Set to supercharge Australia’s video game industry is the first national tax offset for video game development which will be available from 1 July next year.

With the global game development market worth $250 billion, the 30% tax offset is being seen by the Australian industry as a welcome boost to help local producers create more games for export and increase international investment in the local gaming industry.

The Australian video game industry is made up of many high growth potential small businesses and start-ups, and Australian Small Business and Family Enterprise Ombudsman Bruce Billson said the offset was a game-changer.

The Interactive Games and Entertainment Association (IGEA) estimates Australia could create a $1 billion industry in game development.

IGEA’s CEO Ron Curry said the video game industry held unparalleled potential for supercharging Australia’s exports, attracting vast inward investment and up-skilling a new generation of Australian digital workers.

The offset will be available to Australian resident companies or foreign resident companies with a permanent establishment in Australia which spend a minimum of $500,000 on qualifying Australian games expenditure.

Video games that include gambling will not be eligible, though the specifics of these disbarring conditions have not been laid out in detail. Games that do not obtain a classification rating in Australia will also not be eligible.

The Government will consult with the industry mid-2021 to further define the criteria of expenditure.

The offset was announced as part of the Federal Government’s digital economy strategy aimed at boosting investment in digital trade, infrastructure, skills, cyber security and regulations by $2 billion over the 2020-21 and 2021-22 budgets.

Australia’s video game makers that could benefit from the tax

There are only a handful of ASX stocks involved in directly creating video games – three, specifically – although technically, that number has tripled in the past six months.

The newest, Mighty Kingdom (ASX:MKL), which claims to be the largest independent game developer in Australia, joined the bourse in April, after raising $18 million at 30 cents per share.

Its price dropped to 21 cents recently, but got a nice 5c boost yesterday on the tax break news, and followed that announcement up with news today it was launching a game based on the recent movie release Peter Rabbit 2.

In comments to Stockhead, MKL managing director Philip Mayes welcomed the government’s initiative.

“The Australian Games industry has been working towards this announcement for more than a decade and is very pleased with the Morrison Governments’ support of the sector,” Mayes said.

“It recognises the opportunity that the growing games industry presents to local game developers, particularly those on the scale of Mighty Kingdom, making Australia a great place to invest in game development.”

Mayes said he expects to see game development firms prioritise staff hiring and development.

In addition, the tax rebate “encourages investment from Australian studios to develop both licensed and original IP, as it effectively reduces the cost of development”, he said.

Combined with local incentives from the South Australian government, the government support measures “will provide Mighty Kingdom with a distinct competitive advantage against developers in other states, accelerating our growth as a business”, Mayes said.

Melbourne-based digital gaming developer Playside (ASX:PLY) listed on December 17, after pulling in $7 million in revenue in FY20 and total game downloads of 4.6 million.

It produces games for Hollywood studios such as Nickelodeon and Disney, and completed its ASX listing having raised $15 million at 20 cents per share.

Similarly to MKL, PlaySide said the tax offset initiative will help domestic gaming companies take full advantage of the current market opportunity.

Game development is an enormous business, bigger than music and movies combined, and its growth it out pacing most other industries,” said TJ Munusamy, PLY’s Executive Vice President for Business Development.

“The government’s investment in this space will drive economic growth, exports, digital skills and jobs for creative and innovative Australian talent.”

Earlier today, PLY announced a tie-up with ViacomCBS, on behalf of the Paramount Pictures film studio, to “license, develop and publish The Godfather mobile video game”. Bada bing.

It also rose around 8pc on that news and the tax break combined.

And relative veteran iCandy recently reported a 227 per cent jump in cash receipts – compared to the prior corresponding period – from $194,000 to $441,000.

The company credited that to its smash hit game Masketeers: Idle Has Fallen, and now has another game in production, Claw Stars.

At Stockhead, we tell it like it is. While iCandy and Playside Studios are Stockhead advertisers, they did not sponsor this article.