What Expenses Are Covered by the Ontario Innovation Tax Credit?

The Ontario Innovation Tax Credit (OITC) provides a refundable tax credit for corporations engaged in scientific research and experimental development (R&D) within Ontario. This program is designed to encourage innovation and support businesses in offsetting the costs associated with R&D activities. For a comprehensive understanding of eligibility and specific funding parameters, please consult the complete program guide.

Overview of the Ontario Innovation Tax Credit

The OITC offers eligible Ontario corporations a tax credit for qualified R&D expenses. The tax credit rate is set at 8% for taxation years commencing after May 31, 2016. Corporations can claim this credit against qualified expenditures related to scientific research and experimental development conducted in Ontario. For specific eligibility requirements and the application process, see the complete program guide.

Funding Amounts and Rates

Corporations can receive a maximum tax credit of $240,000 based on an expenditure limit of $3 million for taxation years starting after May 31, 2016. The credit is prorated for taxation years straddling June 1, 2016. If your prior taxation year’s federal taxable income exceeds $500,000, the expenditure limit is gradually reduced and completely eliminated at $800,000. For precise calculations and historical rates, visit the complete program guide.

Eligible Expenses

Qualified expenditures under the OITC include:

• Salaries and Wages: Directly attributable to R&D activities.

• Materials and Supplies: Consumed in the course of R&D projects.

• Subcontractor Fees: Payments to external R&D service providers.

• Overhead Costs: Allocated to R&D activities as per federal guidelines.

For thorough details on eligible and ineligible costs, the complete program guide is your best resource.

Ineligible Expenses

Certain expenses do not qualify for the OITC, such as:

• Capital Expenditures: Post-2014 capital costs, except specific eligible scenarios.

• Routine Testing Costs: Unless part of developmental activities.

• Marketing and Sales Expenses: Not considered part of R&D.

Refer to the complete program guide for a comprehensive list of ineligible expenses.

Expense Documentation Requirements

To claim the OITC, corporations must maintain detailed records of R&D expenditures, including:

• Invoices and Receipts: For materials and subcontractor services.

• Payroll Records: Documenting salaries paid for R&D efforts.

• Project Logs and Reports: Showing the scope and progress of R&D activities.

Proper documentation is critical for compliance and audit preparedness. Detailed requirements are available in the complete program guide.

Conclusion

The Ontario Innovation Tax Credit offers significant financial support for R&D activities, helping Ontario businesses innovate and grow. By understanding eligible expenses and maintaining accurate documentation, corporations can effectively leverage this program. For full details and guidance, always refer to the complete program guide.