Details of govt’s digital games tax offset scheme revealed

Joseph Brookes
Senior Reporter

The federal government has unveiled draft legislation for its video game development tax offset scheme, revealing that the Arts minister will determine the eligibility of a company’s expenditure for the potential 30 per cent tax rebate.

The long-awaited details show that the rebates will be capped at $20 million and will be available only for direct development, porting or ongoing development costs, with the indirect costs of running a studio explicitly excluded.

Consultation on the government’s plan is open for less than a month, with the scheme set to begin from July.

The information comes as the local sector calls on the government to accelerate the required legislation, and pushes for more support for early-stage developers and changes to the skilled migration system in the upcoming election.

Paul Fletcher
Communications and Arts minister Paul Fletcher

The Digital Games Tax Offset (DGTO) was announced in the lead up to last year’s budget as part of the government’s Digital Economy Plan.

The government announced Australian companies or global game developers with a permanent local presence could apply for 30 per cent tax rebates on eligible expenditure of at least $500,000 from July 2022.

Draft legislation released Monday for consultation reveals critical details of the scheme, including that the government intends to make the Arts minister responsible for determining what is eligible under a certificate system.

To get the 30 per cent rebates, developers will need to apply for one of three certificates. A completion certificate may be issued for the development of new games, while porting and ongoing development certificates will also be available.

According to an exposure draft explanatory statement released Monday, the minister will apply a “general test” to determine if the expenditure is incurred during the development of a game.

“A company develops a game by doing any of the activities necessary to complete, port, expand or improve an eligible game,” the explanatory statement says.

But there are also specific inclusions and exclusions listed in the draft legislation.

Specific inclusions include employee and direct contractor developers’ remuneration, game research, prototyping, user testing, game update and porting expenditure, and costs incurred in obtaining or maintaining classification.

Specific exclusions include subcontracting, general business overheads, non-developer staff, hardware, land or premises, copyright acquisition, distribution costs, and expenditure on visas and work permits, among others.

Expenditure considered incidental to development like social media managers, sales and marketing professionals, forum admins and moderators are also excluded.

For a company to be entitled to the digital games tax offset for a game, the Arts Minister must have issued a certificate for the game.

Completion certificates are available for the development of new games and are issued only when the game is complete and released to the public, with the tax offset to be claimed in that income year. However, previous years’ expenditure for the same game can also be claimed on the completion certificate.

Porting certificates are available for expenditure to port a complete game to another platform, and are again only provided when porting is complete, with companies then able to claim the previous year’s eligible porting expenditure.

Ongoing development certificates are available for updates and expansions and can be used for one or more games, unlike the other two certificates. Also unlike the other certificates, ongoing development certificates only allow the company can to claim qualifying Australian development expenditure in the income year it was incurred.

“Ongoing development means activities undertaken to update, expand or improve a digital game that has already been completed,” the explanatory note says.

“This development activity can include the addition of new levels, maps, characters, vehicles, storylines, cosmetic items, addressing ‘bugs’ or porting to new platforms.”

The minister will determine the expense eligibility and must also provide reasons for rejecting certificate applications or revoking them, with the latter allowed for issues like fraud or misrepresentation.

These decisions are reviewable by the Administrative Appeals Tribunal.

Games refused classification or unlikely to receive it, or games which contain gambling elements are ineligible. This will include games that “substantially comprise, have reliance on, or give prominence to, certain types of ‘loot boxes’”.

On Monday, industry group the Interactive Games and Entertainment Association (IGEA) also released its election policy platform.

Prioritising legislation for the DGTO was its top demand, followed by a call to establish a new long-term Game Development Fund for early stage developers, and for the government to review Australia’s skilled migration system so that it “remains fit-for-purpose and agile”.

“Our whole industry has been eagerly awaiting the implementation of the Digital Games Tax Offset since its announcement in last year’s Budget, from highly talented local studios pulling together budgets for their ambitious next project, to global video game companies finalising their proposed investment plans for Australia,” IGEA chief executive Ron Curry said.

“To complement the tax offset, we also need a long-term commitment to direct funding to support the more early-stage games studios looking to scale their businesses and deliver creative projects.”

Mr Curry said a thriving game development sector presented “huge economic potential” but more needs to be done to improve access to skilled employees.

“Our migration settings should be updated, flexible and welcoming for the specialised employees that are needed,” he said.

The proposed DGTO will be implemented through amendments to the Income Tax Assessment Act 1997 (ITAA97) through the creation of a new division. Treasury is currently seeking feedback on the draft legislation, with submissions closing April 18.

Do you know more? Contact James Riley via Email.

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