In Canada’s competitive gaming landscape, securing funding is crucial for sustainable growth. While equity financing is a common practice, many gaming companies are increasingly leveraging non-dilutive funding to maintain control over their business. Programs like Canada’s SR&ED tax incentive, combined with other multimedia grants and tax credits, provide substantial financial support without requiring companies to give up equity. This strategic use of multiple non-dilutive funding sources allows gaming companies to sustain operations, fuel innovation, and strengthen their position in the global market, making it an essential approach for long-term success.
Why SR&ED?
The Scientific Research and Experimental Development (SR&ED) Tax Incentive Program offers over $3 billion annually to companies engaged in research, development, and innovative activities within Canada. For gaming studios, SR&ED serves as a powerful tool to extend their financial resources, enabling them to reinvest in their projects and continue pushing the boundaries of game development.
However, it’s important to note that SR&ED does not provide initial financing for new studios. Instead, it acts as a financial buffer, allowing studios to recoup a portion of the eligible expenses. By reclaiming some of the costs associated with experimental development, innovation, and technological advancement, gaming companies can stretch their dollars further and allocate more funds toward their game projects. This reinvestment is crucial for maintaining a competitive edge in the rapidly evolving gaming industry, where continuous innovation is key to success.
SR&ED Eligibility and Misconceptions
A key distinction to understand is that SR&ED is not synonymous with R&D but is instead a specialized subset of it. While R&D covers a broad spectrum of innovative work, SR&ED specifically targets experimental development that involves addressing technological challenges that are not readily solvable through publicly available knowledge and doesn’t cover due diligence activities. For gaming companies, this often involves areas like processing power optimization, simulation improvements, concurrency handling, cross-platform game development, mobile gaming advancements, and multiplayer state synchronization.
Specific examples include efforts to boost frame rates, develop advanced physics simulations like smoke, fog, and rain, or overcome memory and framework limitations. These activities are vital for driving innovation and pushing the technical boundaries within the gaming sector.
In this light, there are several common misconceptions about what can be claimed under SR&ED, such as:
Quality Assurance (QA). While QA is often overlooked, it can be claimable under SR&ED, especially when it involves testing in support of the main eligible projects.
Psychological Research. Similarly to the above, psychological research activities that support the eligible game development activities can also be claimed.
Supervision Work. Not only hands-on work on the eligible projects can be claimed, but claimants are also entitled to claim first-line supervision work.
Meetings and Documentation. All time spent by employees in meetings, and documenting the projects can also be claimed.
Only Successful Projects are Eligible. It is a misconception that only successful projects are worth claiming. In fact, unsuccessful projects may be more eligible due to the iterations involved and the knowledge gained from the failures.
An R&D Department is Required to Claim SR&ED. An R&D department is not required to claim SR&ED. Since SR&ED is a subset of R&D, any work that addresses technological obstacles not readily solvable through publicly available knowledge can be eligible. This includes activities like cross-platform development, processing power optimization, and mobile game optimization, even if they are not typically categorized as R&D internally.
Digital Media Funds
Canada is home to several thriving gaming hubs, each supported by provincial programs that complement the federal SR&ED Tax Incentive Program. Key provinces like Quebec, Ontario, and British Columbia are at the forefront, offering additional tax credits and incentives that make them attractive destinations for game developers.
Since SR&ED does not provide initial financing for new studios. This is where provincial multimedia tax incentives come into play, offering crucial support to cover the early-stage costs that SR&ED might not address. Also, digital media funds normally cover big portions of the projects that are not eligible through SR&ED, such as Marketing, and UI/UX work.
Together, these programs provide a comprehensive financial framework that supports both the development and growth of gaming companies across Canada. The most popular Digital Media Funds related to videogame production are:
As a final remark, it is paramount to maintain contemporary evidence to successfully claim SR&ED credits and Digital Media Tax Credits. Documentation such as project logs, meeting notes, code repositories, and progress reports, provides concrete proof that the work conducted aligns with the program’s guidelines. This evidence not only substantiates the work performed but also ensures compliance during audits. By consistently documenting the activities, gaming studios can confidently support their claims, avoid potential disputes, and maximize the benefits they receive.
Hiring consultants is essential for maximizing claims under SR&ED and Digital Media Funds. Their expertise ensures that all eligible activities are accurately identified and documented, helping companies navigate the complex requirements and secure the full benefits available through these programs, and its grey areas.
