Article updated as of 24 Jan 2024
As part of the Australian Government’s Digital Economy Strategy announced in the 2021-22 Federal Budget, the Digital Games Tax Offset (DGTO) measures have now been brought into effect. The intent of the DGTO is to promote the growth of the Australian digital games industry by providing a tax offset to incentivise eligible developers.
The DGTO applies to expenditures incurred on or after 1 July 2022. In this article, we’ll be taking a closer look at the DGTO, who is eligible to claim it, and how this tax offset can benefit your company.
What is the Digital Games Tax Offset?
Introduced as a part of the government’s drive to support digital innovation, the DGTO offers a significant incentive for game developers operating within Australia. Through this measure, eligible game developers can claim a refundable tax offset of 30% for qualifying Australian development expenditure, with a maximum cap of $20 million per year.
To qualify, developers need to meet certain expenditure thresholds, ensuring that a substantial portion of their game development activities and investments are based in Australia. This policy not only fosters growth in the digital games industry but also aims to position Australia as a competitive and attractive location for digital game development on the global stage.
Key eligibility criteria for the DGTO
To qualify for the Digital Games Tax Offset in Australia, there are several key conditions that businesses must satisfy:
- The taxpayer is an Australian company or a foreign company with a permanent establishment in Australia
- During the income year, the company completed a digital game, ported a digital game, or carried on ongoing development of a digital game
- The company incurs at least $500,000 of qualifying Australian development expenditure.
- The Arts Minister has issued one or more certificates to the company in respect of the digital game.
Eligible digital games
As a starting point, the business must be developing a ‘digital game’ which is defined as ‘a game in electronic form that can generate a display on a computer monitor, television screen, liquid crystal display or similar medium that allows for the playing of an interactive game’.
Further, the digital game must be made available to the public over the internet for entertainment or education purposes. However, the following types of games won’t be eligible for the DGTO:
- Games that substantially comprise of gambling activities
- Games refused classification under the Classification (Publications, Films and Computer Games) Act 1995
- Games primarily developed for industrial, corporate or institutional purposes
- Games primarily developed to advertise or promote a product, entity or service.
Certificates for the DGTO
To claim the DGTO in its tax return, the company must first apply to the Arts Minister for one or more of the following certificates:
- Completion certificate
- Porting certificate
- Ongoing development certificate.
A completion certificate is for the development of a new game that is first released for sale, or otherwise made available to the general public, during the income year.
A porting certificate is for the porting of a completed game onto a new platform. The game will be considered ported when it is first released for sale, or otherwise made available to the general public, during the income year on the new platform.
Ongoing development certificate
An ongoing development certificate is for activities undertaken during the income year in relation to the ongoing development of one or more completed digital games. These activities can include updating, expanding or improving a digital game such as the addition of new levels, maps, characters, vehicles or storylines, addressing bugs or porting the game to new platforms.
Companies must submit an application to the Arts Minister requesting one of the above certificates to be issued to the company. Details of the application form are yet to be released.
Qualifying Australian development expenditure
If the Arts Minister has issued the company with at least one of the above certificates in relation to an income year, then the company may be entitled to the DGTO provided it has incurred at least $500,000 of qualifying Australian development expenditure under that certificate.
The following table summarises what types of expenditure would be eligible or ineligible for the offset:
|Qualifying Australian Development Expenditure
|Direct employee game development costs (e.g. software developers, UX and game designers, artists and animators, musicians, writers)
|Incidental employee game development costs (e.g. social media managers, forum administrators and moderators)
|Independant contractors engaged in game development
|Subcontractors that are not natural persons
|Employees and contractors that are not Australian tax residents
|General business overheads
|User testing and collecting user data
|Sales, marketing and advertising
|Computer hardware or computer servers
|Finance costs (e.g. interest)
|Costs claimed under the R&D tax incentive and costs funded by other government grants
|Underlying game infrastructure
|Most related-party expenditure
|Work permits and visas
Timing of qualifying Australian development expenditure
The digital games tax offset applies to expenditure incurred on or after 1 July 2022.
Depending on which certificate the company applies for, the company may be eligible to claim expenditure across multiple income years.
For completion certificates and porting certificates, the company applies once for the certificate in the income year the game is completed or ported. However, the company can claim all qualifying Australian development expenditure in relation to that certificate across multiple income years prior to the game being completed or ported. For example, if the company applies for a completion certificate for the year ended 30 June 2024, the company can claim the DGTO on eligible expenditure from 1 July 2022 to 30 June 2024.
For ongoing development certificates, the company must apply for these each income year, meaning the company can only claim the eligible expenditure for that income year. However, unlike the other two certificates, the ongoing development certificate allows companies to:
- Claim ongoing development costs for games completed or ported before 1 July 2022 (with the eligible expenditure still being costs incurred after that date), and
- Claim ongoing development costs for multiple digital games (completion and portion certificates limit the expenditure to one digital game only).
How to claim the DGTO
If you believe your company is eligible for the Digital Games Tax Offset, here are the steps you can follow to claim the offset:
1. Determine eligibility:
- Ensure your company is primarily engaged in digital game development.
- Confirm that your project meets the qualifying Australian games eligibility criteria.
2. Track qualifying expenditure:
- Maintain accurate records of all development costs related to the game, including labour, software, and other directly attributable expenses.
3. Prepare financial statements:
- Ensure the company’s annual financial statements accurately reflect the qualifying expenditure for the digital game.
4. Submit the DGTO application:
- Prepare and submit the DGTO application detailing how the relevant eligibility criteria have been satisfied.
5. Lodge the company tax return:
- Include details of the qualifying expenditure in the company’s tax return.
- Claim the 30% refundable tax offset.
6. Audit preparedness:
- Be prepared for potential audits by keeping thorough and organised records of all claimed expenses and relevant project documentation.
Your next steps to claiming the DGTO
Given the DGTO is a tax measure that has a direct link with the Research and Development (R&D) Tax Incentive and other tax provisions, companies that are thinking of applying for this offset should obtain appropriate tax advice before making a claim.
For more information on the Digital Games Tax Offset, the R&D Tax Incentive or other government grants that may be available to you, contact your local William Buck advisor.