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A Snapshot: Digital Games Tax Offset

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On 21 March 2022, an Exposure Draft of the Digital Games Tax Offset (DGTO) was released.

The DGTO proposes to insert a new Division 378 into the Income Tax Assessment Act 1997 (Cth) that provides for a 30% refundable tax offset for eligible businesses that spend a minimum of $500,000 on qualifying Australian development expenditure related to the development of eligible games from 1 July 2022.

As part of the Government’s “Digital Economy Strategy”, the DGTO aims to strengthen the digital games industry, expand employment opportunities for digital and creative talent, enhance the industry’s international competitiveness, and make Australia an attractive place for international investment.

The DGTO is a timely introduction, given the critical acclaim that Australian digital games industry has recently gained including the multiple awards received for traditional games and as well as Australia’s growing blockchain game industry.

We have outlined the key elements of the Exposure Draft to access the refundable tax offset, below:

Eligibility
INDIVIDUAL
Example uses 2
Which businesses are eligible?

Companies that are Australian residents or foreign residents with a permanent establishment.

What games are eligible?

A digital game that is developed to be made available to the general public and is not an ineligible game. To be eligible, a digital game must be:

  • made available for use over the internet; or
  • primarily played through the internet; or
  • the game operates only when a player is connected to the internet.
What is an ineligible game?

A digital game is not eligible if it is:

  • a gambling service (within the meaning of the Interactive Gambling Act 2001) or substantially comprises gambling or gambling-like practices; or
  • a game containing elements that are likely to lead to the game being refused classification under the Classification (Publications, Films and Computer Games) Act 1995; or
  • a game that is primarily developed for industrial, corporate, or institutional purposes; or
  • a game that is primarily developed to advertise or promote a product or entity or service.

Interestingly, games with loot boxes which “expressly allow a player the ability to directly or indirectly purchase with real currency unknown virtual items determined by randomisation or chance and allow, within the game, for those items to be transferred or cashed out for real currency” will likely be deemed ineligible. 

What expenditure qualifies?

A minimum of $500,000 of qualifying Australian development expenditure that is incurred in relation to the development of the game and is not excluded expenditure.

Qualifying Australian development expenditure means:

  • an item of expenditure incurred for, or is reasonably attributable to, goods and services provided or acquired in Australia; and
  • must pass the relevance test.
  • An item of a company’s development expenditure on a digital game satisfies the relevance test if the item of expenditure:
    • is substantially attributable to developing the game—in full; and
    • is not substantially attributable to developing the game—to the extent that the expenditure is attributable to developing the game.
How will the tax offset be administered?

The company must apply for a certificate, stating the amount of expenditure on which the offset will be determined.

Amount of the refundable tax offset?

The amount of the refundable tax offset is 30 per cent of a company’s total qualifying Australian development expenditure as determined by the Arts Minister. If the amount of a company’s refundable tax offset exceeds $20 million, the company’s refundable tax offset is $20 million.

This Exposure Draft is open for industry consultation until 18 April 2022. For further information regarding the impacts of this proposed legislation, please contact us.

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