We often hear brief mentions of the tax benefits granted to videogame developers in Canada -- it's no coincidence that so many companies have opened up locations in Toronto and Montreal. A recent New York Times report on tax breaks for videogame developers prompted a decidedly negative piece on the subject from Canadian publication Maclean's. This in turn has led to a fairly in-depth piece from Capy's Nathan Vella explaining why these tax breaks are handed out and the positive effects they can have.
Capy is an independent developer located in Toronto that created both Critter Crunch (above) and the iOS hit Superbrothers: Sword & Sworcery EP (below). Vella was among the company's co-founders, and his extensive response to the Maclean's piece explains how tax breaks helped Capy to go from a work-for-hire developer that contributed to third-party projects it had no real say in to creating original games that it controls. In his words, "Tax incentives helped us take Capy from another faltering licensed game maker and turn it into something that I believe has real value in both the game industry, and in the provinces' economy."
Vella went so far as to have an economics expert break down the purpose of such incentives, which was provided in convenient bullet-point form. Essentially, providing a tax credit to a game developers leads to the firm expanding (i.e. hiring more skilled workers or creating its own content), which in turn leads to expanded output (or more employees) that the government can collect taxes on/from. That's in addition to the money that these new employees spend at local businesses, which can generate more money for the government. It's a simple way of looking at it, but it shows that the incentives aren't simply a way of handing out money without getting anything in return.
This is further shown by Vella as he explains the actual process for obtaining such incentives: "Tax incentives are not upfront monies. They are not cash dolled out directly into company accounts to reduce labour costs on the fly. To receive money via OIDMTC (Ontario's tax credit) you have to go through a long process which cannot start until you complete development of a title. Before the long process of receiving tax incentives can start, you have to pay salaries, rent, and even taxes. To be clear: you must spend your entire development budget before you can even apply. Further, after you apply, you wait in excess of a year before you receive your credit."
"The second much-needed clarification is that whenever the tax issue arises, everyone is quick to point to Ubisoft Toronto as some sort of tax vacuum lighting rod. 'They got $250m,' everyone shouts," he continued. "However, almost all of the people shouting have a strong tendency to ignore critical components of the deal. They tend to ignore the part where Ubisoft, in turn, is committed to investing $500m+ in the same time period. They blank on the impact 800+ new highly skilled jobs will have economically, socially, and culturally. They manage to gloss over the fact that the games being developed at Ubi TO involve one of Ubi's biggest franchises. They miss the influence that landing a giant like Ubisoft has in luring other companies, as Montreal has shown us time and time again.
"Perhaps most importantly, they also seem to forget (or not know) that Ubisoft's $250m has nothing to do with tax incentives whatsoever. The $250m was an investment directly from the province of Ontario -- something that's been done for almost every substantial industry in Canada (and the US) at one time or another. I will happily admit I am not in love with Ubi getting $250m, but although the distinction may not be huge, I still view government investment and tax incentives as separate issues altogether. So should an article written explicitly about tax incentives."
For those interested in this aspect of the business, which typically goes without being heard about much, you can read Vella's entire post here.
Source: http://www.1up.com/news/tax-incentives-videogame-developers-defense
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