Canada’s digital media sector is experiencing unprecedented growth, and much of this momentum is thanks to robust government support through targeted tax credits. For businesses operating in British Columbia and Ontario, provincial incentives like BC’s Interactive Digital Media Tax Credit (IDMTC) and Ontario’s Interactive Digital Media Tax Credit (OIDMTC) can unlock significant financial benefits. When these are paired with the federal Scientific Research and Experimental Development (SR&ED) tax credit, companies can create a powerful funding strategy-provided they navigate the complexities and avoid common pitfalls such as double-dipping.

British Columbia’s IDMTC is a cornerstone of the province’s support for digital media innovation. This refundable tax credit currently offers 17.5% back on eligible salaries and wages for corporations developing interactive digital media products designed to educate, inform, or entertain. In September 2025, this rate will increase to 25% for expenses incurred after August 31, 2025, as part of the province’s commitment to making the credit permanent. To qualify, a corporation must be incorporated in Canada and have a permanent establishment in BC. The business must spend at least $100,000 annually on eligible labor, prorated for short tax years, and must pass the “principal business test,” demonstrating that digital media development is a core activity. Eligible products include a wide range of interactive media, such as video games and educational apps, but exclude gambling platforms. Importantly, businesses cannot claim both the BC IDMTC and BC’s provincial SR&ED credit for the same expenses; companies must choose the incentive that offers the higher return for each dollar spent.

Ontario’s OIDMTC is even more generous and is considered one of the most attractive digital media incentives in North America. The OIDMTC offers a 40% refundable credit on labor and marketing costs for companies developing and marketing their own products, known as “non-specified” products. For fee-for-service projects, or “specified” products, the rate is 35%. Eligible costs include salaries, contractor fees, and up to $100,000 in marketing and distribution expenses per product. To qualify, a corporation must have a permanent establishment in Ontario, and the project must be designed to entertain or educate, often with a requirement for content to be aimed at children under 12 and to use at least two media formats, such as text, sound, and images. Unlike BC, Ontario allows companies to claim the federal SR&ED tax credit alongside the OIDMTC, as long as the same expenses are not claimed under both programs.

The real opportunity for digital media companies in both provinces lies in combining these provincial tax credits with the federal SR&ED program. While provincial SR&ED credits, such as BC’s 10% credit, cannot be stacked with IDMTCs, the federal SR&ED credit-up to 35% refundable for eligible Canadian-controlled private corporations-remains fully compatible. The key to maximizing both programs is to allocate expenses strategically. IDMTC or OIDMTC can be used for labor and marketing costs that do not qualify for SR&ED, such as UI/UX design or production tasks, while SR&ED should be reserved for technical work that advances scientific or technological knowledge, such as solving complex programming challenges or developing new algorithms.

To avoid overlap, companies must carefully track and document how employee time is spent. For example, if a developer spends 60% of their time on SR&ED-eligible experimental work and 40% on IDMTC-eligible production, the costs should be split accordingly. Detailed timesheets and project management records are essential to support these allocations. It is crucial never to claim the same dollar under both programs. In BC, the IDMTC explicitly prohibits overlap with the provincial SR&ED credit, while Ontario allows federal SR&ED and OIDMTC claims as long as expenses are distinct.

Ontario’s OIDMTC offers additional flexibility, as it permits claims for marketing expenses up to $100,000 per product, which are not eligible under SR&ED. This allows businesses to claim SR&ED for R&D labor and OIDMTC for non-R&D labor and marketing, further maximizing the benefits. Best practices for maximizing claims under these programs include maintaining meticulous documentation, tracking labor hours and project phases with as much granularity as possible, and using project management tools to separate R&D (SR&ED) and production (IDMTC or OIDMTC) tasks. Filing claims early and accurately is also important, as BC’s IDMTC claims must be filed within 18 months of the tax year-end, while SR&ED deadlines align with corporate tax filings. Consulting with experts early in the process is highly recommended, as programs like IDMTC require registration before filing claims, and advisors can help structure projects for optimal eligibility.

In practice, this means that a BC gaming studio developing an AI-driven educational app could claim a 35% SR&ED refund on salaries for solving AI integration challenges, and a 17.5% (or 25% after 2025) IDMTC on remaining labor for app design and testing. In Ontario, a VR startup could pair a 40% OIDMTC claim on marketing with a 35% SR&ED credit on R&D labor, dramatically lowering net costs and freeing up resources for further innovation.

Canada’s digital media tax credits are a goldmine for innovators, but navigating their rules demands precision and expertise. Missteps in cost allocation or documentation can lead to audits or denied claims, which is why it’s essential to have the right guidance. Fundomation’s experts specialize in untangling these programs and ensuring you claim every dollar you’re owed-legally and efficiently.

If you’re ready to supercharge your innovation funding and take your digital media projects to new heights, contact Fundomation today for a free consultation. Let us help you transform your creative vision into financial victories, one tax credit at a time.