Digital Games Tax Offset

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What is the Digital Games Tax Offset?

The Digital Games Tax Offset is a 30% tax rebate for video game development.

 

Objective

The aim of the Digital Games Tax Offset is to support business growth and change to the way Australian businesses can claim depreciation of intangible assets like intellectual property and in-house software.

 

Background

Australian-made games are rocketing to the top of global sales charts, winning major industry awards and grabbing headlines. We’re a powerful magnet for renowned global games companies, attracting industry heavyweights like Sledgehammer Games, Keyword Studios, Electronic Arts, Wargaming and Gameloft.

Most of Australia’s games companies are independent studios creating original IP and benefiting from the huge global demand driving a steady pipeline of work on licensed properties, ‘work for hire’ projects and multi-studio collaborations. In 2021, one out of every ten games on Apple’s new Apple Arcade video game platform was made in either Australia or New Zealand. Australian games development studios are perfectly placed to support a 24-hour continuous development cycle. Our time zone means we keep development going while North America and Europe are asleep.

New research shows the Australian video game development industry doubled its revenue to $226 million since 2016.

The exact details of the program is yet to be confirmed, so some of the information is indicative only.

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Digital Games Tax Offset

Key features of the tax offset for Australian expenditure on digital games

The digital games tax offset is a refundable tax offset of an amount that is 30% of a company’s qualifying Australian development expenditure on:

  • completing a new digital game; and
  • porting a completed digital game to a new platform; and
  • ongoing development of completed digital games during an income year.

One of the requirements for entitlement to the digital games tax offset is that the company must be issued with a completion certificate, a porting certificate, or an ongoing development certificate, which state the amount of qualifying Australian
development expenditure on which the offset will be determined.

The offset is claimed by a company in its income tax return.

 
 

Digital Games Tax Offset Funding

The amount of the digital games tax offset for a company for an income year is 30% of the total of the company’s qualifying Australian development expenditure for the income year

 

Worked Example

If you spend $750,000 on eligible games development and you have tax losses of $1M, then the ATO will pay you $225,000.

 

Digital Games Tax Offset – Eligibile Companies

A company is entitled to the digital games tax offset)for an income year if:

  • the Arts Minister has issued one or more certificates to the company 
  • the company claims the offset in its income tax return for the income year

To be eligible for the Digital Games Tax Offset you will need to be:

  • limited to games on which at least $500,000 of qualifying expenditure has been spent
  • capped at $20 million in claims per annum
  • an Australian resident companies or foreign resident companies with a permanent establishment in Australia
  • available in the year when the qualifying expenditure has ceased on a game

Games with gambling elements and games that would not be able to achieve classification will be ineligible for the Digital Games Tax Offset.

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Digital Games Tax Offset

Eligible Activities

Eligible games for the Digital Games Tax Offset could include:

  • games for entertainment and serious games
  • games for any platform including console, desktop, tablet, mobile, VR/AR
  • multi-player and single-player games.
  • games involving gambling, as defined in Clause 4 of the Commonwelath Interactive Gambling Act, 2001. 
  • games developed for advertising or corporate marketing
  • games made for internal training purposes
  • curriculum material
  • games that are likely to be Refused Classification under the Classification (Publications, Films and Computer Games) Act 1995. 

Ineligible games for Digital Games Tax Offset could include:

  • games involving gambling, as defined in Clause 4 of the Commonwelath Interactive Gambling Act, 2001. 
  • games developed for advertising or corporate marketing
  • games made for internal training purposes
  • curriculum material
  • games that are likely to be Refused Classification under the Classification (Publications, Films and Computer Games) Act 1995. 
 
 

Ongoing Projects

Games development studios will be able to claim per-project for new eligible games, and annually for a slate of further work (‘live ops’) done on existing/released eligible games across the financial year.

 

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Digital Games Tax Offset

Digital Games Tax Offset – Administration

The Digital Games Tax Offset will be administered by the Office for the Arts and the Australian Taxation Office (ATO), and will form part of the Income Tax Assessment Act 1997.

The Government will release exposure draft legislation for industry review and comment early in 2022. This exposure draft legislation will provide more detail about the operation of the Digital Games Tax Offset.

More Information:

 

What is a game developer?

A video game developer is a software developer specialising in video game development. A developer may specialise in a certain video game console (such as Nintendo’s Nintendo Switch, Microsoft’s Xbox One, Sony’s PlayStation 4), or may develop for a number of systems (including personal computers and mobile devices). Video game developers specialise in certain types of games (such as role-playing video games or first-person shooters). Some focus on porting games from one system to another, or translating games from one language to another. Less commonly, some do software development work in addition to games.
  • First-party developers – In the video game industry, a first-party developer is part of a company which manufactures a video game console and develops exclusively for it. First-party developers may use the name of the company itself (such as Nintendo), have a specific division name (such as Sony’s Polyphony Digital) or have been an independent studio before being acquired by the console manufacturer (such as Rare or Naughty Dog).
  • Second-party developers – Second-party developer is a colloquial term often used by gaming enthusiasts and media to describe game studios who take development contracts from platform holders and develop games exclusive to that platform, i.e. a non-owned developer making games for a first-party company. As a balance to not being able to release their game for other platforms, second-party developers are usually offered higher royalty rates than third-party developers.
  • Third-party developers – A third-party developer may also publish games, or work for a video game publisher to develop a title. Both publisher and developer have considerable input in the game’s design and content. However, the publisher’s wishes generally override those of the developer.

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Digital Games Tax Offset

How to claim the Digital Games Tax Offset

The Digital Games Tax Offset will allowing taxpayers to self-assess the effective life of depreciating intangible assets. The Government will amend the income tax law to allow taxpayers to self-assess the effective life of certain intangible assets, rather than being required to use the effective life currently prescribed by statute. 
This amendment applies to patents, registered designs, copyrights and in-house software for tax purposes. Taxpayers will be able to bring Digital Games Tax Offset deductions forward if they self-assess the assets as having a shorter effective life to the statutory life.
 

The Digital Games Tax Offset reduces the cost of investment for business. The Digital Games Tax Offset also aligns the tax treatment of these intangible assets with the treatment of tangible assets. This will apply to eligible assets acquired following the completion of temporary full expenses which was introduced in the 2020-21 Budget.

An applicant must submit a Digital Games Tax Offset application prior to the commencement of any eligible work for which the Digital Games Tax Offset is sought. If production has already commenced on the project, only work carried out on or after the date of application will be eligible for the Digital Games Tax Offset.

 

 

Timing

The Digital Games Tax Offset opens from 1 July 2022.

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Digital Games Tax Offset

 

Case Studies

Sledgehammer Games

Sledgehammer Games has chosen Australia to set up its only development studio outside its US home. The studio is one of the developers behind the blockbuster Call of Duty franchise. In just over a year since its launch in 2019, the company has grown from six people to over 80—a feat made possible due to the large number of talented developers and creative talent in Australia.
 
‘Australia is a great place to make video games,’ says Andy Wilson, Sledgehammer Games’ Chief Operating Officer. ‘We are extremely happy with the growth we’ve seen over the last year and are ahead of the targets we set ourselves against several measures. The talent, the support and the general attitude towards new entrants have all exceeded our expectations.’
 
While it’s early days for Sledgehammer Games, the company is determined to make a contribution to the local games industry. It has reached out to local universities and plans to offer internships and mentoring opportunities over the coming years.
‘The university programs that are geared towards games are extremely strong in Australia and specifically Melbourne,’ says Wilson. ‘Several are world-class and that bodes extremely well for the next generation of developers. This is particularly exciting as it means we can directly help nurture and grow a whole new generation of game developers.’
Sledgehammer Games has also built relationships with industry and government bodies with a view to supporting and championing games development in Australia.
‘We have been really heartened by the support we’ve received since announcing Sledgehammer Games Melbourne, from industry bodies such as the Interactive Games & Entertainment Association and from government, both federal and state in Victoria,’ says Wilson.
‘There seems to be a realisation at all levels that the games industry could be huge in Australia with the right kind of support, so the conversations we’ve been part of have been forward thinking and productive,’ says Wilson. ‘There seems to be a very strong can-do attitude and an appetite for growth, which is very exciting for us as we continue to build our team.
‘We see an extremely bright future for Sledgehammer Games in Australia,’ says Wilson. ‘We will continue to grow our team, while helping to build the industry through initiatives such as our university outreach programs. We intend to build the very best games in existence, and our Melbourne team will have a large role to play in meeting that objective.’
 
Extradimensional Enterprises
Extradimensional Enterprises is an international games business that is looking to expand its operations from its current base in London. They have been exploring Australia as a possible location, given the talent in existing studios, the available infrastructure and the attractiveness of Melbourne as a place to live and work.
Accessing the Digital Games Tax Offset, Extradimensional Enterprises establishes an office in Australia. The business employs 10 staff in Australia including Leo an Australian programmer who worked overseas in the games industry and takes advantage of the opportunity to return and work at home. Extradimensional Enterprises invests significant capital to develop a new augmented reality game and platform. Local health researchers are able to pick up this platform to further their research on mobility in older Australians.
 
Mighty Kingdom
Mighty Kingdom has created games for some of the world’s leading toy and entertainment giants, including Disney, LEGO, Australian Red Cross, Sony, Funcom, Rogue, and Snapchat. The South Australian company employs 120 people.  The company successfully listed on the Australian Securities Exchange in 2021 and is one of few Australian-based games companies listed. Mighty Kingdom operates in the global gaming market,which is forecast to reach US$200 billion by 2023. The company also actively supports Adelaide’s games ecosystem, building skills and attracting local and international investors.
 
House House

Made by House House, an independent studio based in Melbourne, Victoria, Untitled Goose Game was arguably the world’s most talked-about video game in 2020, selling over a million copies in its first three months and winning a suite of major international awards including DICE Game of the Year and BAFTA Award for Best Family Game.

 

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Digital Games Tax Offset

Top made games in Australia

Australian-made games include:

 

 

 

Latest News

22 March 2022 – Government proposes digital games tax offset

A tax credit for digital games has been proposed in draft legislation that has been made available for public comment. New digital game developers would need to spend at least $500,000 on development. This does not imply that any digital game or extension of an existing one will be eligible.

The draft legislation calls for a digital tax offset to go into effect on July 1 of this year. There is a cap on the offset, so if any company has an offset total that is greater than $20 million, the offset will be capped.

Source

28 October 2021 – New incentive game changer for digital game creators

Queensland is taking its investment in the screen industry to the next level targeting the digital games industry and offering big incentives to create even more local jobs.

Premier Annastacia Palaszczuk announces new 15 per cent rebate for digital games projects. Widened incentives under the Post-Production, Digital and Visual Effects (PDV) now include digital games. Screen Queensland will launch a PDV placements program offering paid positions for newly qualified screen practitioners.

Source

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Digital Games Tax Offset

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