

The OMDC tax credit can be claimed for all developer expenses incurred between April 1, 2009 and March 31, 2010, Blitz explains. To qualify, a company’s revenue must be more than 50 per cent attributable to developing screen-based content and at least $30,000 of development expenses must have been paid. That could include marketing expenses.

“If you’re trying to develop better marketing plans, there’s a list of development activities that we’ll be able to rebate on our Web site,” she says.

The rebate is capped at $150,000, with a possibility of a performance bonus of up to $20,000, Blitz says.

Positioning your company to make use of tax credits could help attract investors, says John Cho, director of transaction services for KPMG LLP.

“The tax landscape in Canada and Ontario is always changing,” he says. “I’d encourage everyone to speak to someone about what the full tax credit menu looks like today.”

Cho represents several corporate players who are looking to invest in the space, including Research in Motion Ltd. That client specifically is less interested in content, but more in the underlying technology a developer has created. They’re looking to add to the BlackBerry infrastructure, Cho says.

In general, developers can get a better investment deal if they lay out all the historical metrics clearly. Put the data out there for investors to see, Cho advises.

Private venture capital and angel investors are now looking for smaller and stealthier developers, says Ted Werth, business consultant with Injenius Projects.

“A few years ago, the tech start-up strategy would have been to raise a few million dollars and bulk up on staff really quick. That’s not the case anymore,” he says. “Now you have investors who are looking for two guys in a room to stay that way.”

Developers can better win funds by planning multi-platform projects, he adds. Social games and casual games, of the variety found on Facebook, are also a hot sector right now.

For video game developers currently going through the tax season crunch, some may be able to take advantage of OMDC’s tax credit even if their project isn’t completed yet. Some developers can now file for a tax credit on an annual basis, Blitz says.

“We need a few more details about this before I can be effusive in my happiness about annual filing,” she says. “This will only apply in specific situations.”

To qualify for yearly filing, developers must show that 90 per cent of revenue resulted from development of games, and that 80 per cent of employee salaries went towards game development.

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