INNOVATION and GROWTH in CANADA A Comprehensive Approach to Program Funding ONTARIO INTERACTIVE DIGITAL MEDIA TAX CREDIT (OIDMTC) BDO Special Advisory Services Foundations for Success Series Paul Boucher 25 March 2013 Page 1

BDO_Innovation and Growth_2013 Page 1 BIOGRAPHY PAUL D. BOUCHER ; B. Ind. Eng., P.Eng. Associate, Special Advisory Services Direct: Paul Boucher leads BDOs Special Advisory Services Manufacturing Industry Team and specializes in providing professional services assisting clients with a comprehensive approach to funding Innovation and Growth With a focus to maximize government grant and incentive opportunities for clients the teams primary expertise is related to the Scientific Research and Experimental Development (SR&ED) investment tax credit program for Canadian companies. With over 25 years of automotive industry experience in manufacturing, engineering, product & process design and development, and operations management Paul specializes in dealing with companies in a variety of industries. He has led projects in the developing alternative energy sector including electric vehicle research, waste to energy, as well as other sustainable wind and solar energy initiatives. He has acquired international project and operations management experience in Canada, Japan, Korea, United Kingdom, and the United States. As a manufacturing and innovation subject matter expert Paul has been a regular contributor to many industry events, publications, workshops, and national policy initiatives. Paul has been involved in the full range of Innovation and Growth funding services assisting clients with opportunity assessments, claim preparation and review, reporting system development & training, claim support services, identifying & managing risk, and providing technical industry expertise. Paul received a Bachelor of Industrial Engineering from General Motors Institute (now Kettering University) in Flint, Michigan and received his Professional Engineering designation in the province of Ontario. He is an avid golfer and tennis player and enjoys travelling and experiencing the great outdoors with family and friends.

OIDMTC Overview OIDMTC is a refundable tax credit intended to create eligible Interactive Digital Media products in Ontario Credit based on Ontario labour expenditures and eligible marketing and distribution expenditures NO limit on the amount of eligible labour expenditures which may qualify NO per project or annual corporate limits on the amount of OIDMTC which may be claimed Page 3

OIDMTC Page 4

OIDMTC In this presentation… Who is Eligible? What Products Qualify? -What is an Eligible Product? Non-Specified Products Specified Products Eligible Digital Games Developed by Qualifying Digital Game Corporation Eligible Digital Games Developed by Specialized Digital Game Corporation How much is the Credit? Qualifying Expenditures Administrative Process Documents Checklist Page 5

OIDMTC Who is Eligible? A Qualifying Corporation must: -Be a Canadian Corporation - Develop an eligible product at a permanent establishment in Ontario - Not be controlled directly or indirectly in any manner by tax exempt entities - Not be a prescribed labour-sponsored venture capital corporation A Corporation must be a qualifying small corporation if -Total assets at EOY <= $10 million AND Total Revenue <= $ 20 million Page 6

OIDMTC What Products Qualify? What is an eligible product? o Must be an interactive digital media product that Is a combination of application files and data files, all in a digital format, that are integrated and intended to be operated together and that have the following characteristics when they are being operated: Their Primary purpose is to educate, inform or entertain the user Present the information in at least two of the following forms: Text, Sound, and/or Image Used by individuals User can choose what information is to be presented and the form and sequence in which it is to be presented Page 7

OIDMTC What Products Qualify? (Cont...) What is an eligible product? o 90% Developed By: At least 90% of the product must be developed in Ontario by the Qualifying corporation Development in the digital media industry refers to the stages of production up to (but not including) product launch and may include: Concept development; AND Product design, planning, production and testing To be eligible, all stages of development must be undertaken by the qualifying corporation claiming the tax credit. Page 8

OIDMTC What Products Qualify? (Cont...) What is an eligible product? o New Policy on Streaming Content: Products that are made up of more than 50% of streaming video or audio content may be eligible for the OIDMTC as long as the user has the following: A choice of information to be presented; AND The sequence and form in which it is presented Example: There is more than one video clip or audio clip to choose from and/or there is other content that the user can access in the form of text or image included in the product Page 9

OIDMTC What Products Qualify? (Cont...) o NOT used primarily for interpersonal communication. o NOT used primarily to present or promote the qualifying corporation. o NOT used primarily to present, promote, or sell the products or services of the qualifying corporation Non-Specified Product: o Must be an eligible product and all or substantially all of the product was developed in Ontario by the qualifying corporation o The product MUST be developed for sale or licensing to one or more arms length parties who have NOT previously entered into an arrangement with the qualifying corporation for the development of the product. Page 10

OIDMTC What Products Qualify? (Cont...) Specified Product: o Is an interactive digital media product NOT used primarily for interpersonal communication o All or substantially all of the product is developed and completed in Ontario by the qualifying corporation after March 23, o Is not used primarily to present, or promote the qualifying corporation, or the purchaser. o Developed under terms of agreement: Is developed by the qualifying corporation under the terms of an agreement between the qualifying corporation and a purchaser that is a corporation that deals at arms length with the qualifying corporation AND Is developed under the agreement for the purpose of sale or license by the purchaser to one or more persons, each of whom deals at arms length with the purchaser. Page 11

OIDMTC What Products Qualify? (Cont...) Specified Product: o Fee-for-service types of work that are done in Ontario are eligible. o Products such as cellular telephones, software and social networking products which are used primarily for communication between people are NOT eligible o Products such as websites whose primary purpose is to present, promote, or sell a corporation or its products or services are NOT eligible for tax credit. Page 12

OIDMTC What Products Qualify? (Cont...) Eligible Digital Game Developed by a Qualifying Digital Game Corporation: o Must be an interactive digital media product. o Is a digital game in the opinion of Ontario Media Development Corporation (OMDC). o Is developed in whole or in part by the qualifying digital game corporation under the terms of an agreement between the qualifying digital game corporation and a purchaser that is a corporation. o Is developed for the purpose of sale or license by the purchaser to one or more persons, each of whom deals at arms length with the purchaser. o The qualifying labor expenditure incurred by the qualifying digital game corporation within any period of 36 months that ends in the taxation year is not less than $1 million. o The corporation has not previously claimed a OIDMTC in respect of eligible digital game Page 13

OIDMTC What Products Qualify? (Cont...) Eligible Digital Game Developed by a Qualifying Digital Game Corporation: o The product is not used primarily: For interpersonal communication To present or promote the qualifying digital game corporation, or the purchaser, or To present, promote or sell the products or services of the qualifying digital game corporation, or the purchaser o The product is one for which public financial support would not be contrary to public policy in the opinion of OMDC. Page 14

OIDMTC What Products Qualify? (Cont...) Eligible Digital Game Developed by a Specialized Digital Game Corporation: o The product is NOT used primarily: For interpersonal communication To present or promote the qualifying digital game corporation, or the purchaser, or To present, promote or sell the products or services of the qualifying digital game corporation, or the purchaser o The product is one for which public financial support would not be contrary to public policy in the opinion of OMDC. Page 15

OIDMTC What Products Qualify? (Cont...) Eligible Digital Game Developed by a Specialized Digital Game Corporation: o Qualifying corporation must incur $1 million in eligible Ontario Labor expenditures in respect of eligible digital activities directly attribute to the development of eligible digital games. o Applicants can aggregate the cost across eligible activities for multiple digital games to reach the minimum of $1 million in labor expenditures in the year. o A specialized digital game corporation must have either 80% of total salaries and wages paid for services rendered in Ontario, in the taxation year, that are directly attribute to the development of digital games OR o The corporations total gross revenue for the year that is directly attributable to the development of eligible digital games CANNOT be LESS than 90% of the corporations total gross revenue for the year. Page 16

OIDMTC Rates for Non-Specified and Specified Products Product Completion Date Prior to 24 March 2006 After 23 March 2006 & Prior to 26 March 2008 After 25 March 2008 & Prior to 27 March 2009 After 26 March 2009 Qualifying Small Corporation Rate Non-Specified Product20%30% 40% Specified ProductN/A20%25%35% Qualifying Corporation Rate Non-Specified ProductN/A20%25%40% Specified ProductN/A20%25%35% Page 17

OIDMTC Rates and Eligibility Periods Product Completion Date Prior to 24 March 2006 After 23 March 2006 & Prior to 26 March 2008 After 25 March 2008 & Prior to 27 March 2009 After 26 March 2009 Qualifying Wage Expenditure Non-Specified Product100% Specified ProductN/A100% Qualifying Remuneration Expenditure Non-Specified Product50% 100% Specified ProductN/A 100% Marketing & Distribution Expenditure (Non-Specified Products Only) Non-Specified Product100% to a maximum $100,000 per product Specified ProductN/A Labor Expenditure Period (*going back in time from…) *24 months from the beginning of the month in which the product was completed *25 months from the end of the month in which the product was completed *37 months from the end of the month in which the product was completed Marketing & Distribution Expenditure Period 24 months before OR 12 months after product completion Page 18

OIDMTC Eligible Labour Expenditure Breakdown Type of ProductPrior to March 27, 2009After March 26, 2009 Non-Specified Product Salaries and wages of employees at 100% Remuneration at 50%Remuneration at 100% Specified Product Salaries and wages of employees at 100% No RemunerationRemuneration at 100% Specified Product (Sec 93.1) N/A Salaries and wages of employees at 100% Remuneration at 100% *** Specified Product (Sec 93.2) N/A Salaries and wages of employees at 100% Remuneration at 100% *** *** Eligible Ontario labor expenditures under sections 93.1 and 93.2 DO NOT INCLUDE remuneration amounts paid to a taxable Canadian Corporation for the services rendered by that corporations employees. The eligible Ontario labor expenditures for specialized digital game corporations are further restricted and DO NOT INCLUDE any amounts incurred by a qualifying predecessor corporation. Page 19

OIDMTC Marketing & Distribution (M&D) Expenses o Only applicable for Non-Specified products o Qualifying expenditures include up to $100,000 of M&D expenses o Expenses can be included in the 24 months before OR in the 12 months after the completion of the product o M&D expenditures must meet ALL of the following conditions: directly attributable to advertising or promoting the eligible product or distributing the eligible product to customers or potential customers The expenditure is paid no later than 60 days after the end of the taxation year Page 20

OIDMTC Marketing & Distribution (M&D) Expenses (cont…) o M&D expenditures must meet ALL of the following conditions (cont…): directly attributable to advertising or promoting the eligible product or distributing the eligible product to customers or potential customers If the qualifying corporation sells the eligible product directly to a consumer of the eligible product, the expenditure is not directly related to processing an order by a consumer or shipping an eligible product to a consumer If the expenditure relates to an amount paid or payable for meals or entertainment, only 50%of the amount is included in the M&D expenditure incurred by a qualifying corporation in a taxation year. Page 21

OIDMTC Marketing & Distribution (M&D) Expenses (cont…) o Eligible M&D Expenses might include the cost of: Attending trade shows where the product is being promoted Consultant fees for PR and marketing/portion of wages and salaries of employee(s) attributable to specific product marketing and distribution Advertising the product in print and electronic media (including design and preparation) Preparing the product for display or demonstration Product market research/ focus group testing Product visual identity: logos, branding, merchandising/promotional products e.g. mugs, shirts In-store promotions (shelf space), product samples Direct Mail Marketing/Telemarketing Media kits/news releases (media lists) Page 22

OIDMTC Administrative Process o Issuance of Certificates of Eligibility (COE) OMDC is responsible for issuing COE COE sets out the following: The eligibility of an applicant corporation; The eligibility of applicant products; and Estimated amount of OIDMTC. o Filing a Corporate Tax Return To claim OIDMTC a corporation must file its Federal corporate tax return (T2) with Schedule T2SCH560 and the COE with the CRA. The amount of the credit may be reduced by any Ontario taxes owing by the qualifying corporation. Page 23

OIDMTC Administrative Process (Cont…) Applying for a Certificate of Eligibility Who Applies to the OMDC? - The qualifying corporation submits a completed OIDMTC application to the OMDC via the OMDC Online Application Portal for all eligible products for the corporations taxation year. Application Fee = 0.1% of the total final qualifying expenditure. Minimum fee is $100 and Maximum fee is $2,000. Page 24

OIDMTC Documents Checklist Incorporation document for the qualifying corporation, including amendments Corporate chart for qualifying corporation Consolidated annual financial statements of the qualifying corporation for the current tax year and preceding 3 tax years Documentation of ownership rights to the product, for e.g. licensing agreements, right agreements, domain name registration, fee-for service agreements, co-production agreements, distribution agreements, Documentation should clearly indicate ownership right to the completed product. Page 25

OIDMTC Documents Checklist (Cont…) Complete detailed production schedule and time line (i.e. Gantt Chart) Business and Marketing Plan including a description of the target audience/market or revenue model List of names and roles (with brief description)-Please include address Marketing and distribution expenses T-4 for other employees Page 26

Contact Information SR&ED & OIDMTC Paul Boucher, P.Eng Associate Special Advisory Services, SR&ED Manufacturing Industry Leader SR&ED & OIDMTC Roopesh Dash, MSA (Tax), MBA Tax Manager Special Advisory Services Page 27