Income Tax Assessment Act 1997

CHAPTER 3 - SPECIALIST LIABILITY RULES  

PART 3-45 - RULES FOR PARTICULAR INDUSTRIES AND OCCUPATIONS  

Division 378 - Digital games (tax offset for Australian expenditure on digital games)  

Subdivision 378-B - Qualifying Australian development expenditure  

SECTION 378-35   Development expenditure  

378-35(1)    
A company ' s development expenditure on a *digital game is expenditure that the company incurs in, or in relation to, the development of the game.

Specific inclusions

378-35(2)    
Without limiting subsection (1) , the following expenditure of the company in relation to the *digital game is development expenditure on the game:

(a)    remuneration provided to persons (including independent contractors but excluding persons of a kind referred to in subsection (5) ) who perform work or services directly for the company that are attributable to the development of the game, including the following:

(i) project managers and artistic, creative and design directors;

(ii) game designers;

(iii) software developers and programmers;

(iv) engineers (including for audio, graphics, physics and software);

(v) user experience designers and testers;

(vi) behaviour analysts;

(vii) quality assurance testers;

(viii) writers;

(ix) artists, animators and performers (for music, voice and motion capture);

(x) songwriters, composers, musicians and sound designers;

(xi) persons performing roles that are broadly similar to those described in subparagraphs (i) to (x) ;

(b)    expenditure on research for the game;

(c)    expenditure on prototyping for the game;

(d)    expenditure on underlying game infrastructure (for example, game engines and anti-cheating controls);

(e)    expenditure on user testing, debugging and collecting user data for the game;

(f)    expenditure on updating the game;

(g)    expenditure on obtaining or maintaining a classification under the Classification (Publications, Films and Computer Games) Act 1995 ;

(h)    expenditure on adapting the game for use on particular platforms.

Specific exclusions

378-35(3)    
Despite subsections (1) and (2) , the following expenditure of the company in relation to the *digital game is not development expenditure on the game:

(a)    the company ' s general business overheads including, for example:

(i) expenditure incurred in relation to insurance, audit services, accounting services, human resources, recruitment services and legal services; and

(ii) expenditure on travel, accommodation, catering, entertaining or hospitality; and

(iii) expenditure on visas or work permits; and

(iv) expenditure incurred by way of, or in relation to, the financing of the game or company;

(b)    expenditure on, or in connection with, the following persons:

(i) employees and independent contractors whose roles are not related to, or are incidental and not directly attributable to, the development of the game (including for example, administrative employees, social media managers, sales and marketing professionals, community managers and forum administrators and moderators);

(ii) employees and independent contractors who were not Australian residents at the time the expenditure was incurred;

(c)    expenditure on the use of land or premises;

(d)    expenditure on computer hardware or servers, or the rights to access computer hardware or servers;

(e)    expenditure on acquiring or licensing software;

(f)    expenditure on marketing, advertising, publicity or promotion for the game or company;

(g)    expenditure on activities that are incidental to, but not directly attributable to, the development of the game (including, for example, expenditure on externally provided training, conferences, hiring equipment, release events and trade show demonstrations);

(h)    expenditure incurred to acquire copyright or a trade mark, or a licence in relation to copyright or a trade mark (other than in relation to acquiring a licence for employees or contractors);

(i)    expenditure on obtaining permission to use the image, likeness or name of a person or entity, or obtaining an endorsement by a person or entity;

(j)    expenditure on distributing the game;

(k)    expenditure on acquiring users for the game;

(l)    any expenditure claimed for the purposes of another *tax offset, including for the purposes of section 355-100 (tax offsets for R & D);

(m)    expenditure that gives rise to notional deductions for the purposes of section 355-205 (deductions for R & D expenditure);

(n)    expenditure funded directly or indirectly by:

(i) a Commonwealth grant or subsidy to which Australian businesses are generally eligible; or

(ii) a State or Territory grant or subsidy to which Australian business in that State or Territory are generally eligible.

Expenditure incurred in relation to another entity

378-35(4)    
Despite subsections (1) and (2) , the following expenditure of the company in relation to the *digital game is not development expenditure on the game:

(a)    expenditure on contracting another entity (the first contractor ) to perform work or services for the company where the first contractor contracts for another entity (the second contractor ) to perform the work or services and either:

(i) the second contractor is not a natural person (including an independent contractor); or

(ii) the second contractor contracts for another entity to perform the work or services;

(b)    expenditure incurred in relation to an entity that is an *associate of the company, other than an associate of a kind referred to in subsection (5) ;

(c)    expenditure incurred in connection with a transaction in which the company and another party to the transaction did not deal with each other at *arm ' s length.

Remuneration of influential employees

378-35(5)    
If a natural person (an influential employee ):

(a)    is an *associate of the company because of subparagraph 318(2)(d)(i) or (ii) of the Income Tax Assessment Act 1936 ; and

(b)    performs work or services directly for the company that are attributable to the development of the *digital game in an income year;

then, despite subsection (1) , only the first $65,000 of remuneration provided by the company to the influential employee for the income year is development expenditure on the digital game.

Note:

A minor voting interest is not sufficient for a person to be an associate of the company.

Decline in value not development expenditure

378-35(6)    
To avoid doubt, the decline in the value of a *depreciating asset is not development expenditure on a *digital game.