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The Girard budget could change ;figure the video game industry | Quebec Budget 2024

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On its own, the French company Ubisoft employs a third of the workers in the Quebec video game industry.

  • Stéphanie Dupuis (View profile)Stéphanie Dupuis

Video game studios in Quebec, particularly small ones, will have to tighten up belt in the coming years with the new budget of François Legault's government, which revises downward tax credits for this sector.

Since the 1990s, the video game industry has experienced great growth in the province thanks, among other things, to generous tax credits.

In particular, it receives financial assistance of 7.5% – offer unchanged in the new budget – in order to produce video games in the Tremblay language.

Another credit, that for the production of multimedia titles (CTMM), is used to support jobs. The Ministry of Finance plans to reduce the CTMM credit from 30% to 20% over the next four years.

The 10% gap will now be non-refundable, meaning that businesses will have to pay taxes in Quebec to benefit from it and those that don't are not profitable will see their aid reduced

Quebec Budget 2024

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Quebec Budget 2024

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Same scenario for another credit: that for the development of e-business (CDAE).

The industry receives a 30% tax credit and the non-refundable portion of this will gradually increase from 6% to 10% by 2028.

The concern we currently have is that in the medium term, between 2025 and 2028, these changes will affect businesses that the government did not want to touch, that is to say small studios , says Jean-Jacques Hermans, director of the Quebec Video Game Guild.

For a studio that received $300,000 in tax credits in 2024, that would mean a 56% reduction in money available to reinvest in salaries in 2028, according to our preliminary estimates.

A quote by Jean-Jacques Hermans, director of the Quebec Video Game Guild

Sabotage (Sea of ​​Stars), Thunder Lotus Games (Spiritfarer), Red Barrels (Outlast), KO OP (Goodbye Volcano High) are all small independent studios that have enjoyed international success in recent years and have sold millions of copies of their games.

If the government had made similar decisions five or six years ago, these studios would no longer be there, says the director of the Guild, whose 228 of the 330 members are studios of 10 people or less.

As for the large video game studios, which represent 9,000 to 10,000 of the approximately 14,500 workers in the industry in Quebec, the effect of the new budget will be felt, but to a lesser extent.

Based on preliminary calculations by the Guild, this will represent 13-15% less money available to reinvest in their studio in 2028.

Large companies will also be the only ones able to benefit from the removal of the salary cap, previously set at $100,000 by the CTMM, a new measure announced in Minister Eric Girard's budget.

According to Thomas Burelli, professor in the civil law department at the University of Ottawa, the Legault government instead wanted to target these large companies with its new measures.

There are 15 video game companies in Quebec which receive 75% of the value of the multimedia credit (CTMM). And they are not controlled from Quebec, insists the video game law specialist, citing 2019 data published in a report from the University of Sherbrooke.

It works, but does it really affect Quebec? These are companies that don't pay taxes in the province, and that costs money.

A quote from Thomas Burelli, law professor

According to this same report, in 2019, the majority of companies benefiting from the CTMM (120 out of 196) had not paid taxes in Quebec.

According to Thomas Burelli, it would be difficult for the government to justify a status quo on these tax credits in a context of full employment and a labor shortage. This credit was implemented in a context of 10% unemployment rate, he recalls.

The video game industry is experiencing difficult years, accumulating several layoffs, particularly due to the post-pandemic and inflationary context.

As for Quebec studios, it is mainly those owned by large international companies that have suffered significant cuts. Eidos-Montréal, owned by the Swedish group Embracer, recently eliminated 97 positions, and Beenox, established in Montreal and Quebec, suffered the upheavals of restructuring by Activision-Blizzard, in connection with its historic acquisition by Microsoft last October .

Everything indicates that the difficulties have spread to certain studios owned by local interests, according to Jean-Jacques Hermans. We recently did a more in-depth update and noticed a decrease in the number of employees in smaller studios. It’s less visible, but it still happens, he maintains.

If in the next few years we are not able to find more concrete solutions for small studios, that could [compromise] what it took us 30 years to build in Quebec.

A quote from Jean-Jacques Hermans, director of the Quebec Video Game Guild

And maintaining these changes will make Quebec and its companies lose, to the benefit neighboring provinces or even territories such as Australia and European countries, which are currently mobilizing to attract studios in order to develop their local ecosystem, insists the Guild.

Thomas Burelli recalls that Quebec has until now offered some of the best tax credits in the world. In France, the reimbursement rate on salaries is 30%. In the UK it’s between 20-25%. In the world at large, it’s 15 to 20 or 25 percent. In Quebec, between 30 and 37%. But there, it will go down.

Quebec will thus become less interesting than Ontario, but more than British Columbia, in this aspect, according to the expert.

He insists that spending on human resources is not the only criterion encouraging foreign companies to set up in the province.

He notes immigration rules, training, but also access to the workforce, important data that is perfectly met by Montreal, which has several universities training the next generation in software engineering, among others.

Nevertheless, Jean-Jacques Hermans remains lucid: We are not against the idea that companies must pay their fair share.

< p class="StyledBodyHtmlParagraph-sc-48221190-4 hnvfyV">In particular, he proposes taxing studio income, where there is any. In fact, a person who opens a studio will take two to three years to publish their first video game and potentially make a profit, a reality that the government seems to ignore, according to the director of the Guild.

< blockquote class="Wrapper-sc-2357a233-0 FqMAW">

It seems more relevant to me to tax companies when they have income than when they do not. have none.

A quote from Jean-Jacques Hermans, director of the Quebec Video Game Guild

The organization is asking that the government meet with businesses to become aware of the impacts of this decision. She also affirms that the province has studios that are 86% Quebec-owned and that its expertise, recognized worldwide, has contributed $1.31 billion to Quebec's GDP.

The French giant Ubisoft, which has studios in Montreal, but also in Quebec, Chicoutimi and Sherbrooke, said it supported the Guild and analyzed the impact of the proposed measures on its operations.

We would like to remind you that the video game industry has become over time a true flagship for Quebec. It brings economic vitality in addition to creating wealth throughout the region, declares Antoine Leduc-Labelle, head of public relations at Ubisoft Montreal.

Montreal studio Behavior Interactif, which has experienced significant expansion over the past two years, says it was surprised by the news, but says it is still too early to assess the impact of these changes. The developer of Dead by Daylight plans to meet members of the government in the coming weeks.

Several studios refused to speak with Radio-Canada, the Video Game Guild having given instructions to send media requests to it.< /p>

Tax credits paid to the video game industry, the information technology sector and special effects cost Quebec approximately 850 million in 2023, according to Quebec. The announced changes should allow it to recover $365 million per year.

The budget announced by the government is the most deficit in its history, with a shortfall of $11 billion.

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