The Tax Credits for Canadian Companies' Payrolls in 2025

For business decision-makers and administrative or financial officers, fully understanding these mechanisms is essential to optimize the organization’s finances and take full advantage of opportunities for tax reduction for the company in Canada. In this text, we will present what payroll tax credits are and why governments offer them. We will review the main business tax credits related to wages, whether federal or provincial programs. We will also cover wage subsidies and other government aid programs for salaries, particularly those aimed at SMEs. Finally, we will explain how to obtain a payroll tax credit and how to reduce your company’s payroll costs through these measures.

What is a payroll tax credit?

A tax credit is an amount that directly reduces the tax payable by a company. In the case of a payroll tax credit, it is a fiscal incentive linked to personnel expenses: the company receives a tax reduction proportional to certain eligible wage expenses. Simply put, this means that part of the wages paid by the company will be reimbursed to it in the form of a credit on its taxes. There are generally two main types of tax credits: refundable credits and non-refundable credits. A refundable credit can result in a government payment if its amount exceeds the tax the company owes. Conversely, a non-refundable credit only reduces tax to zero, without generating reimbursement of the excess. Many payroll tax credits, especially at the provincial level, are refundable—meaning that even a young, unprofitable company can receive a government check if it meets the conditions. Concretely, payroll tax credits often take the form of a percentage of eligible wage expenditures. For example, if a program offers a 15% credit on certain wages (for R&D jobs or new hires), a company that has paid CAD 100,000 in eligible wages could reduce its tax by CAD 15,000. Some credits are capped or limited to an amount per employee, while others have no predefined maximum. The important point is that these mechanisms constitute incentive taxation for employers: by lightening the tax cost associated with payroll, they encourage companies to hire, train staff, or invest in strategic activities such as research and innovation.

Why does the government offer payroll tax credits?

Wage-related tax credits are part of the government’s wage support and economic incentive strategy. For the government, it is an effective way to support job creation and economic growth while targeting specific objectives. Offering a tax credit for job creation or for hiring certain categories of workers can encourage companies to recruit more, thus reducing unemployment and stimulating economic activity. Likewise, subsidizing a portion of wages related to development projects in Canada (for example, in research and innovation or digital transformation) helps steer business investments toward these priority areas. This tax-incentive approach for employers pursues several objectives:

• Job creation and unemployment reduction: By reducing the cost of a new hire through a hiring tax credit or wage subsidy, the government encourages businesses to increase their workforce. This is particularly useful during difficult economic periods or to integrate workers who might otherwise be overlooked (recent graduates, experienced workers, people in career transition, etc.).

• Support for SMEs: Small and medium-sized enterprises often have limited resources. Wage support programs for SMEs—whether through a tax credit or a direct subsidy—lighten their financial burden and allow them to hire or retain key personnel for their growth. This targeted support helps strengthen the local economic fabric by promoting the sustainability of SMEs.

• Encouragement of innovation and development: Tax credits for innovative companies (such as R&D incentives) reimburse part of the salaries of engineers, researchers, or technicians involved in innovation. This reduces the financial risk associated with R&D and encourages companies to innovate—which in the long term improves Canada’s competitiveness on the international stage and creates highly qualified jobs.

• Training and skills development: Some incentives, tax credits, or subsidies aim to encourage workforce training. For example, there are programs that financially support wages during the training of apprentices or the upskilling of employees. By helping companies develop their staff’s skills without bearing all the costs themselves, these incentives contribute to a more qualified workforce.

• Regional and sectoral development: Certain payroll tax credits are designed to stimulate activity in targeted regions or industries. For example, tax incentives can encourage hiring in the Atlantic provinces or support a strategic sector such as manufacturing and clean technologies.

In summary, payroll tax credits and related programs are economic policy tools. They guide company behavior in exchange for a financial benefit, creating a win-win situation: the company gains savings (tax reduction or subsidy), while the community benefits from economic spillovers (jobs, innovation, a skilled workforce, etc.).

The main available payroll tax credits and subsidies

There are various programs in Canada that offer either a wage-based tax credit or a direct wage subsidy to businesses. Some are available at the federal level; others are specific to certain provinces or sectors. Here are the broad categories of measures companies can use to reduce their payroll costs:

1. Hiring and job-creation tax credits Several fiscal incentives aim to reward employers who create new positions or hire particular workers. A noteworthy federal example is the Apprenticeship Job Creation Tax Credit. This program allows an eligible employer to recover, as a tax credit, 10% of wages and salaries paid to an eligible apprentice in a prescribed trade (usually a Red Seal trade). The maximum credit is CAD 2,000 per apprentice per year. In other words, if your company hires an apprentice electrician or welder, you can obtain up to CAD 2,000 in tax relief per year for that employee during their first two years of apprenticeship. This Canadian hiring tax credit boosts the integration of apprentice labor and the transfer of skills in skilled trades while financially supporting training employers. In parallel with the federal apprenticeship credit, some provinces offer their own incentives to promote hiring. For instance, Ontario offers a refundable tax credit of up to about CAD 3,000 per student hired in a co-op placement, and British Columbia and Manitoba also reimburse part of the wages paid to apprentices or eligible young employees. These programs complement the federal apprenticeship hiring credit by giving employers an additional boost. In the past, temporary national measures have also appeared to encourage hiring. For example, a temporary hiring credit for SMEs was once offered to offset the increase in Employment Insurance premiums related to adding new employees. Although these initiatives evolve over time, the principle remains the same: offer an immediate financial incentive or a tax reduction to encourage companies to create jobs.

   In addition to tax credits, it is worth mentioning hiring subsidies often aimed at SMEs. For example, the Canada Summer Jobs program offers eligible small businesses and organizations a subsidy covering part of the wage (usually up to 50% of the minimum wage, and 100% for non-profit employers) for hiring youth during the summer. Such programs reduce the cost of hiring seasonal or entry-level staff and help young people gain experience. Other regular government initiatives target the hiring of specific groups (veterans, persons with disabilities, newcomers, etc.) by offering employers wage support to integrate these talents into their companies.

2. Development, innovation, and R&D tax credits Companies that invest in innovative or development projects can benefit from very advantageous tax credits related to the salaries of their technical and scientific staff. The main program in this area is the Scientific Research and Experimental Development (SR&ED) tax credit, offered by the federal government. SR&ED is not exclusively a wage credit, as it covers all R&D expenses (salaries, materials, contracts, etc.), but most of the assistance takes the form of reimbursing a significant portion of the salaries of employees dedicated to research and development. For Canadian controlled private corporations (CCPCs), the SR&ED credit can reach 35% of eligible R&D expenditures, including labor costs, up to an annual limit. A large part of this credit is refundable, meaning that even with no tax payable, the company receives a cheque covering that amount (for example, CAD 35 of assistance for CAD 100 in salary paid to an R&D researcher or engineer). Beyond the limit or for large corporations, a rate of about 15% (non-refundable) applies to eligible expenditures. The SR&ED program is one of the most generous in Canada for development tax credits, as it injects billions of dollars each year in tax relief to support Canadian businesses’ technological effort.

   In addition to the federal program, it is important to note that almost all provinces have introduced their own R&D or innovation tax credits, supplementing SR&ED. For example, Quebec offers a refundable tax credit for research and development that can represent up to 30% of eligible R&D labor costs for an SME—a very substantial support for innovation (exact rates depend on company size and project type, but the order of magnitude is high). Other provinces like Ontario and British Columbia also offer provincial R&D credits, generally in the range of an additional 8% to 15% on eligible expenditures. An innovative company can therefore combine the federal and provincial credits, drastically reducing the net cost of each dollar of salary paid to its researchers and developers. That is why we speak of tax credits for innovative companies: the goal is to reward those that advance technology, create new products, and improve productivity by offering them tax relief to support these initiatives.

   Moreover, several sector-specific payroll tax credits exist. For example, in the culture and media sectors, federal and provincial programs often reimburse 25% to 40% of eligible labor costs (film production, television, video games, animation, etc.). Likewise, some provinces grant specific credits to support technology or manufacturing enterprises (for instance, a credit of up to 24% of payroll in IT services in Quebec). In short, development and innovation tax credits are valuable levers to reduce personnel costs for high-value-added projects. They allow companies to push their initiatives further by lightening a significant portion of personnel expenses—and this combined federal-provincial support can make the difference between carrying out a project in Canada or relocating it abroad.

3. Wage subsidies and salary aid programs Beyond tax credits recoverable at tax filing, companies can benefit from direct wage subsidies paid by the government under specific programs. A wage subsidy is an amount allocated to the company to offset part of the wages paid to certain employees or in certain situations. Unlike tax credits, which operate through the tax system and often retroactively, wage subsidies are generally granted following a prior application and can be received during the relevant pay period, which immediately improves the company’s cash flow. These federal or provincial wage subsidy programs constitute another form of wage support for businesses in Canada. A notable national example was the Canada Emergency Wage Subsidy (CEWS), implemented by the federal government during the COVID-19 pandemic. This temporary program (now ended) was a true lifeline for tens of thousands of businesses: it covered up to 75% of wages (up to a predefined maximum per employee) to help companies retain their staff despite the temporary collapse of their revenues. This wage subsidy program demonstrated how quickly public authorities can intervene to subsidize company payrolls in times of crisis, thereby preventing massive layoffs and preserving employment relationships.

   After the acute phase of the crisis, the government also launched a Hiring Incentive Program, which was a form of subsidy aimed at encouraging employers to increase their workforce or hours worked by compensating part of the additional wages paid. These measures were not intended to be permanent but illustrate the arsenal the state has to support employers on an ad hoc basis when circumstances demand.

   In normal times (outside exceptional crisis measures), there are numerous targeted wage subsidy programs in Canada, often intended to help SMEs hire specific profiles or fill certain labor needs. We have already mentioned Canada Summer Jobs for youth. One can also cite provincial employment integration programs that subsidize part of the wage for a few months when a company hires an unemployed person and offers on-the-job training (for example, in Quebec, an integration into employment program covers a portion of the salary during the first months of a new hire). Similarly, various sectoral or regional organizations manage wage subsidy envelopes—for example, in technology, health, agriculture, or culture—to stimulate hiring where there are strategic needs.

   Furthermore, there are programs specifically aiding the hiring of certain groups (recent graduates, newcomers, persons with disabilities, etc.) or aimed at priority sectors. It is worthwhile to explore these opportunities via government websites and your field’s professional associations. For entrepreneurs, these subsidies represent an interesting opportunity to reduce the cost of a new employee during their start-up or training phase. Combined with potential tax credits, they can significantly lower personnel expenses in the budget. It is therefore recommended to regularly inquire about SME wage assistance programs with federal departments (such as Employment and Social Development Canada) or provincial business support portals. Online tools exist to find active programs matching your company’s situation (sector, location, size, etc.).

4. Provincial and local fiscal incentives In addition to federal programs, each province and territory has its own fiscal measures to encourage hiring and investment according to its local economic priorities. For example, Quebec offers several wage-based tax credits in specific sectors: beyond the R&D and multimedia credits already mentioned, one can cite the film production tax credit, the multimedia publishing tax credit, or even a credit for hiring experienced workers in certain sectors. Each measure has its own criteria (company size, type of targeted employees, eligible wages, etc.) and offers a different reimbursement percentage. Ontario also proposes provincial payroll tax credits, such as the Ontario Interactive Digital Media Tax Credit (for interactive media) or apprentice training aids that add to those of the federal level.

   In the West, Alberta and British Columbia emphasize clean technologies and digital innovation, with incentive programs on payroll costs related to these domains. The Atlantic provinces, for their part, offer charge reductions and subsidies to encourage businesses to settle and hire locally (for example, a wage subsidy program exists for hiring recent graduates to curb talent exodus). The important point for a company is to stay informed about programs available in its jurisdiction. Provincial governments generally publish guides or web pages detailing business assistance (fiscal and budgetary). Do not hesitate to consult these resources or seek a local tax advisor to ensure you do not miss a corporate tax credit that could benefit your company. Combining federal and provincial credits can considerably amplify your tax savings.

How to obtain a payroll tax credit

Navigating these measures can seem complex. Here are general steps to help your company obtain the payroll tax credits or subsidies for which it is eligible:

1. Identify relevant programs: Start by listing the tax credits and wage assistance programs available that correspond to your company’s profile. Consider your sector, region, company size, and activities (hiring, R&D projects, employee training, etc.). Online resources (e.g., the Government of Canada’s business assistance search tool) can guide you to current programs.

2. Verify eligibility and requirements: For each program, check the eligibility criteria. Ensure your company meets the conditions (e.g., a credit may target only SMEs, or a subsidy may be for hiring candidates of a certain age). Also identify which expenses or positions are covered. This step lets you eliminate programs for which you are ineligible and focus on the right opportunities.

3. Prepare required documentation: Gather all supporting documents before applying. For a tax credit claim, ensure you have detailed payroll records, employment or apprenticeship contracts, and proof of eligible activity (project reports for R&D, etc.). For a wage subsidy, prepare a solid file including the completed application form, a job or project description, and any other requested documents (candidate CV, training plan, etc.). Thorough preparation increases your chances of success and speeds up processing.

4. Submit the application: Once ready, file your application according to the program’s procedures. For a tax credit, this is usually done during the annual tax return (filling out the appropriate tax schedules, such as the T661 form for an R&D credit). For a subsidy, submit your file to the relevant body (department, agency, or partner association) via the indicated portal or form, often before a deadline. Watch deadlines carefully: some aids have specific application periods or operate on a first-come, first-served basis.

5. Follow up and ensure compliance: After submission, track your application’s progress. It is not uncommon to be asked for additional information or clarifications. Respond promptly to administrative queries to avoid delays. If approved, comply with any conditions tied to the aid (e.g., retaining the hired employee for the required period). Finally, keep records of the aid received for accounting purposes and be prepared for potential audits.

How to reduce your company’s payroll costs with fiscal incentives

Fully leveraging available tax credits and subsidies allows you to lighten personnel expense burdens without compromising hiring and innovation capabilities. Here are strategies to adopt:

• Plan hires according to incentives: Integrate available aid programs into your staffing plan. For instance, if you plan to hire an intern or apprentice, research in advance the related credits or subsidies that could reduce hiring costs. Likewise, during expansion, consider whether current employment incentives apply for new recruits (depending on region or job type). This can let you accelerate certain hires by lowering initial financial burden.

• Incorporate credits into budget forecasts: When drafting your annual budget, factor in anticipated tax relief from payroll credits. For example, if you expect to recover 30% of salaries for an R&D project via credit, include that in your calculations. This gives a more realistic picture of net personnel costs and can free resources for other investments. However, be prudent and count only credits for which you are reasonably certain of eligibility.

• Maintain a long-term perspective: Using payroll fiscal incentives should fit within your overall business strategy. The goal is not only short-term cost reduction but investing in teams and projects that will drive your business growth. For example, a wage subsidy that helps you integrate a new developer can accelerate the development of a key product. Similarly, an R&D tax credit can encourage you to undertake an innovative project that strengthens your long-term competitiveness. Think of incentives as public risk-sharing: they support your growth, but it is up to you to convert this advantage into sustainable success.

• Raise internal awareness: Ensure your HR and accounting departments are aware of these incentives. For example, HR can integrate subsidy research into the hiring process, and accounting should separately track eligible wage expenses to facilitate tax claims. Good internal coordination ensures no fiscal benefit slips through the cracks.

• Stay informed of new measures: Programs evolve over time. Schedule regular monitoring (e.g., at each new fiscal year or after government budgets) to discover new credits or subsidies and updates to existing ones. By staying informed, you can quickly adjust recruitment or investment strategies to match available incentives. This vigilance ensures you never miss an opportunity for savings.

Conclusion

Payroll tax credits, wage subsidies, and other government incentives constitute a true financial lever for Canadian businesses. Used wisely, they compensate for a significant portion of personnel costs, which can free resources for other investments, additional hiring, or improved competitiveness. For decision-makers, it is crucial to integrate these mechanisms into the business strategy: whether by capitalizing on a sector-specific payroll tax credit or applying for a subsidy to support a crucial hire, each incentive dollar is a dollar less to fund from internal resources. Therefore, it is essential to stay up to date on available incentive programs and to surround yourself with expert advice to make the most of them. In summary, payroll tax credits and government wage aids are powerful tools to reduce corporate payroll expenses, foster growth, and achieve development objectives. By fully leveraging these opportunities in compliance with the rules, your business strengthens its financial health while contributing to the country’s economic prosperity. It is a win-win partnership between the State and employers: companies enhance their competitiveness while supporting national economic growth.