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Digital Media Tax Credit Regulations

made under Section 47A of the

Income Tax Act

R.S.N.S. 1989, c. 217

O.I.C. 2007-601 (November 21, 2007, effective July 1, 2007), N.S. Reg. 441/2007


Citation

1     These regulations may be cited as the Digital Media Tax Credit Regulations.


Definitions

2     (1)    In these regulations,

 

                (a)    “Act” means the Income Tax Act;

 

                (b)    “eligible employee” means an employee of an eligible corporation who

 

                         (i)     was resident in the Province on the last day of the calendar year immediately before the year in which their eligible salary was earned, and

 

                         (ii)    normally reports to a permanent establishment of the eligible corporation in the Province;

 

                (c)    “eligible remuneration” means remuneration that satisfies all the requirements in subsection 10(1);

 

                (d)    “government assistance” means assistance from a government or other public authority whether as a grant, subsidy, forgivable loan, deduction from tax, investment allowance or any other form of assistance, but does not include a tax credit under Section 47A of the Act;

 

                (e)    “interactive digital media product” means a combination of 1 or more application files and 1 or more data files, all in a digital format, that are integrated and are intended to be operated together with all of the following characteristics when they are being operated:

 

                         (i)     their primary purpose is to educate, inform or entertain the user,

 

                         (ii)    they achieve their primary purpose by presenting information in at least 2 of the following forms:

 

                                  (A)   text,

 

                                  (B)   sound,

 

                                  (C)    images,

 

                         (iii)   by interacting with them, the user can choose what information is to be presented and the form and sequence in which it is to be presented;

 

                (f)    “marketing and distribution expenditure” means an expenditure that meets the requirements of subsection 8(1).

 

       (2)    In Section 47A of the Act and these regulations, “eligible salaries” means salaries or wages that satisfy all the requirements in subsection 9(1).


Application for a tax credit certificate

3     An application for a tax credit certificate under subsection 47A(3) of the Act must be made no later than 30 months after the end of the taxation year in which expenditures for an eligible product were made, in a form acceptable to the Minister of Finance of the Province, or a person designated by the Minister of Finance of the Province, and must include all of the following:

 

                (a)    statements detailing the qualifying expenditures and total expenditures for the eligible product;

 

                (b)    proof that the eligible corporation is a legally valid, existing, taxable corporation with its corporate registration status in good standing;

 

                (c)    a list of eligible employees, including all of the following for each employee:

 

                         (i)     name,

 

                         (ii)    social insurance number,

 

                         (iii)   eligible salary,

 

                         (iv)   occupation,

 

                         (v)    residential address,

 

                         (vi)   location of the permanent establishment of the eligible corporation to which they normally report;

 

                (d)    for completed products, a copy of the eligible product, or for a website, a copy of all text, sound and image files comprising the website and the website address where the eligible product can be accessed;

 

                (e)    a list of dates and geographic locations for when and where the development of the eligible product took place;

 

                (f)    the name of the eligible product’s owner and any documentation and verification requested by the Minister of Finance of the Province, or a person designated by the Minister of Finance of the Province;

 

                (g)    a statement that the information contained in the application is true and correct, signed by an authorized officer of the eligible corporation;

 

                (h)    any information that the Minister of Finance of the Province, or a person designated by the Minister of Finance of the Province, requires to determine the eligible corporation’s compliance with the Act and these regulations.


Eligible corporation

4     A corporation must satisfy all of the following conditions to meet the definition of eligible corporation in clause 47A(1)(a) of the Act:

 

                (a)    the corporation must be incorporated under the laws of Canada or a province of Canada and must be a taxable Canadian corporation;

 

                (b)    the corporation must have a permanent establishment in the Province;

 

                (c)    the corporation must not be a prescribed labour-sponsored venture capital corporation as defined in the Income Tax Regulations made under the Income Tax Act (Canada).


Eligible product

5     A product must meet all of the following conditions to meet the definition of eligible product in clause 47A(1)(c) of the Act:

 

                (a)    the product must be an interactive digital media product;

 

                (b)    the product must not be used primarily

 

                         (i)     to present, promote or sell the products or services of a corporation or an organization, or

 

                         (ii)    for interpersonal communication;

 

                (c)    the product must not be a combination of application files and data files that is developed primarily for use as

 

                         (i)     operating system software, or

 

                         (ii)    application software;

 

                (d)    the product must not be capable of inciting hatred against an identifiable group, including a section of the public distinguished by colour, race, religion, sex, sexual orientation or ethnic origin;

 

                (e)    the product must not be a product whose dominant characteristic is the undue exploitation of sex;

 

                (f)    the product must not be pornographic in nature.


Qualifying expenditure

6     (1)    A qualifying expenditure for an eligible product developed by an eligible corporation must be the amount determined by adding together all of the following:

 

                (a)    eligible salaries;

 

                (b)    65% of eligible remuneration;

 

                (c)    marketing and distribution expenditures to a maximum of $100 000 per eligible product.

 

       (2)    An eligible expenditure in subsection 47A(6) must be determined the same as a qualifying expenditure.


Total expenditure

7     (1)    A total expenditure for an eligible product developed by an eligible corporation must be the amount determined by the following formula:

 

OEL + MDE - GA

 

in which

 

                OEL          is the total of all outlays, expenses, losses or replacements of capital incurred by the eligible corporation in the taxation year, except marketing and distribution expenditures, that are

 

                                         directly attributable to the production of an eligible product,

                                         paid to an arm’s length person or entity with a permanent establishment in the Province, and

                                         paid by the eligible corporation in the taxation year, or no later than 60 days after the end of the taxation year;

 

                MDE         is the total of all marketing and distribution expenditures, to a maximum of $100 000 per eligible product;

 

                GA            is the total value of government assistance.

 

       (2)    The total expenditure must not be an amount for which the eligible corporation may claim a tax credit under Section 41 or 47 of the Act.


Marketing and distribution expenditure

8     (1)    A marketing and distribution expenditure incurred by an eligible corporation is an expenditure that meets all of the following:

 

                (a)    the expenditure is directly attributable to advertising or promoting an eligible product or distributing an eligible product to customers or potential customers;

 

                (b)    the expenditure is incurred by the eligible corporation no earlier than 24 months before the eligible product is completed and no later than 12 months after the eligible product is completed;

 

                (c)    the expenditure is paid by the eligible corporation in the taxation year or no later than 60 days after the end of the taxation year;

 

                (d)    the expenditure is not directly related to processing an order for an eligible product from a consumer or shipping an eligible product to a consumer.

 

       (2)    For the purposes of subsection (1), a marketing and distribution expenditure incurred for the human consumption of food or beverages or the enjoyment of entertainment must be equal to 50% of the amount paid for the food, beverages or entertainment.


Eligible salaries

9     (1)    A salary or wage paid by an eligible corporation must meet all of the following requirements to be an eligible salary:

 

                (a)    the salary or wage must be paid to an eligible employee;

 

                (b)    the salary or wage must be reasonable in the circumstances;

 

                (c)    the salary or wage must be included in the cost of an eligible product and be directly attributable to the production of the eligible product;

 

                (d)    the salary or wage must be incurred by the eligible corporation in the taxation year, after June 30, 2007, and before January 1, 2013;

 

                (e)    the salary or wage must be paid by the eligible corporation in the taxation year or no later than 60 days after the end of the taxation year;

 

                (f)    the salary or wage must not include any amount determined by reference to profits or revenues;

 

                (g)    the salary or wage must not be an amount for which the eligible corporation may claim a tax credit under Section 41 or 47 of the Act.

 

       (2)    An eligible salary incurred by an eligible corporation in a taxation year, but not paid before the 61st day after the end of the taxation year, may be included in eligible salaries incurred by the eligible corporation in a subsequent taxation year if the eligible salary is paid no later than 60 days after the end of the subsequent taxation year.


Eligible remuneration

10   (1)    Remuneration paid by an eligible corporation must meet all of the following requirements to be eligible remuneration:

 

                (a)    the remuneration must be reasonable in the circumstances;

 

                (b)    the remuneration must be included in the cost of an eligible product and be directly attributable to the production of the eligible product;

 

                (c)    the remuneration must be incurred by the eligible corporation in the taxation year after June 30, 2007, and before January 1, 2013;

 

                (d)    the remuneration must be paid by the eligible corporation in the taxation year or no later than 60 days after the end of the taxation year;

 

                (e)    the remuneration must not be an amount for which the eligible corporation may claim a tax credit under Section 41 or 47 of the Act;

 

                (f)    the remuneration must not be a marketing and distribution expenditure;

 

                (g)    the remuneration must be paid to any of the following arm’s length persons or entities in the circumstances described:

 

                         (i)     an individual who is not an employee of the eligible corporation, for services rendered personally by the individual at a permanent establishment in the Province;

 

                         (ii)    the employees of an individual described in subclause (i), for services rendered personally at a permanent establishment in the Province, if the expenditure does not exceed the salaries or wages of those employees for personally rendering those services;

 

                         (iii)   a taxable Canadian corporation, for services rendered personally by an individual at a permanent establishment in the Province, if all the issued and outstanding shares of the capital stock of the taxable Canadian corporation are owned by the individual and the activities of the taxable Canadian corporation consist principally of providing the individual’s services;

 

                         (iv)   a taxable Canadian corporation, for services rendered personally by employees of the taxable Canadian corporation at a permanent establishment in the Province, if the expenditure does not exceed the salaries or wages of those employees for personally rendering those services;

 

                         (v)    a partnership that is carrying on business in Canada, for services rendered personally by any of the following at a permanent establishment in the Province:

 

                                  (A)   a member of the partnership,

 

                                  (B)   employees of the partnership, if the expenditure does not exceed the salaries or wages of those employees for personally rendering those services.

 

       (2)    Eligible remuneration incurred by an eligible corporation in a taxation year, but not paid before the 61st day after the end of the taxation year, may be included in eligible remuneration incurred by the eligible corporation in a subsequent taxation year if the eligible remuneration is paid no later than 60 days after the end of the subsequent taxation year.

 

       (3)    In clause (1)(g), “salaries or wages” does not include any amount determined by reference to profits or revenues.


Eligible geographic area of the Province

11   The area of the Province consisting of all of the Province except the area that is within 30 km driving distance of Halifax City Hall in the Halifax Regional Municipality is prescribed as an eligible geographic area of the Province for subsection 47A(2) of the Act.


Expenditure incurred in eligible geographic area of the Province

12   An eligible corporation must use all of the following criteria to determine when an expenditure has been incurred in an eligible geographic area of the Province for subsection 47A(2) of the Act:

 

                (a)    the eligible corporation must have a permanent establishment in the eligible geographic area of the Province;

 

                (b)    no less than 50% of eligible salaries for the eligible product must be paid to eligible employees who normally report to a permanent establishment of the eligible corporation in the eligible geographic area of the Province.


Revocation of tax certificate

13   The Minister of Finance of the Province, or a person designated by the Minister of Finance of the Province, may revoke a tax credit certificate issued to an eligible corporation if 1 or more of the following applies:

 

                (a)    in the opinion of the Minister of Finance of the Province, or a person designated by the Minister of Finance of the Province, the eligible corporation has not complied with any provision of the Act or these regulations;

 

                (b)    the eligible corporation has not completed an eligible product 36 months after beginning development of the eligible product.


Records kept by eligible corporation

14   (1)    An eligible corporation must keep records in the form required by the Minster of Finance of the Province, or a person designated by the Minister of Finance of the Province, and containing any information the Minister of Finance of the Province, or a person designated by the Minister of Finance of the Province, considers necessary to determine that the eligible corporation is complying with the Act and these regulations.

 

       (2)    An eligible corporation must keep the records at its head office, or at another place approved by the Minister of Finance of the Province, or a person designated by the Minister of Finance of the Province.