Digital Games Tax Offset – Introduction
On June 23, 2023, the Digital Games Tax Offset (DGTO) became law in Australia.
This new measure aims to support eligible video game developers by providing a 30% refundable tax offset for qualifying Australian development expenditure.
But what does this mean in practical terms?
What is a Refundable Tax Offset?
A tax offset typically reduces the amount of tax a company owes.
In the case of the DGTO, it’s a refundable offset, meaning if your tax payable is less than the offset amount, the Australian Taxation Office (ATO) will refund the difference.
For example, if you owe $500 in tax but have a $1000 offset, you’ll receive a $500 tax refund.
This mechanism effectively allows the government to contribute to and boost the development budget of a video game, provided the company has already spent the money.
Who is Entitled to Claim the Offset?
To claim the DGTO, the following criteria must be met:
- Entity Type: The applicant must be a company that is an Australian resident with an Australian Business Number (ABN) or a foreign resident permanently established in Australia with an ABN. Sole traders, partnerships, and trusts are not eligible.
- Minimum Budget: A minimum of $500,000 must be spent in an income year on qualifying Australian development expenditure.
- Original Game: The game must be an original creation. While detailed guidance on what constitutes an ‘original’ game is pending, it generally excludes ports or parts of broader games.
Qualifying Development Expenditure Includes:
- Remuneration to persons (including independent contractors) involved in the development (e.g., project managers, designers, writers, software developers, testers).
- Research and underlying game infrastructure (e.g., game engines).
Excluded Expenditure Includes:
- Marketing and user acquisition.
- Travel and accommodation expenses.
- Rent or land/premises costs.
- Acquiring copyright, trademarks, or image rights.
- Computer hardware or services.
Geographic Requirement:
The development expenditure must be Australian, meaning the goods or services are acquired in Australia. This excludes expenses incurred overseas.
How Much Can Be Claimed?
A company can claim up to 30% of all qualifying expenditure, with a maximum claimable amount of $20 million per year.
This cap applies across multiple games. For instance, if three games are developed with a total budget of $90 million, the maximum offset remains $20 million.
The approximate limit of a game’s budget that can be claimed is around $66.7 million.
The ATO will group related companies for the purpose of applying the cap, so developing two games from separate companies will have their expenditures added together.
Certification Requirement
Before filing an offset claim with the ATO, developers need a certificate (completion, porting, or ongoing) from the Arts Minister. This certificate verifies that all the requirements are met.
What Counts as a Video Game?
The definition of a video game under the act is broad, encompassing games in electronic form that can generate a display on:
- Portable electronic devices.
- Computer monitors, television screens, liquid crystal displays, or similar mediums.
Digital Games Tax Offset – Conclusion
The DGTO is likely to benefit larger developers more than indie developers.
The minimum threshold of $500,000 in development expenditure will rule out many independent studios, particularly considering the expenditures that do not qualify.
Therefore, even a game with a budget over $500,000 may not meet the criteria.
Final thoughts
If you have any queries about this article on the Digital Games Tax Offset, or Australian tax matters in general, then please get in touch.