Your clients in Ontario might be in luck. They may be eligible for a tax credit if they’re involved in animation activities. The Ontario Computer Animation and Special Effects Tax Credit extends a refundable credit to eligible entities doing eligible activities.
Which of Your Clients Are Eligible?
To receive the tax credit, your client has to get a certificate of eligibility from the Ontario Media Development Corporation. To get this certificate, it has to be incorporated in Canada, do computer animation or special effects work, and not be controlled by a corporation whose income is tax exempt. The work doesn’t include audio effects, credit rolls, subtitles, or in-camera effects. Specific examples of acceptable activities include designing, modeling, lighting, painting, or animating. Your client also can’t be receiving the Ontario Production Services Tax Credit.
First, You Have to Apply
Your client can’t claim the credit until it applies. To do so, it has to apply online with the Ontario Media Development Corporation. This is where it gets the certificate of eligibility. The certificate will list the estimated amount of tax credit. Your client will get only one certificate for all eligible products for the tax year.
We’re Eligible! Let’s Claim the Credit
If your client receives the certificate of eligibility, it needs to file the certificate with the T2 Corporate Income Tax Return. In addition, it also needs to fill out Schedule 554 (Ontario Computer Animation and Special Effects Tax Credits). Your client has to do this form for each of its eligible products.
What Expenditures Are Accepted?
This tax credit covers labour expenses. Your client has to spend money on salaries and wages directly attributable to computer animation and special effects. The money can be paid to individuals or other entities. Expenses paid within 60 days of the end of the tax year are also eligible. The expenditures can’t include anything for which your client has already received government funding.
How Much Can Your Client Get?
The refundable amount of tax has changed over the past few years. As of 2018, the credit is equal to 18% of the total amount of eligible labour expenses. If your client has eligible expenses paid between April 23, 2015, and Aug. 1, 2016, the rate of the credit is 20%. To receive this higher rate, your client has to meet a handful of criteria. There is currently no dollar limit.
Make Sure You Know About Fees
There are a few fees your client might be assessed during the application process. These include an administrative fee of 0.15% of eligible expenditures listed on the application. There is also a minimum fee of $500 per application, although the maximum fee is capped at $10,000. As of January 2017, an additional fixed filing fee of $100 for each application received more than 24 months after the year-end claim is also assessed.
Computer animators and special effects artists can rejoice. If you’re helping somebody in this profession, they might be eligible to have almost one-fifth of their labour expenses covered by the Canadian government. Give some thought to pursuing the Ontario Computer Animation and Special Effects Tax Credit to help your client recoup some of its money.