The outlook for the Australian games industry has become brighter with the introduction of the Digital Games Tax Offset (DGTO) in the Australian Government’s 2021 Budget.
The DGTO is squarely aimed at attracting both local and foreign investment, and some State Governments have already shown renewed interest in encouraging the industry.
The incentive follows intensive lobbying by stakeholders including the Interactive Games & Entertainment Association (IGEA) and even the formation of a bipartisan Parliamentary Friends of Video Games group.1
What do we know so far?
Information available at this time is limited, but we know that the DGTO will ‘provide eligible game developers with a 30 per cent refundable tax offset for qualifying Australian games expenditure’ and apply from 1 July 2022.
It will also be:
• limited to games on which at least $500,000 of qualifying expenditure has been spent
• capped at $20 million in claims per annum;
• available to Australian resident companies or foreign resident companies with a permanent establishment in Australia; and
• ‘available in the year when the qualifying expenditure has ceased on a game’.
The exact details of the eligibility criteria and ‘qualifying Australian games expenditure’ will be determined through a process of stakeholder consultation.
The DGTO will not be available in relation to games that ‘have gambling elements’. Exactly what ‘gambling elements’ cover is yet to be seen. Australian Government reports over the past few years have noted that common game mechanisms such as loot boxes ‘resemble’ gambling and have expressed concerns.2
What does it mean for Australian businesses?
Australian resident companies will be able to access the DGTO. However, many Australian studios are currently smaller operations and may not meet the minimum $500,000 qualifying expenditure.
There may be a movement towards studios combining or working together to meet the threshold.
Local developers may also benefit from investment by overseas businesses.
What does it mean for overseas businesses?
Foreign resident companies will be required to establish local offices in Australia to access the DGTO.
The Australian Government has made it clear that the DGTO is aimed at encouraging foreign investment by giving this type of venture as an example on its Digital Economy website.3 There is a clear emphasis on the utilisation of existing Australian talent and the transferrable nature of their digital capabilities to other Australian sectors.
The Australian Trade and Investment Commission has made a point of mentioning, in connection with the DGTO announcement, that ‘the Government is also planning to review tax incentives designed to attract foreign investment and encourage venture capitalists to invest in early-stage Australian companies’.4
What does it mean for game funding?
The new offset brings video game development in line with the Post, Digital and Visual Effects (PDV) offset, which provides a thirty percent rebate on Qualifying Australian Production Expenditure (QAPE) incurred in post-production, digital and visual effects. Similar incentives also apply to the primary production of films and television.
In other screen industries, producers often use these rebates to extend the budgets for their products. While the uncertain commercial returns of creative industries could easily render them too risky for loan financing, this is not the case for loans up to the offset amount, as this is guaranteed to be recouped. Some State Government film financing bodies, including Screen Queensland and the South Australian Film Corporation, even have schemes whereby they will act as lender against relevant offsets. These ‘Revolving Film Funds’ allow these bodies to stimulate investment in their State by continually re-investing the same set of funds.
It remains to be seen whether similar arrangements will arise for lending to video game projects, but certainly the options for financing development are only likely to increase over time with this new incentive.
Other incentives continue to be available to Australian games businesses, including the Research and Development Tax Incentive, and expressly targeted funding schemes in States including Queensland, South Australia, Victoria, Tasmania, as well as the Australian Capital Territory.
As we discussed previously, the South Australian Government has an existing programme to offer a further ten percent rebate on top of the PDV Offset, and last year extended that to video game industry. The State’s Department for Trade and Investment is already promoting the State’s advantage with this applying alongside the Federal Government’s new offset.
The Victorian Government also launched its new VICSCREEN strategy shortly after the Budget announcement, including more funding, incentives and programs targeted at the games sector.5
The IGEA’s Government Incentives for Game Developers in Australia provides information on a wide range of other Federal and State incentives, funds and schemes.6
HWL Ebsworth’s team of experts can advise game developers, publishers and investors on navigating the Digital Games Tax Offset as further information is publicly released, including in respect of:
• taxation implications and structuring of Australian resident or foreign resident companies;
• funding arrangements; and
• intellectual property protection.
Please contact us to find out more.
This article was written by Michael Boughey, Partner, Johnny Ho, Partner and Daniel Kiley, Special Counsel.
 Most recently in the Protecting the age of innocence – Report of the inquiry into age verification for online wagering and online pornography – https://parlinfo.aph.gov.au/parlInfo/download/committees/reportrep/024436/toc_pdf/Protectingtheageofinnocence.pdf;fileType=application%2Fpdf
 Digital Economy Strategy fact sheet: Investment Incentives https://digitaleconomy.pmc.gov.au/fact-sheets/investment-incentives
 Australian Trade and Investment Commission: Game on with new tax rebate for developers https://www.austrade.gov.au/international/invest/investor-updates/2021/game-on-with-new-tax-rebate-for-developers
 Creative Victoria: Introducing VICSCREEN – Victoria’s Screen Industry Strategy 2021-2025 https://creative.vic.gov.au/news/2021/introducing-vicscreen-victorias-screen-industry-strategy-2021-2025
 IGEA: Government Incentives for Game Developers in Australia https://igea.net/wp-content/uploads/2020/03/Government-Incentives-for-Game-Developers-in-Australia-200324.pdf