Digital Games Tax Offset

91 per cent of Australian households own a video game device. The average age of a video game player in Australia is 34 years old. Nearly half of those video game players are female. Older Australians also love to play, with 42 per cent of those aged 65 and over identifying as gamers. 5 May 2023 Interactive Games and Entertainment Association

The growth and popularity of gaming is not unique to Australia. In recent years, the global gaming industry has experienced a meteoric rise, captivating hundreds of millions of players worldwide and generating substantial investment and revenues.

Recognising the potential of this thriving sector, the Australian government has taken significant steps to foster the growth of its own gaming industry.

As David Yin, Managing Partner, G23 points out “The Australian Government recognises the potential value to the economy of the games development industry and has recently passed the Digital Games Tax Offset (“DGTO”). This is really exciting for the industry as it will accelerate investment and growth of both the traditional and emerging web 3 digital games sectors in Australia”.

“The government is trying to attract foreign investment too, and the Austrade publication “Level Up: A Guide to the Australian Games Industry” clearly articulates the growth of this sector”, he said.

“Additional government support in the form of the DGTO, on top of State Government support, will help an industry sector which already has 405 Australian based gaming companies, employs over 3,200 highly skilled people and generated income over $226 million in 2020/21. These positive moves by government will attract more international companies and greater investment in Australia”, Mr Yin said.

The DGTO is a financial incentive program that seeks to boost investment, development, and production of digital games within the country. In this article, we explore the DGTO and how it will have a positive impact on the gaming landscape in Australia.

“The DGTO is a government-funded tax incentive designed to encourage the investment in and creation of high-quality digital games in Australia” said Kevin Cranfield, Managing Director, Bentleys NSW.

Under this program, eligible companies (domestic or international, incorporated in Australia) engaged in the development of digital games can claim a tax offset of up to 30% of their Qualifying Australian Development Expenditure (QADE). The DGTO operates as a rebate, allowing qualifying game developers to claim a significant portion of their production costs as a tax offset against their total tax liability.

“There are qualifying criteria for companies to be eligible for the DGTO” said Mr Cranfield. “For example, a company must be primarily engaged in the development of digital games intended for commercial release and have incurred a minimum of A$500,000 in QADE per completed project or income year (with a maximum offset of A$20M per year)” he added.

“Qualifying expenditure includes costs associated with game design, programming, artwork, animation, audio production, and testing. It also encompasses the wages paid to Australian employees directly engaged in game development activities, as well as the fees paid to Australian contractors or service providers involved in the project”, Mr Cranfield said.

Mr Yin and Mr Cranfield were both in agreement that the DGTO will be a game-changer for the Australian gaming industry, providing a much-needed boost to local game developers and encouraging new players (domestic and international) to enter the market.

“By offering financial support and reducing the financial risks associated with game development, the tax offset will allow companies to allocate more resources towards innovation, creativity, and quality” Mr Yin added.

Supporting employment and economic growth

The growth of the digital games industry has a direct positive impact on employment opportunities within the sector. The DGTO will lead to an increase in job opportunities for developers, designers, animators, writers, and other professionals in the gaming industry. As studios expand their operations or new startups emerge, there will be a demand for skilled individuals to fill these positions, thereby contributing to the growth of the Australian job market.

Moreover, the DGTO will attract foreign investments in the Australian gaming industry, as overseas companies recognise the value of the incentives and seek to collaborate with local talent. Mr Cranfield outlined a couple of examples of how the DGTO might apply to companies of variable size.

DGTO example 1:

Income                                  $4,000,000
Less: QADE*                       ($1,500,000)
Less: Other Expenses            ($500,000)
Taxable Income                    $2,000,000
Tax at 25%                              $500,000
DGTO (30% of $1.5M)           ($450,000)
Tax Payable                              $50,000

DGTO example 2:

Income                                  $1,000,000
Less: QADE*                       ($1,500,000)
Less: Other Expenses            ($100,000)
Taxable Income                      ($600,000)
Tax at 25%                                        NIL
DGTO (30% of $1.5M)           ($450,000)
Tax Refund                             $450,000

*(QADE or Qualifying Expenses determined by the Arts Minister and specified in certificates issued to the company for the income year.)

The Digital Games Tax Offset will be a pivotal initiative in fostering the significant growth of the digital gaming industry within Australia. By offering financial incentives to game developers, the DGTO will boost creativity, innovation, and employment opportunities in the gaming sector. As the program continues to stimulate growth and attract investment, the Australian gaming industry is poised to make an even greater impact on the global stage.

The DGTO will be administered by the Office for the Arts and the Australian Taxation Office (ATO).

About g23 Advisors

g23 is a global gaming sector advisory firm that partners with gaming companies, brands and other industry participants to reveal, refine and execute on growth strategies. With our deep industry expertise, innovative thinking, and data-driven approach, we help clients tackle challenges and drive transformational opportunities. Our tailored solutions and comprehensive services span strategy, commercialisation, monetisation, transaction services, technology, operations, and more. g23.gg

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Disclaimer: This information is general in nature and should not be relied on as advice. It does not take into account the objectives, financial situation or needs of any particular person. You need to consider your financial situation and needs and seek professional advice before making any decisions based on this information.