As Australia’s gaming industry grows, developers would be wise to learn how tax requirements and incentives will shape their budding businesses.

The video games industry has become big business worldwide, with our local game development sector generating almost $120 million in profit annually, according to the Interactive Games & Entertainment Association.

While developers and designers might prefer to focus on their projects, it is important to understand the business, legal and tax landscape to take advantage of available incentives and avoid costly mistakes.

Here are some key points for game developers to consider once they are ready to start their own venture:

Decide on business structure

The first step is to decide what type of structure your business will take — a decision that will affect your eligibility for tax incentives and other parts of the business.

The most common option is a company structure, as it provides a flat rate of tax and offers increased protection for your personal assets. Companies can also access research and development (R&D) tax incentives.

It’s also worth considering an employee share scheme, which are popular with start-ups and help align staff interests with those of the business.

You should separate personal funds and company funds as well, and differentiate your role as an owner rather than an employee.

Get on top of taxes

There are a range of taxes and related responsibilities to be aware of when starting a business. You may need to register for any of the following:

• Tax File Number (TFN)
• Australian Business Number (ABN)
• Goods and Services Tax (GST)
• Pay As You Go (PAYG) Withholding
• Fringe Benefits Tax (FBT).

Also, keep tabs on what you spend on the business. You can claim tax deductions for most costs that you incur in running your business.

Tap into incentives

Game developers may be able to apply for government incentives and programs to help get their project off the ground.

In Australia, there is an R&D tax incentive available for companies. The R&D incentive will be a refundable offset for eligible entities with turnover of less than $20 million and a non-refundable offset for all other eligible entities.

Companies with less than $20 million turnover can claim a refundable tax offset for the costs of eligible research and development activities, meaning you can get cash back from the tax office even if you don’t pay any company tax. For companies earning more than $20 million any excess offset will be carried forward to future tax years.

This incentive requires a two-stage application process. The first stage is a technical written application which is to be submitted to the Department of Innovation and Science which will be reviewed and assessed for eligibility. The second stage is the financial claim which is done through your income tax return, and this stage is self-assessed. Given the relatively complex nature of this incentive, it is recommended to bring in someone with experience in this specialist area of taxation.

Your business may also qualify as an Early Stage Innovation Company (ESIC), which can provide tax benefits for early stage or angel investors.

There are also a variety of state and federal government grants that may apply to the game development industry such as Export Market Development Grants (EMDGs).

Get the right advice

Developing a game is hard enough without all the tax concerns that come with building a business.

If these issues are taking precious time and energy away from your creative endeavours, then why not bring in specialists with experience in the game development sector.

The team at LDB has worked with game developers and ESICs over the years, having supported their journeys from the start-up phase.

To find out how we can help, give us a call on (03) 9875 2900 or fill in the form below.