The tax credits that helped turn Canada into a gaming powerhouse are now reaching a much broader range of companies.
Today, provincial Interactive Digital Media Tax Credits, or IDMTC, can apply to businesses developing everything from training simulators to immersive software platforms, reflecting just how much the definition of “digital media” has changed over the last two decades. Yet many tech companies still don’t realize they may qualify for valuable non-dilutive funding. That can mean leaving money on the table that could otherwise support product development, hiring, or future R&D.
“It’s the government wanting to reward you for investing in risky R&D.”
Stacked with the federal Scientific Research and Experimental Development (SR&ED) program, Canada’s primary R&D tax incentive, they can be even more powerful, offering one of the most direct paths for Canadian tech companies to extend their R&D runway without giving up equity.
“What’s great about IDMTC, similar to SR&ED, is that it’s a recoup on an investment you’ve already made,” said Paul Davenport, Head of Content at R&D tax credit platform Boast. “It’s the government wanting to reward you for investing in risky R&D.”
Casting a wider net
Today, qualifying activities for IDMTC span mobile, console, PC and VR games; educational software and e-learning platforms; edutainment projects for children; simulators and training applications; and interactive AR/VR/XR experiences. The common thread is that the product must educate, inform, or entertain.
Gaming, animation, television and film production companies are among the IDMTC’s primary candidates. But the credit increasingly reaches businesses that don’t see themselves as digital media at all, from manufacturing and healthcare to industrial companies using interactive tools like AR and VR for training, simulation, or process design.
“It’s casting a wider net,” said Davenport.
The widening scope of IDMTC comes as provinces look to keep digital innovation—and the jobs that come with it—close to home. In July 2025, for example, BC announced it was making its credit permanent and raising the rate from 17.5 percent to 25 percent, citing the sector’s contribution of more than $1 billion to provincial GDP and over 20,000 jobs. Ontario’s IDMTC refunds up to 40 percent of eligible expenditures for interactive digital media products created in the province.
Combined with the recent SR&ED enhancements that brought capital expenditures back into eligibility and doubled the enhanced refundable credit limit, Davenport sees Canadian R&D tax policy undergoing one of its most significant resets in years.
The catch is that the incentives span multiple programs, provinces, and qualification frameworks.
“There’s so much change right now, and so much opportunity,” he said. “But there’s a lot to absorb to understand where you fit.”
Where stacking gets strategic
For many companies, the biggest advantage comes from understanding how IDMTC and SR&ED can work together. But combining the programs also introduces another layer of complexity.
Davenport noted that companies can’t “double dip” on the same expenses. But they can route different types of work through different programs depending on the stage of development and the nature of the activity.
IDMTC, he said, is primarily a payroll-driven credit tied to salaries and wages connected to eligible activities such as design, artwork, animation, programming, project management and testing. In BC, qualifying labour expenditures must exceed $100,000 annually, and the eligible wages must be paid to BC-resident employees performing the work in the province.
SR&ED, by contrast, is broader and can apply to a wider range of R&D activities, including work involving materials, equipment, and manufacturing processes.
A digital media or interactive-tech company might claim IDMTC against its core development team, while routing more capital-intensive efforts through SR&ED. What works best for a company one year may look very different the next as products mature from research toward commercialization.
“It’s something you have to be really strategic about above and beyond the day-to-day of an in-house finance team,” said Davenport.
“You need to talk to experts to understand R&D tax credit strategy. It’s so nuanced, and it’s so specific.”
That’s the work Boast specializes in. Founded in BC, the company has been supporting IDMTC claims long before launching a dedicated product for the tax credit. That includes working with clients to determine how wages and expenditures may be allocated across programs, with software that flags potentially eligible work alongside tax and technical specialists who guide claim strategy.
“You need to talk to experts to understand R&D tax credit strategy. It’s so nuanced, and it’s so specific,” said Davenport.
He also cautioned companies against assuming every AI-related product will automatically qualify for credits.
“It’s very easy to hang your hat on an AI wrapper today. But that’s not going to get you any credits down the line.”
For Davenport, the key distinction is whether a company is tackling genuine technological uncertainty and building something net new, rather than simply layering existing AI tools into a product.
His advice is to start thinking about a non-dilutive funding strategy early. That means exploring grants and tax credits before any R&D begins, documenting technical work from day one, and bringing in tax-credit expertise before year-end filing season.
Without planning, he said, “You’re leaving money on the table every time.”
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Feature image courtesy Pexels. Image by ThisIsEngineering.