Faced with addressing the challenges of today, startups and corporations alike can turn to federal and provincial incentives for support. Tax incentives help make it more cost-effective to take on multifaceted projects that require a sizable amount of capital beyond everyday expenses.
Through the Canadian federal government’s pledge of $400 million to create the Invest Ontario Fund, it solidified its commitment to encourage key investments across multiple sectors. Additionally, Ontario-based corporations can benefit from provincial innovation tax credit programs. Administered on behalf of Ontario by the Canada Revenue Agency (CRA), the Ontario Innovation Tax Credit could fund many homegrown Scientific Research & Experimental Development (SR&ED) efforts.
How to Qualify for the Ontario Innovation Tax Credit
Innovation can be costly, but it is critical to ensure growth. Challenges in sourcing the funding necessary to innovate could ultimately impact the outcome of your efforts. Crowdfunding, angel investors, and venture capitalists may provide some companies with startup capital, but they may come at a hefty cost.
Depending on the sum of your qualified expenditures and any eligible repayments, you could receive a sizable amount for your activities through the Ontario Innovation Tax Credit. The exact percentage is calculated based on the applicable taxation year and reaches a maximum eligible expenditure limit of $3 million. If qualified, your company could receive a refundable tax credit of up to 8% (for taxation years that begin after May 31, 2016) or up to 10% (for taxation years ending before June 1, 2016).
While not all expenditures may qualify, the Ontario Innovation Tax Credit program could still cover a fair amount of your costs. Eligible expenditures include those that meet the criteria below:
- Incurred for SR&ED carried out in Ontario
- Qualifies under section 127 of the federal Income Tax Act (Canada)
- Incurred when the corporation has a permanent Ontario establishment and the expenditure attributes to that establishment
- Includes 40% of capital expenditures made before 2014 and 100% of current expenditures
- Capital expenditures made before December 31, 2013, are no longer qualified expenditures
From Thunder Bay to Ottawa, small- and medium-size businesses across this province can claim the Ontario Innovation Tax Credit to realize their bold visions for the future. In order to qualify, your company must meet certain requirements. The following criteria outline the qualifications for companies eligible to receive credit:
- Permanent establishment in Ontario
- Performs SR&ED in Ontario
- Eligible to claim the federal investment tax credit under section 127 of the federal Income Tax Act (Canada)
- Is not exempt from tax under Part III of the Taxation Act, 2007 (Ontario)
How SR&ED Tax Credit Applies to OITC
Ontario Innovation Tax Credit (OITC) complements the federal SR&ED program. Ontario business owners who wish to claim innovation tax credits must also file a SR&ED claim on federal form T661 for the tax year. Designed to encourage R&D efforts in Canada, the SR&ED tax incentive program is one of the most generous programs the government offers to businesses. It applies to businesses in all sectors, fostering innovation and key global positioning across the country. Like the Ontario Innovation Tax Credit, the SR&ED tax credit provides capital that’s essential for companies to fund their efforts.
It’s important to keep in mind that the approval and payment process for OITC and the SR&ED program can be quite extensive. To be considered eligible, tax filing and reporting deadlines must be met.
Capital Financing for Cutting-Edge Innovation
For businesses in Canada, tax incentives can provide a vital source of capital. However, we understand that some projects need funding faster than Canadian tax incentives can provide. Through our Capital-as-a-Service (CaaS) platform, we help businesses get the capital they need to remain competitive in today’s market. Reach out to us today for more information about our general business and SR&ED financing solutions.