On 1 July 2022, the Digital Games Tax Offset (DGTO) became available to Australian game developers – ushering in a new era for our nation’s burgeoning digital games industry. 

While still relatively small compared to our overseas counterparts, digital games are rapidly growing in both popularity and sophistication in Australia. They have emerged as a significant force in the tech sector which now ranks just behind mining and banking as one of our biggest industries. 

According to the Department of Foreign Affairs and Trade, the games industry was worth $240 billion globally in 2020 and is set to reach $294 billion in 2024. In 2021, it contributed $226.5 million in revenue in Australia of which 83% came from overseas markets.

The offset is one way the Australian Government aims to secure a bigger piece of the pie by encouraging more local investment from established and emerging games studios. 

Peter Xi, Partner in the Innovation and Incentives practice at RSM, says it’s no surprise Australia is making a big play in the global gaming market.

“We currently have more than 400 companies working on digital games nationally, and a great deal of talent will be needed to support new growth. As a way to close the gap, many games companies are already looking to entice people with transferrable skills from other tech sectors.

“Further, as recently stated in the Level Up! Guide by the Interactive Games and Entertainment Association, there is an ambition to triple the number of people working in the gaming industry in Australia within five years.”

Hang Zhang, Managing Partner at G23 (an industry leading games consultancy), is confident that the offset will encourage more international players to set up shop and utilise the resources we have here. 

“Gaming is a fun space to be in, and while we’re certainly not the biggest when compared to Asia and the US, we do have a strong pedigree of producing quality talent and games. Our time zone is another strength due to the global nature of the industry, as is our regulatory system which helps to protect against money laundering in games which is a big concern for studios.

“Few people realise just how big the global gaming industry is; it far outweighs music and film combined. So it’s exciting to see where this will go as Australia’s participation expands.”

The DGTO potential for gaming companies

Now enshrined in Australian tax law, the DGTO offers game developers a 30% refundable tax offset on their development expenditure when at least $500,000 is spent on eligible activities in a single year.  

Eligible activities include:

  • developing a new game
  • porting a game to a new platform
  • funding the ongoing development of a game, which is legislatively defined broadly and can include items such as maintenance, bug fixes and minor updates.

“This is one of the most generous tax offsets we’ve ever seen in Australia,” says Peter. “It sits on top of normal tax deductions, unlike other programs such as the R&D tax incentive. This means games developers can claim their usual tax offsets plus the DGTO. In addition, there are state-based grants and deductions which may apply and can add an even greater cash injection. 

“It’s a very powerful tool for encouraging more development here. But being tax law, it can be quite complex. There are certain steps companies need to take to ensure eligibility and be able to claim everything they’re entitled to.”

Hang adds that the DGTO is already making waves in the gaming community, with conversations currently centred around its practicality for various sized studios. 

“In our work we can see it has generated global interest, mostly in terms of international studios now looking to expand into Australia. It has also piqued the interest of tech companies and investors who might not have considered digital gaming but are now realising its vast potential.” 

Peter agrees, having attended numerous tech and gaming conferences over the past 12 months and spoken with their many global attendees.

“These are major companies in Asia and the US now looking to invest here and connect with Indi studios to identify collaborative opportunities. 

“We also spoke with those who are leading the DGTO charge and are now keen to understand how the tax is working practically and whether amendments are needed. Australia is not the first to introduce such an incentive, and with New Zealand planning their own we certainly won’t be the last. The race is on to make this count and quickly.”

Claiming the DGTO and maximising benefits from government incentives

While gaming companies are notorious for prioritising product development at the expense of other business operations, Hang urges leaders not to overlook what could be a very profitable incentive when done right. 

“Studios need a lot of support outside the creativity of development which is where we play. There are definitely challenges, and our team of industry veterans at G23 understand this. We assist with strategy and growth, and identifying ways to drive efficiency. The tax offset is something that could easily be overlooked by even the biggest gaming studios, despite its value. 

“When it comes to the smaller end of town, there are concerns that it will do little to support them given the criteria requires expenditure of at least $500,000 a year on development. The key is to think outside the box, and this is where working with advisers can really help.”

Peter also encourages smaller studios not to write off the DGTO’s potential, and to make efforts to understand the DGTO (and other programs such as the R&D tax incentive) which is something he sees happen time and time again. For example, during recent discussions with gaming businesses across Australia, one of the biggest and most alarming observations was how few games businesses even know about the R&D tax incentive – which can be a great way to boost cashflow prior to a game meeting the DGTO threshold. Alternatively, for smaller Indi studios, the R&D tax incentive can be an ongoing tool to support growth.

“We are frequently astounded by the number of companies that are eligible for tax incentives yet leave them on the table – usually because they have small internal finance teams who aren’t equipped to understand them or have had their accountant or advisor say it’s too hard to access.

“It is absolutely worth the time and money to engage a professional who can simplify offsets like R&D tax. The end result could be a solid cash injection which then allows the company to build bigger teams and spend more on development – in turn driving eligibility for other incentives such as the DGTO.”

Both G23 and RSM are working closely with gaming studios in Australia to ascertain their eligibility for the DGTO and the R&D tax incentive. RSM’s experienced tax advisers are also skilled in developing strategies to maximise its use alongside other tax incentives and grants while assisting with the claims process. 

“Finding the perfect balance with these tax incentives requires strategic thinking – it’s not as straight-forward as ‘did we get there or not?’,” says Peter. 

“We understand that games developers just want to focus on developing their games, but paying more attention to the operational and financial aspects of the business can really pay off. This includes assessing how the company is structured and whether it’s conducive to capital raising, asset and IP protection, and growth. It all counts towards creating a successful business that is genuinely positioned to capitalise on the enormous potential of this skyrocketing market.”

Thanks to G23 for their contribution to this article     



For More Information

For more information, please get in touch with Peter Xi or Hang Zhang

For further information about the Digital Games Tax Offsets read more here >>