Funding an Australian Game Studio Before You Qualify for the Offset

Most Australian coverage of games funding leads with the Digital Games Tax Offset, and for a studio of two or three people that is close to useless advice.

The offset is a 30% refundable tax offset on qualifying Australian development expenditure, available for expenditure from 1 July 2022, and it carries a minimum qualifying Australian development expenditure threshold of $500,000. Confirm current eligibility and rules with the Office for the Arts and the ATO before relying on any of that.

That threshold is the whole problem. Half a million dollars of qualifying spend is a real studio with real staff — which means the offset is not a way to fund your first game. It is something you grow into, and by the time you qualify you will have an accountant telling you about it.

So the useful question is what exists below the floor.

State Screen Agencies

The state agencies are the most under-used route for small Australian studios, and they work quite differently from the federal offset.

The federal offset is retrospective: you spend, then claim. A screen agency grant or investment is prospective — money arrives before or during development, which is the difference between a fundable project and an idea. For a studio without a balance sheet, that timing distinction matters more than the headline amount.

Programmes differ by state and change regularly, so check your own agency’s current guidelines rather than assuming. What is broadly consistent is that they fund at a scale below the federal threshold, they usually require the work to happen in-state, and they generally expect a matching contribution of some kind.

Publisher Advances, and What Recoup Really Means

A publisher advance is the most common way a small studio gets funded, and the most commonly misunderstood.

It is not a payment. It is money recovered from your share of revenue before you see a royalty. A game can sell well, generate real revenue for everyone in the chain, and return nothing to the studio because the account has not cleared.

What lands on that account is the negotiation. Development cost is expected. Marketing spend recharged to the project is common and can be very large. Localisation, certification, QA and sometimes a share of the publisher’s overhead may all be charged against it. A studio on good terms recoups development only; a studio on poor terms is repaying a marketing campaign it did not commission.

The trade is real and sometimes worth taking. An advance is money now, without equity, from someone carrying the downside. What you give up is the upside and, usually, a degree of creative control.

Platform and Storefront Funds

Platform holders and storefronts fund development in exchange for exclusivity, a launch window, or day-one inclusion in a subscription service.

Structurally this is close to a publisher advance with a different counterparty, and it has a specific advantage for a small studio: the payment is often not recouped against sales in the same way, because the platform is buying placement rather than lending against revenue. It is also, for many small studios, the only realistic way to be visible at all.

The cost is the window and the exclusivity. We cover the shapes those deals take in how developers actually get paid for subscription placement.

Work-for-Hire, the Unglamorous Answer

A large share of Australian studios fund original work by doing contract work for someone else — co-development, porting, art or engineering services for overseas clients.

It is rarely discussed because it is not a funding programme, but it is probably the most common answer in practice. It has genuine advantages: no equity given up, no recoup, no creative constraints on the original project, and it builds a permanent core the studio can keep between projects. The cost is that the original game is built in the gaps, and gaps have a way of closing.

The version of this that works tends to be deliberate — contract work sized to fund a specific number of months of original development, rather than taken as it appears.

What the Offset Changes Once You Reach It

It is worth understanding what you are aiming at, because a refundable offset is unusually good.

Refundable means the benefit is not limited to tax you owe. A studio with no taxable profit still receives the amount. For a business that spends years in development before earning anything, that is close to a cash grant on qualifying spend, and it changes what scale of project is viable.

Which is why the sensible strategy for a studio approaching the threshold is to get the record-keeping right early. Qualifying Australian development expenditure has to be identified and substantiated, and reconstructing two years of it afterwards is far harder than capturing it as you go. If you are setting up that discipline, our Australian business hub collects the tools and guides for it.

Combining Them

The interaction question comes up constantly and the honest answer is that it depends on the specific programmes.

Some funding is explicitly excluded from qualifying expenditure for an offset, on the principle that public money should not be counted twice. Some state programmes are designed to sit alongside the federal offset. Publisher and platform money generally does not affect eligibility, but changes who owns what.

This is the point at which guessing becomes expensive. Before structuring a deal around a combination, get advice specific to your situation — the rules are detailed, they change, and an assumption made at the start of a project is very hard to unwind at the end of one.