Ontario tax credits, talent pool used to lure video game firms

Why would a parent hand a $600 piece of breakable technology they depend on every day over to their two-year-old? It’s a good question, and one that inspired Jason Krogh, CEO of Zinc Roe, to branch out his video game developer business.

After witnessing parents placate their whining toddlers in grocery store lines with their smartphones, Krogh got the idea to develop apps specifically for pre-schoolers. It was about four years ago when he got organized around the idea and applied to the Interactive Digital Media (IDC) Fund to get 50 per cent of his productions costs related to the project covered. Offered by the Ontario Media Development Corp. (OMDC), the fund rewards a small number of recipients up to $150,000 to help create digital content. The funding turned out to be crucial to the future of Zinc Roe.

The firm was acquired March 6 by Sweden-based Toca Boca and rebranded to the Sago Sago studio. Now it will be focused on developing mobile apps for pre-schoolers as its core business.

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“It’s allowed us to expand and hire more people and do investment,” Krogh says in a phone interview. “The growth potential of product companies is much greater than companies providing services here and there… the role of the OMDC is in the evolution of companies making that move.”

Talent like the developers at Zinc Roe and tax credits like the IDC Fund (which is not currently accepting applications) are being used by a group representing Ontario’s tech hot spots to lure video game developers north of the border. Attending the Game Developer’s Conference (GDC) in San Francisco this week, members of the Ontario Technology Corridor are shuttling around the Bay area to convince businesses to grow out of Silicon Valley and into a community along Highway 401.

The Ontario Technology Corridor is made of private and public groups that have a shared interest in boosting the province’s economy. It includes the Greater Toronto Marketing Alliance, Invest Ottawa, Canada’s Technology Triangle (Waterloo region), the London Economic Development Corp. and backing from the provincial and federal government too. The group agrees that producing video games will be important to Ontario’s economic future, with a growth rate of 21 per cent for the industry that currently employs 2,600 people in the province. Across Canada, the sector is estimated at a value of $1.7 billion with 16,000 employees.

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In a series of “speed dating” style meetings, reactions have been positive, says Blair Patacairk, senior consultant with Invest Ottawa.

“Half of the challenge is just educating them on Ontario and what we have to offer,” he says. “It’s about a third cheaper to do business in Ontario versus California.”

But aside from the discount benefit of tax savings, Ontario also have a burgeoning pool of developer talent available for companies that are hungry for it, he says. It can be hard to find software developers in California, and they’re also short of them out in Vancouver. So North American video game developers could look to the province as the logical next step.

“If they try and push into India and China, as good as they are as developers, there’s creative juices behind this and they lose that piece when they move overseas,” he says.

Tax credits are available and can be “stacked up” to really offer expanding businesses some savings, he adds. The group is looking to help businesses coming to the province navigate the paperwork more easily.

The tax credits continue to help Krough, who has received 40 per cent of qualifying labour costs as a result to applying for OMDC programs. It requires the labour to be from Ontario and spent on digital media, so Zinc Roe has been able to use it on many of its large projects.

“It allows us to act longterm and strategic, rather than just dealing with short term views,” he says.

It takes about one or two years after spending the money to receive it back in tax credits, Krogh says, so the company views it as a source of long-term revenue. With a staff of 10, the firm spends some time getting documentation in order to successfully apply for the credit.

Tax credits are “the icing on the cake,” for firms considering Ontario, says Michelle Cortez, the manager of business development for the Greater Toronto Marketing Alliance. “It’s very unique to have the tax incentives and the talent as well.”

Firms that aren’t quite ready to open up another office in Ontario could consider hiring a business in the province for some outsourcing. That’s another angle the group at GDC is selling, with key firms in mind to help deliver on what’s promised.

Here are a list of tax credits provided by the Ontario Technology Corridor:

  • Ontario Computer Animation and Special Effects Tax Credit (OCASE): Refundable tax credit of 20% to eligible companies for qualifying Ontario labour expenses for the production of computer animation and special effect activities in film or TV
  • Ontario Interactive Digital Media Tax Credit (OIDMTC): Refundable tax credit of 35% or 40% for eligible labour, marketing and distribution expenditures for the creation of interactive digital media products
  • Ontario Media Development Corporation (OMDC) Interactive Digital Media Fund: Eligible applicants receive a non-refundable contribution of up to $150,000, to a maximum of 50% of the project budget, to create a market-ready interactive digital media product
  • Ontario Production Services Tax Credit (OPSTC): Refundable tax credit of 25% based upon eligible Ontario labour and other production expenditures
  • Scientific Research and Experimental Development (SR&ED) Tax Incentives: Incentives aimed at innovative companies to reduce R&D costs
  • Ontario Media Development Corporation (OMDC) Tax Incentives: See full lists of tax incentives programs for Books, Magazines, Music, Interactive and Film & TV

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Jim Love, Chief Content Officer, IT World Canada

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Brian Jackson
Brian Jacksonhttp://www.itbusiness.ca
Editorial director of IT World Canada. Covering technology as it applies to business users. Multiple COPA award winner and now judge. Paddles a canoe as much as possible.

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