The Digital Games Tax Offset (DGTO) is one of the most important pieces of policy for Australian game development, and almost nobody outside the industry understands how it works. That’s partly because tax policy is inherently boring, and partly because the government materials about it read like they were written for an audience of tax lawyers and accountants.

So here’s the human-readable version.

What it is

The DGTO is a refundable tax offset of 30 percent on eligible Australian game development expenditure. In plain English: if an Australian studio spends money making a game, the government refunds 30 percent of that spending through the tax system.

It was introduced in the 2021-22 federal budget, took effect from July 2022, and is administered by the Australian Taxation Office with creative certification from the Arts Ministry.

Who qualifies

To be eligible, a company must:

• Be an Australian resident company (not an individual, not a partnership)
• Spend at least $500,000 on eligible game development expenditure
• The game must be developed primarily for commercial release
• The game must meet an Australian content test or a qualifying expenditure test

The $500,000 threshold is the most significant restriction. It means the DGTO primarily benefits mid-sized and large studios. A small indie team spending $200,000 on their first game doesn’t qualify, even though they’re exactly the kind of studio that would benefit most from a 30 percent cost reduction.

What counts as eligible expenditure

Most direct game development costs count: salaries for developers, artists, designers, and producers. Contractor fees for work done in Australia. Software licences used directly in development. Certain overhead costs related to development facilities.

What doesn’t count: marketing, distribution, hardware costs, and expenditure on activities that aren’t directly part of making the game. The line between “development” and “not development” can be ambiguous, which is where the accountants earn their fees.

How it works in practice

A studio completes their game development, totals their eligible expenditure, applies for certification, and then claims the 30 percent offset in their tax return. If the offset exceeds their tax liability — which is common for studios that aren’t yet profitable — the excess is refunded as cash.

This last point is important. The offset is refundable, meaning studios don’t need to be profitable to benefit. A studio that spends $1 million on development and has zero revenue still gets $300,000 back. This makes it more useful than a tax deduction, which only helps if you’re already making money.

Is it working?

Yes and no.

Yes, it’s keeping some studios in Australia that would otherwise relocate. International companies have cited the DGTO as a factor in maintaining or expanding their Australian operations. For studios that meet the threshold, the offset represents a meaningful reduction in development costs.

No, it’s not helping the studios that need help most. The $500,000 threshold excludes the vast majority of Australian indie studios. The Australian game development scene is dominated by small teams — two to ten people — making games on budgets well below $500,000. These studios are creating award-winning work that represents Australia internationally, and they get nothing from the DGTO.

The administrative burden is also significant. Applying for certification, tracking eligible expenditure, and navigating the tax system requires professional advice. Studios without an experienced accountant or grant administrator face a steep learning curve.

What should change

Lower the threshold. A $500,000 minimum excludes too many studios. Reducing it to $200,000 or even $100,000 would bring small indie teams into the system. The additional cost to the government would be modest — small studios don’t claim large offsets — but the impact on studio survival rates would be meaningful.

Simplify the process. The application and certification process should be streamlined. Screen Australia manages a relatively efficient process for film tax offsets. The DGTO should aim for similar accessibility.

Expand eligible expenditure. Marketing is a significant cost for indie studios, and it directly affects whether a game finds its audience. Including some marketing expenditure would help studios that make great games but struggle with visibility.

The DGTO is good policy in principle. A 30 percent refund on development costs is generous by international standards. But good policy with a high barrier to entry is policy that mainly benefits those who least need it. The Australian indie scene — the part of the industry that’s producing the most creative, distinctive, and internationally recognised work — deserves better access to the support that exists.