TAX NEWS - JUNE 2010

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British Columbia Tax: Can digital media tax credit make a difference?

The new British Columbia interactive digital media tax credit is now law. It remains to be seen if it can stop the industry bleeding when other Canadian provinces and other countries offer better tax deals.

"We have to monitor the progress and the competitiveness of our industry over the next year," said Howard Donaldson, vice-president of studio operations for Disney Interactive Studios and chairman of the eight-member B.C. Interactive Task Force that lobbied the provincial government for almost a year to get some kind of tax credit program established.

"Like any program, it's probably going to require some refinements. Maybe [the percentage] needs to be higher. But this is a very good first step," he added.

The British Columbia digital media tax credit, a new program which was passed by the provincial legislature Thursday and goes into effect Sept. 1, offers digital media companies a 17.5 per cent tax credit for B.C. labour, provided the product, which must be started after Aug. 31, has two of three components: text, sound and images.

That percentage pales when measured against other tax credits offered within Canada. Nova Scotia offers 50 per cent of labour and up to 25 per cent of total productions costs. Manitoba offers 40 per cent of labour, the same percentage as Ontario, which also offers 40 per cent of marketing and distribution costs. Quebec, B.C.'s main Canadian competitor, offers up to 37.5 per cent of labour.

There are already signs that the some of the big players in the video game industry are looking at doing more work in B.C., whose industry has seen layoffs and work going to eastern and central Canada.

"We recently [made] product development decisions affecting all the studios we operate and work with in Vancouver, and the impending incentive program played a central role in determining what and how large a presence we would have there in the next three years," said Brian Ward, Activision senior vice-president, worldwide studios. Activision owns Vancouver-based Radical Entertainment.

Ward, also a member of the task force, said it's desirable to work in B.C. because the talent pool and infrastructure are here, and it's a short flight from most of the major California-based video game publishers. He also said Vancouver is "one of the few development centres in the world where there are still several AA and AAA independent developers."

Ward said this is a key advantage, "First, it enables publishers like

Activision to work with new development talent that may become a part of the publisher studio portfolio," said Ward. "Second, it gives the developer community access to a broader base of possible projects. Third, several of the independents are owned or founded by successful serial entrepreneurs who, if acquired, will spin off again and found new companies, thus feeding and growing the ecosystem."

The task force, made up of executives from studios in Vancouver, formed last spring when the industry's workforce had shrunk by about one-quarter, and projects were going to Montreal rather than Vancouver. In the past year, it has met with the provincial government at least 10 times, and has issued an industry report and an economic impact study.

"We want to continue to be a digital media hub, because we have the talent and the infrastructure to do that, and in order to ensure that can continue we needed a tax credit program," said Donaldson. " We have a lot of trained professionals here that will be lured away if we're not competitive."

Colin Macrae, director of communications for Electronic Arts Canada, said the tax incentive "is an important step in putting B.C. back in the game."
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