The Government is introducing a 30% Digital Games Tax Offset (DGTO) to promote the growth of the digital games development industry in Australia, from 1 July 2022.
The government’s “digital economy strategy” aims to make Australia a leading digital economy by 2030. The strategy calls out digital gaming (globally worth $250b), alongside fintech and regtech, as high potential sectors to drive this ambition.
In this regard, it appears that Government has followed some of the features of the R&D tax incentive, in making the DGTO refundable. In brief, how a tax offset generally operates is that expenditure becomes non-deductible and instead becomes a tax offset.
If the company has a tax liability, then the offset is applied against that liability. If there is no tax liability, then the offset comes back to the company as a refund. As the R&D tax incentive has demonstrated for many start-ups and pre-revenue companies, refundable tax offsets are very useful in helping projects continue, or indeed happen quicker.
There is no mention yet of turnover thresholds, so the value of the DGTO will depend on the corporate tax rate for the company (which will be 30% or 25% depending on the size). Clearly, it will be smaller companies and those with tax losses who will see the impact of refundable tax offset.
At this stage, there are few details on the eligibility criteria other than a minimum spend of $500,000 and that the DGTO will be available in the year when the qualifying expenditure has ceased on game. The game must not have a gambling element.
Details which have been flagged as part of stakeholder consultation include the definition of qualifying Australian games expenditure. Other questions which will also hopefully be addressed are:
- What is a game
- Clarification of what happens when games development does not start and finish in the same financial year
- Expectations related to record keeping
- Integrity measures associated with the program
