A mixture of text, audio, animation, and images can engage and amuse audiences, but beyond that, this special blend can also earn your clients a hefty tax credit. If your clients produce multimedia titles in Quebec, they may be able to claim a refundable credit worth about a third of their labour expenses. Here’s what you need to know to advise clients about this generous credit.
To claim the Production of Multimedia tax credit, corporations must be based in Quebec and focused on creating qualifying multimedia titles, such as video games, educational software, or training simulators. In particular, their multimedia productions must contain a large volume of three of the following four types of media:
Only corporations can claim this credit. If your client is an individual or a sole proprietor and you think their work might qualify, talk with your client about incorporating. That structural shift could help your client save money in the long run.
Which Expenses Qualify?
As indicated above, this credit is designed to offset labour expenses. The credit is intended encourage multimedia companies to set up shop in Quebec and to stimulate job growth in this industry. Because of that, workers must be based in Quebec for their expenses to qualify.
Your clients can claim salaries and wages paid to employees. They can also claim payments made to contractors who are not at arm’s length from the company. If they incur expenses from contractors at arm’s length from the production, they can only claim half those amounts.
To explain that distinction, imagine a freelance animator works daily with the production staff and contributes many essential ideas to the production. That person is not operating at arm’s length, and your client can probably include all those expenses when calculating this credit. On the other hand, if the production company hires some home-based freelance animators to create a couple of 2-D models, those individuals are likely to be considered to be working at arm’s length from the company, so only half of their payments can be included.
In all cases, the work must contribute to the completion of the project, and it can relate to anything from the production to the design stage and beyond. Examples of eligible labour activities include:
- Writing for the production
- Setting up the interactive structure
- Drafting systems architecture
- Developing the production for use online or through computer software
- Analyzing user interface to optimize the title
- Doing activities related to the user community
- Updating the title by adding content, creating new versions, optimizing the program for different infrastructure, and so on
To help your clients determine which activities are eligible, review the fact sheet issued by Investissement Quebec.
How to Calculate the Credit
As of 2018, the value of this refundable tax credit is worth up to 37.5%. For instance, if a client has $1 million in qualifying labour expenses, the credit is worth $375,000. However, this rate only applies to work in French, and the work must have been completed or contracted before June 5, 2014 and after March 26, 2015. The period between these two dates only merits a 30% credit for labour expenses.
For English multimedia titles, the credit is worth 30% for work falling before June 5, 2014 and after March 26, 2015. It’s only 24% for English-language work done in between those dates.
Regardless of language, vocational training titles don’t qualify for either of those credits. These types of multimedia productions can earn a 26.25% or a 21% credit. Again, the higher rate applies for work before June 5, 2014 or after March 26, 2015.
How to Claim This Credit
To get started, corporations have to obtain an initial qualification certificate from Investissement Quebec, and they also must apply for a production work certificate. If they want to claim the credit for multiple years, they need to renew the work certificate annually, but they only need the initial qualification once. Investissement Quebec reviews the type of work to make sure it qualifies under the multimedia rules. The agency needs to see a copy of the title before approving the tax credit, and it reserves the right to visit the work site.
Once your client has the certificate, you can help them apply for the credit when you file their tax return.
Can You Get Funding Early?
Investissement Quebec offers a way for your clients to access their credit early. Through refundable tax credit financing, your client can obtain 100% of the credit before filing a tax return. Then, they can use those funds to cover operational expenses. To qualify, the credit must be worth at least $20,000.
Once Revenu Quebec processes the tax return, the funds go back to to Investissement Quebec to cover the loan. There’s no interest or fees, and a loan guarantee program protects your client against losses. To find out more and apply, contact Investissment Quebec directly. Let your clients know about this multimedia production tax credit and help them apply, and consider guiding them toward an accounting system that makes it easier to track relevant expenses.