Ontario is again tinkering with its tax credit for video game developers, proposing a 35% break for companies that rack up at least $1 million in labor expenses per year. The proposed changes, part of a fall economic outlook tabled by Finance Minister Dwight Duncan, fall under the Ontario Interactive Digital Media Tax Credit which was reworked earlier this year – granting breaks of 35% and 40%, respectively, for service companies and those that develop their own products.

The latest changes would grant a 35% break on salaries and wages to developers that spend at least $1 million on labor in the province toward developing eligible games. A company would need to have at least 80% of its Ontario payroll or 90% of its annual revenues attributable to game development. The credit would be retroactive to March 27, 2009.

A company cannot ‘double dip’ or claim both tax breaks, notes Tracey Jennings of PricewaterhouseCoopers, though applicants could pursue other sources such as the Canada Media Fund or Ontario’s Next Generation of Jobs Fund.

Ontario has been reworking its incentives in a bid to keep up with Quebec and B.C. The same report notes that the province still intends to widen its Production Services Tax Credit, for film and TV producers, to include expenses such as equipment and studio rentals.

PwC has called for changes to the video game credit, and Jennings, who is head of its Canadian media and entertainment division, believes the new option will be a shot in the arm for the industry.

The original credit could only be claimed upon completion of a game – problematic, says Jennings, since that can sometimes take up to five years and because companies sometimes have to abandon projects in midstream.

‘Video games take a long time to develop… and access to capital is essential throughout the development cycle,’ she says.