The world’s largest creative sector and one of the fastest-growing industries is the interactive entertainment and digital games sector. The $250 billion digital games market is estimated to have grown 22% in Australia between 2020 and 2021, bringing in $226.5 million and supporting over 1,300 full-time jobs. The government aims to boost this sector of the economy with a new tax offset.
The Digital Games Tax Offset is equal to 30% of the business’s total admissible Australian development costs spent as of July 1, 2022. Up to $20 million per firm (or group of companies) may be claimed annually; to achieve the ceiling, a company must spend approximately $66.7 million in qualified expenses.
In addition to the federal assistance, state-based tax benefits are also available in South Australia, Victoria, New South Wales, and Queensland, each of which offers an additional 10% and Queensland, 15%. The tax offset puts Australia back on par with other countries in the industry, where a 40% tax offset is the norm.
Who is eligible?
Companies that have a permanent establishment in Australia (and are foreign tax residents) or are Australian tax residents are eligible.
If a new digital game has been completed, a digital game is ported to a new platform, or one or more old digital games are still being developed during the income year, the company needs a certificate from the Arts Minister to access the offset. The offset claimed in the tax return is then determined by this certificate, with the amount of the qualifying expense being determined by the Minister. Early in July 2023, more details will be posted on the arts.gov.au website.
At least $500,000 must be spent by the company on Australian development, which may be spread out over several years.
What is development expenditure?
According to the guidelines, unless it is expressly stated otherwise, any expenses a company incurs in connection with the creation of the qualifying game are eligible expenses. A company creates a game by carrying out all tasks required to finish, port, update, enhance, or maintain an acceptable game.
The law goes one step further by expressly mentioning employee compensation or payments made to independent contractors hired by the company to work on the game’s development (apart from bonuses associated with the company’s or the game’s performance). Additionally, notably included are prototyping and the underlying game technology.
Employees who are not working on the game’s development, such as office employees or foreign contractors, are not included. Likewise, business expenses like marketing, administrative charges, and travel, entertainment etc are also not included.
What games are eligible?
A digital game that can be categorised and is made accessible to the general public online (games created for internal use do not qualify). Loot boxes are likely to render a game ineligible if, for instance, the virtual possessions can be sold for currency. Additionally, the game is neither utilised for advertising nor for commercial purposes.
Australian digital games successes
Do you recall Fruit Ninja? HalfBrick founded Fruit Ninja, which gained popularity in 2015 with more than 1 billion downloads. Who would have thought that a game where players use a sword to slice fruit would be so popular. Developed by Melbourne-based Hipster Whale, Crossy Road is familiar to anybody with children. It had 50 million downloads 90 days after its debut and made over $10 million. When Melbourne firms Iron Monkey and Firemint were acquired by EA Games, they combined to form The Sims Freeplay. Then there is Melbourne-based Big Ant Studios, one of the major sports game companies, which is best known for its planned Rugby World Cup 2023 game as well as games like Cricket 22 and the Tennis World Tour Game.
If you are in the gaming production business or want advice on the tax repercussions of game development, talk to the experts at MB Accounting and Business Services today. Our expert accountants are based in Ormeau and can help you set up your business to get the best tax return possible.