Digital games tax offset (DGTO) update

Luck favours the prepared in games developer tax relief scheme

Whether you’re an emerging indie studio or an established developer, the Australian Government’s Digital Games Tax Offset (DGTO) represents a major opportunity to support growth and innovation in your game development business.

DGTO is an Australian Government tax relief incentive that offsets costs associated with developing digital games for a potentially game-changing tax reduction. However, like so many things regarding tax, understanding the benefit and how to maximise your claim can be complex and nuanced. An inaccurate or incomplete application can lead to delays or even missed opportunities for a big tax refund, so it’s worth being prepared and setting yourself up for a streamlined application process.

Exploring common challenges with DGTO applications

At LDB, our team of specialist accountants and advisors has worked for years with scores of different games developers, helping them maximise the benefits of the DGTO while avoiding the common pitfalls that can arise during the application process. The DGTO landscape is not static, and we have written before about What you need to know for a successful DGTO application. In this next article, we provide an update on some key considerations for studios looking to secure support from the DGTO today.

Among the many DGTO applications we’ve helped to prepare or review recently, we’ve identified several recurring challenges, some of which can cause issues with obtaining the correct tax relief. Insights from this analysis can help you to ensure your submission is accurate and compliant, so you receive the benefit you’re entitled to.

1. Accurate activity logs and timesheets

One of the key requirements for claiming the DGTO is accurately recording the time your employees spend on game development activities. However, ensuring that timesheets or activity logs directly correlate with the percentage of Qualifying Australian Development Expenditure (QADE) can be a tricky process.

For example, employees who are claimed to be working solely on the development of a game title need to demonstrate that no more than 10% of their time is spent on non-development activities. One solution for single project applicants is for employees to only log the time spent not developing the game. This method minimises unnecessary record-keeping but still provides the necessary data to calculate the correct percentage of time devoted to development.

If you’re looking for help with implementing streamlined timesheet systems that meet DGTO requirements while minimising disruption to your day-to-day operations, reach out and we can help.

2. Workcover claim calculations

Another common area of confusion involves calculating eligible Workcover expenses. We’ve seen multiple instances where studios incorrectly calculate these expenses, leading to inaccurate claim figures. All claims should exclude GST.

Workcover premiums should be calculated based on the total premium paid for the year, apportioned by the percentage of eligible QADE wages over total wages paid. If your studio operates across multiple states or has several titles in development, this can be a complex calculation requiring specialist assistance from qualified and experienced accountants.

3. Termination payments and payroll categories

Studios often mistakenly include components of termination payments in their DGTO applications. To avoid these errors, it’s essential to break down final payslips and determine which components are eligible as QADE.

Similarly, payroll categories like long service leave, bonuses, and back pay need to be clearly identified to ensure accurate claims. Getting expert advice on structuring payroll so it aligns with DGTO eligibility requirements can alleviate issues in your application and ensure you obtain maximum tax relief.

4. Influential employees and the $65,000 cap

The DGTO allows for a maximum of $65,000 per year in eligible QADE per influential employee, and this amount is inclusive of superannuation. Unfortunately, some applicants incorrectly assume that this limit applies only to base wages and attempt to claim superannuation on top of the $65,000. 

Influential employees are still required to provide timesheets or activity logs that support the time spent on game development. Simply being designated as an influential employee does not exempt them from this requirement. Ensuring timesheets and supporting documentation for influential employees are correctly prepared, can avoid issues that mean your claim is less than you anticipated.

5. Contractor relationships

When engaging contractors, it’s critical to ensure the correct entity is completing the work. Contractors who subcontract tasks to another entity may disqualify part of the claim, so it’s essential to be able to produce clear confirmation of the contractor relationship, including agreements that explicitly restrict subcontracting. Having your contractor structures and agreements reviewed by an experienced advisor can help you be confident that those costs will remain an eligible component of your DGTO tax refund.

6. Sensitive data and transparency in applications

Many studios have concerns about sharing sensitive data when submitting their DGTO applications. To protect their information, applicants often submit payroll reports and financial documents in PDF format or as protected Excel files. However, this practice can prevent the necessary transparency required for reviewing and tracing calculations, as assessors aren’t able to drill down into the calculations and ensure everything ties up.

Many studios need help ensuring that all required information is accessible for a thorough and accurate DGTO submission that balances confidentiality with compliance, but it can reduce the risk of rejected or delayed applications.

The value of working with LDB on your DGTO claim

As the games development industry in Australia continues to grow, so does the complexity of the financial support and tax offsets available. LDB’s deep expertise and experience in both the financial and games development sectors means we are uniquely positioned to help you navigate the complexities of the DGTO and other government funding for digital games businesses in Australia.

Whether you’re a startup studio looking to lay the groundwork for long-term success, or an established developer aiming to optimise your financial position to sell or even acquire, we offer comprehensive accounting and advisory services coupled with deep experience and knowledge of the games development industry, including:

• DGTO applications: Ensuring your submission is accurate, compliant, and maximises your claim
• Business structures: Helping you establish tax-efficient and resilient foundational structures
• Tax and compliance: Keeping you on top of your obligations and avoiding costly or time consuming errors
• Grants and R&D incentives: Identifying and securing available financial supports that could benefit your studio

With LDB as your partner, you can rest assured that your DGTO application will be handled by experts with extensive experience in both the accounting and games development fields. From optimising your timesheets and contractor relationships to ensuring compliance with payroll and Workcover calculations, we’re here to help you secure the financial support you deserve.

Let LDB be your trusted partner as you focus on what you do best—creating innovative games that push the industry forward. Reach out today by calling (03) 9875 2900 or filling out the contact form on this page, or learn more about how we help games development studios here.