Ontario budget introduces new tax relief and funding for interactive industry

Ontario’s interactive media industry – tagged as one of the province’s growth sectors – says the Ontario government is doing the right thing in providing a $100-million boost to tax credits, increasing funding to the Ontario Media Development Corporation and creating a new venture capital fund. The budget, released last week by Ontario Finance minister Dwight Duncan, has been described by Interactive Ontario, an organization with over 200 members, as offering ``some of the most competitive production and development environments for the creation of interactive media products and services anywhere in the world.`` “This budget can leave no doubt that Ontario is very serious about its digital future,” said Ian Kelso, president and CEO, Interactive Ontario, in a statement. “It is a tremendous boost to our competitive edge, and I have no doubt the world will notice.” Effective March 26, rates for the Ontario Interactive Digital Media Tax Credit (OIDMTC) have been increased from 30% to 40%, a move that is expected to strengthen production and marketing. Additionally, corporations that develop eligible products under a fee-for-service arrangement will see their rates upped to 35%, compared to 25% previously. “Not only will it be easier to market interactive projects, but the development support will give companies the freedom to incubate innovative, forward-thinking ideas and allow us to stay competitive in the global market,” said Mark Bishop, chair, Interactive Ontario board of governors and partner and executive producer, Marblemedia. Other budget highlights include the expansion of the OIDTC to enable corporations to claim 100% of money that is paid to contractors, chargeable to the salaries and wages of employees of the contractor. Media game developers will also benefit by having the OIDTC extended to cover labour costs incurred over a 36-month period for work done in Ontario. To be eligible, corporations must have incurred a minimum of $1 million in labour spending. In addition to proposing $100 million annually in tax relief, the 2009 budget also sets aside $30 million in investments for the entertainment and creative cluster. This is expected to strengthen tax support for the province`s interactive digital media products, enhance refundable tax credits for book publishing, create stability and predictability for film and television tax credits by making these credits permanent. The Ontario Media Development Corporation (OMDC), a provincial government agency that administers tax credits and supports Ontario`s creative industry, will also receive $20 million to help the industry be competitive domestically and internationally. Another $10 million from the OMDC will go to launch a pilot program for intellectual property development by companies in screen-based industries. The program will refund a portion of the costs incurred. Other budget highlights One of the biggest ticket items in the Ontario budget is the $250-million Emerging Technologies Fund (ETF). Announced March 19, the five-year fund marks the second time in a year that the government has provided a cash infusion into the sectors deemed the most promising for future economic growth, including digital media and information and communications technology. Under the ETF, the province will match private sector capital on dollar for dollar basis, and take on the same terms as its venture capital (VC) or angel partners. Last June, the province launched the $205-million Ontario Venture Capital Fund (OVCF) which included $90 million in public funds. If all funds are invested from both funds, nearly $750 million in new investment will flow into the tech sector, helping to offset the current scarcity of risk capital and counteracting some of the worst effects of the recession. ”The funds address pressing issues in venture capital and attract interest globally in our ideas,” says John Wilkinson, Ontario’s minister of Research and Innovation, adding that the aim is to make initial investments within three months. “The ETF is a quick response to a pressing need. We want to commercialize inventions in the province and find success here to benefit our economy. The key is market-based solutions to a problem we have now with VC.” Over the past year, VC in Ontario and Canada has effectively collapsed, stranding early-stage firms in what has been characterized as a tragedy in the making. The hope is that co-investment between the public and private sectors will encourage greater risk taking by Canadian funds at the earlier stages of company formation, ensuring that the intellectual property remains in the country. "MRI will get arm's length advice from qualified investors," says Wilkinson. "There will be limits (on the size of investments) but that has to be determined. I expect the maximum deal size will recognize the nature of early stage deals." Quebec creates new funding for start-ups Quebec is also introducing new measures to salvage early-stage tech-based from the severe drought in venture capital. Its March 19 budget includes $825 million to help capitalize sector-based VC funds and $125 million to create three new funds for seed and start-up companies. For the seed fund, Investissement Québec is contributing $50 million to be matched by funds from "tax-assisted funds". The private sector will be required to provide $25 million, with each fund receiving $42 million. No details on the focus of the seed funds were provided. The budget also introduced a 10-year tax holiday for firms that are created to commercialize intellectual property emanating from Quebec-based universities and public research centres. The rationale is to keep the benefits of publicly funded research in the province and help build firms to the point where they are more attractive to private financing. Further impetus for creating the tax holiday is to match Ontario, which last year introduced a nearly identical measure. In other budget news, Saskatchewan announced last week a major change to the Saskatchewan Research and Development Tax Credit. The 15% tax credit — a complement to the federal scientific research and experimental development (SR&ED) tax credit program — is being converted from refundable to fully refundable, adding $6 million to its $12-million annual cost. The change provides a boost to R&D intensive companies that have not reached a revenue-positive stage. Calls for the federal government to enact a similar conversion for SR&ED have not been successful to date. The provincial tax credit for labour-sponsored venture capital corporations will also be increased to match those of other provinces. With files from Mark Henderson

Ontario budget introduces new tax relief and funding for interactive industry

News | 03/30/2009 7:45 pm EDT

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