This comprehensive guide explains the Ontario small business tax credits, deductions, and other business tax incentives available to entrepreneurs, startups, and Canadian-controlled private corporations (CCPCs) operating in the province. We will explore how these programs work, who is eligible, and how to take advantage of them to maximize your tax savings.
For Ontario entrepreneurs and owners of small and medium-sized enterprises (SMEs), understanding available credits is crucial. Ontario offers a range of supports – from the general Ontario small business deduction that lowers corporate tax rates, to targeted credits for research and development, digital media production, hiring apprentices or co-op students, regional expansion, and more. Many of these programs are refundable business tax credits, meaning that even if your company is not yet profitable and owes little tax, you could receive a refund cheque to boost your cash flow. This guide is organized into clear sections covering general tax strategies, specific Ontario corporate tax credits, eligibility criteria, application processes, and tips for maximizing your tax savings. By leveraging these incentives, Ontario businesses can innovate, expand, and create jobs while keeping more of their hard-earned money.
General Tax Strategies for Ontario Small Businesses
Before diving into specific tax credits, it’s important to consider general tax-planning strategies that lay the groundwork for savings. Small business owners in Ontario should keep these key strategies in mind to minimize taxes:
Incorporate as a CCPC: Many Ontario tax credits for entrepreneurs are available only to Canadian-controlled private corporations. By incorporating your business (and maintaining Canadian control), you become eligible for the Ontario small business tax rate on your profits and for various Ontario corporate tax credits described in this guide. Incorporated businesses can take advantage of more incentives than unincorporated sole proprietorships or partnerships.
Claim the Small Business Deduction: The first and most fundamental tax benefit for Ontario SMEs is the Ontario small business deduction, which significantly lowers the corporate income tax rate on your initial business income. This deduction is essentially an automatic tax credit for qualifying small corporations and will be detailed in the next section. Utilizing this lower tax rate allows you to retain more earnings in the company – savings that can be reinvested into growth, new hires, or equipment.
Plan for Tax Credits in Advance: Integrate tax incentives into your business planning. If you are undertaking activities like scientific research, digital product development, or hiring interns and apprentices, be aware of the corresponding credits (R&D credits, digital media credits, hiring incentives) and maintain proper documentation. For example, track R&D expenditures carefully to claim the Ontario innovation and R&D credits, or keep training records for apprenticeship programs. Proactive planning ensures you meet all requirements when it’s time to file for credits.
Leverage Refundable Credits for Cash Flow: Ontario offers several refundable business tax credits – meaning if the credit amount exceeds your tax payable, the excess is paid out to you as a refund. Refundable credits such as the Ontario Innovation Tax Credit, Interactive Digital Media Tax Credit, and others are especially valuable for startups and growing companies that may not yet have large profits. They effectively act as grants delivered through the tax system. By prioritizing activities that qualify for refundable credits, startups can improve their cash flow during critical growth stages.
Combine Federal and Provincial Incentives: Don’t forget that many tax credits have federal counterparts or additional programs. For instance, the federal government also provides a Scientific Research & Experimental Development (SR&ED) credit for R&D and previously offered credits for apprenticeships and digital media. An Ontario business can often claim both federal and provincial credits for the same activity, multiplying the benefit. Ensure you explore all levels of support – provincial tax credits for incorporated businesses plus federal credits or grants – to maximize overall savings.
Consult Professionals and Stay Informed: Tax rules and incentive programs change over time. It pays to consult with a tax professional or accountant who is familiar with Ontario business tax incentives. They can help identify less obvious credits or advise on eligibility nuances (for example, associated company rules or regional definitions). Additionally, keep an eye on Ontario budget announcements for new credits or changes to existing ones. Staying informed will help your business continuously take advantage of the latest tax credits and grants available.
By employing these general strategies – incorporating, planning for credits, leveraging refundable incentives, and seeking expert advice – Ontario small businesses and startups can create a tax-efficient structure. Next, we will delve into the specific tax credits and programs that form the core of Ontario’s small business support system.
Ontario Small Business Deduction (Lower Corporate Tax Rate)
One of the most significant tax benefits for small corporations in Ontario is the Ontario Small Business Deduction (SBD). This is not a tax credit in the traditional sense but a reduced tax rate on the first portion of a CCPC’s active business income. It functions like a built-in tax credit for Ontario small businesses, allowing them to pay a much lower corporate income tax rate on their initial profits.
The Ontario SBD works in tandem with the federal small business deduction. Federally, a CCPC pays a reduced tax rate (currently 9% federally) on active business income up to a limit (usually $500,000 of profit). Ontario similarly provides a preferential provincial tax rate on the first $500,000 of active business income for qualifying CCPCs. The tax savings from the Ontario SBD enable small companies to retain more earnings, which can be crucial for funding expansion and operations. Key details of the Ontario small business deduction include:
Tax Benefit (Reduced Rate)
Lower Tax Rate: Qualifying CCPCs pay a provincial tax rate of 3.2% on the first $500,000 of active business income in Ontario, instead of the general Ontario corporate tax rate (which is 11.5%). This represents a substantial tax savings for small business owners – effectively an 8.3 percentage point reduction in the tax rate on that income.
Combined Federal-Ontario Savings: When combined with the federal small business rate, the total corporate income tax on that first $500,000 is very low. As of recent rates, an Ontario CCPC eligible for the small business deduction would pay roughly 12% combined (federal + Ontario) on that income, compared to about 26.5% combined at the general rate. This difference allows Ontario SMEs to keep nearly 15% more of their earnings, which can be reinvested in the business.
Phase-Out at Higher Sizes: The small business rate is intended for smaller companies. Ontario’s SBD is gradually phased out for larger private corporations. If your corporation (together with any associated companies) has over $10 million in taxable capital employed in Canada, the $500,000 income limit for the small business rate begins to reduce. The benefit is completely eliminated once taxable capital reaches $15 million. In practice, this means very large private companies do not get the small business tax break, preserving it for true small and medium-sized enterprises.
Eligibility
CCPC Status: Only Canadian-controlled private corporations are eligible. Public companies or those controlled by non-residents do not qualify. Most local entrepreneurs and incorporated businesses in Ontario meet the CCPC criteria (Canadian-incorporated, privately held, majority Canadian-owned).
Active Business Income: The income eligible for the deduction must be active business income earned in Ontario (as opposed to investment or passive income). Also, certain personal services businesses may be excluded. Essentially, the SBD rewards companies that are actively carrying on a trade or business.
Limit Sharing: The $500,000 income limit is shared among associated corporations. If you have multiple corporations that are related or associated (e.g., sister companies under common ownership), they must allocate a single $500,000 business limit between them for the small business deduction. This rule prevents entrepreneurs from multiplying the small business rate by splitting one business into many companies.
Claiming the Ontario SBD is straightforward – it is calculated as part of the Ontario corporate tax return (Schedule 500 on the T2 return). There is no separate application; if your corporation qualifies, you simply compute the reduced tax. It’s essentially an automatic Ontario business tax incentive built into the system. Maximizing use of the small business deduction (by timing income or using associated company allocations wisely) is often the first step in corporate tax planning for an Ontario entrepreneur. Next, we turn to specific tax credit programs that can further reduce taxes beyond the lower rate.
Ontario Innovation Tax Credit (OITC)
Innovation is critical to economic growth, and Ontario encourages small businesses to invest in research and development (R&D) through the Ontario Innovation Tax Credit (OITC). The OITC is a refundable tax credit designed to support CCPCs that carry out scientific research and experimental development in Ontario. It effectively rewards companies for spending on R&D by returning a portion of those costs through the tax system.
How it works: If your corporation incurs qualifying R&D expenditures in Ontario (such as salaries for researchers, costs of experiments, prototype development, etc.), you can claim the OITC when filing your corporate tax return. The credit is calculated as a percentage of the eligible R&D spending and is refundable, meaning you receive the full credit even if your company has little or no taxable income.
Credit Amount and Features
Credit Rate: The Ontario Innovation Tax Credit provides an 8% refundable tax credit on qualifying R&D expenditures. For example, if an Ontario small business spends $200,000 on eligible R&D in the province, the OITC could amount to $16,000 cash back from the Ontario government (8% of $200,000).
Annual Expenditure Limit: The OITC covers R&D expenditures up to a maximum annual limit of $3 million in expenditures for each company (this limit is shared among associated companies). In other words, the credit is available on the first $3 million of R&D spend each year, which would yield up to $240,000 in credits annually at the 8% rate. This cap ensures the program is targeted at small to mid-sized R&D performers.
Refundable Credit: Importantly for startups and growing tech companies, the OITC is fully refundable. Even if your company is in a loss position or not yet taxable (common for early-stage firms investing heavily in development), you can still receive the credit as a refund. This provides crucial cash flow to reinvest in further innovation, hire staff, or commercialize your technology.
Stackable with Federal SR&ED: The OITC complements the federal SR&ED tax credit. If you are claiming the federal SR&ED incentive (which can be up to 35% for small CCPCs on the first $3M of R&D), you can also claim the 8% Ontario credit on the same expenditures. Together, these programs can offset a large share of your R&D costs. Keep in mind the $3M OITC limit aligns with the federal enhanced SR&ED expenditure limit – after that, the federal credit rate drops and Ontario’s innovation credit is not available beyond the limit.
Eligibility Criteria
CCPC with R&D in Ontario: To claim OITC, you must be an Ontario-based Canadian-controlled private corporation that performed SR&ED in Ontario during the year. Having a permanent establishment (office or facility) in Ontario is required, and the R&D work must be carried out in Ontario.
Federal SR&ED Claim: You need to be eligible for the federal SR&ED investment tax credit on the expenditures. This typically means the work meets the Canada Revenue Agency’s criteria for scientific research or experimental development (e.g. attempting a technological advancement, with systematic investigation). You must file a federal SR&ED claim (Form T661 and Schedule 31) to get the provincial credit. Essentially, if you qualify for federal R&D credits, you will qualify for the OITC on the Ontario portion of the same work.
Income and Capital Limits: The full 8% OITC on $3 million of spending is available to smaller companies. Once a CCPC grows beyond certain size thresholds, the $3M expenditure limit for OITC is phased down. Specifically, if your corporate group’s taxable income in the previous year exceeded $500,000, or taxable capital exceeds $25 million, the amount of R&D spending eligible for OITC will be reduced, reaching zero when income is $800,000 or capital is $50 million. These thresholds mirror the federal SR&ED rules, ensuring the enhanced credits focus on small and mid-sized firms. Most entrepreneurs and SMEs will fall below these thresholds when claiming OITC.
To claim the OITC, a corporation completes Schedule 566 on its T2 corporate tax return and provides details of the SR&ED expenditures. The process usually goes hand-in-hand with claiming the federal SR&ED credit. Companies should ensure they maintain thorough documentation of their R&D projects and costs (including time tracking, project descriptions, and receipts) to support their claims if reviewed. Overall, the Ontario Innovation Tax Credit is a cornerstone incentive for technology startups, manufacturers, and any business pursuing innovation, as it directly rewards and encourages R&D activity within the province.
Ontario Research and Development Tax Credit (ORDTC)
In addition to the OITC, Ontario also offers the Ontario Research and Development Tax Credit (ORDTC) to further support businesses engaged in R&D. While the OITC is targeted at smaller companies and is refundable, the ORDTC is a non-refundable tax credit available to a broader range of corporations with R&D expenditures in Ontario. Businesses can use the ORDTC to reduce their provincial tax payable, and it can be claimed on eligible SR&ED expenditures that may extend beyond the OITC limits.
Credit Amount and Usage
Credit Rate: The Ontario R&D Tax Credit is equal to 3.5% of eligible R&D expenditures incurred in Ontario. This rate applies for tax years ending after June 1, 2016 (prior to that, it was 4.5%). The credit is calculated on the total qualifying R&D spend with no specific expenditure cap, unlike the OITC’s $3 million cap. For example, if a larger Ontario corporation spends $10 million on qualifying R&D, it could earn a $350,000 credit via the ORDTC.
Non-Refundable: The ORDTC is non-refundable, meaning it can only be used to reduce Ontario corporate income tax owing. If your credit exceeds your tax liability, you won’t get a cash refund for the difference. However, unused credits can be carried forward up to 20 years or back up to 3 years, allowing you to utilize them in profitable years. This carry-forward is helpful for growing companies that might have low tax payable in the early years but can apply accumulated credits against future profits.
Complements OITC: Many small companies will claim the OITC (refundable) first, and if they have additional R&D expenditures beyond the OITC’s limit, they may then claim the 3.5% ORDTC on the remainder. Larger companies that are not eligible for OITC (due to size) can still claim ORDTC on all their Ontario R&D spending. Note that a given expenditure cannot receive both the 8% OITC and the 3.5% ORDTC – the rules are structured so that CCPCs get the higher refundable credit on the first portion of R&D, and any excess or ineligible portion can get the smaller non-refundable credit. In any case, Ontario business tax incentives ensure that innovation tax credits are available to firms of all sizes.
Eligibility Criteria
Corporation with PE in Ontario: Any corporation (not just CCPCs) that has a permanent establishment in Ontario and carries out SR&ED in Ontario can claim the ORDTC. This includes larger or foreign-controlled companies, which might not qualify for OITC, thereby broadening the reach of Ontario’s R&D support.
Qualified SR&ED Expenditures: Similar to OITC, the expenditures must qualify as SR&ED under federal rules (and you must file the federal SR&ED forms). Eligible costs include things like salaries for researchers and engineers, materials consumed in R&D, contract payments for R&D work, and overhead directly related to experimental development or research projects in Ontario. Government assistance and grants will reduce the eligible expenditures accordingly.
Taxable Status: Only corporations that pay Ontario tax (i.e., not tax-exempt entities) can use the credit. However, unlike the small business deduction or OITC, there are no income or capital size limits on the ORDTC – it’s available to any taxable corporation incurring R&D costs in Ontario. It simply may not be fully usable until the corporation has sufficient taxable income to absorb it (due to its non-refundable nature).
Claiming the ORDTC involves completing Schedule 508 on the corporate tax return, alongside the federal SR&ED claim forms. Proper accounting for SR&ED costs is essential to maximize both federal and Ontario credits. While the 3.5% rate may seem modest, the ORDTC can represent significant absolute dollars for R&D-intensive companies or large projects, and when combined with federal incentives, it meaningfully lowers the net cost of innovation. For Ontario small businesses, the combination of OITC and ORDTC ensures that as you grow your R&D efforts, you continue to receive support even after surpassing the small-business thresholds.
Ontario Business Research Institute Tax Credit (OBRITC)
Ontario encourages collaboration between industry and research institutions through the Ontario Business Research Institute Tax Credit (OBRITC). This program is a specialized R&D incentive that provides additional tax credits for companies that partner with eligible research institutes (such as universities, colleges, or research hospitals) to perform R&D in Ontario. By leveraging the expertise and facilities of academic or research institutions, businesses can not only advance their innovation projects but also enjoy a generous tax credit on related expenditures.
Credit Amount
Credit Rate: The OBRITC offers a 20% refundable tax credit on qualified expenditures for R&D work performed in collaboration with an eligible research institute. This is a notably high credit rate, reflecting the government’s aim to foster industry-academic partnerships. If your company contracts a university to carry out research or you sponsor a project at a research facility, 20% of those costs can be claimed back. For instance, paying $100,000 to an Ontario university for a research project could yield a $20,000 refund via OBRITC.
Eligible Expenditures: Typically, qualifying expenditures under OBRITC are payments made to an eligible Ontario research institution for SR&ED work done on your behalf. It might also include certain salaries or costs if the work is a cooperative project. The credit can be claimed in addition to the regular R&D credits (OITC/ORDTC), but usually the same expenditure dollar cannot be double-claimed under both. Instead, OBRITC is meant for specific subcontracted research costs. Notably, OBRITC is refundable, so even if your company is not profitable yet, this credit can result in a cash refund.
Integration with Other R&D Credits: If you claim OBRITC on a particular research contract, those expenditures would not also get the 8% or 3.5% credit – OBRITC is an alternative that provides a higher rate (20%) but only for the portion of work done by the research institute. Often, companies will have some in-house R&D (eligible for OITC/ORDTC) and some contracted to a university (eligible for OBRITC). This way, they maximize the incentives: 20% on the outsourced research and 8% or 3.5% on the in-house work.
Eligibility and Application
Research Partnership: To qualify, the R&D must be conducted in partnership with a designated research institute in Ontario. This typically includes publicly funded Ontario universities, colleges, and research organizations that meet the criteria under the Taxation Act. The collaboration can take the form of a contract (you pay the institute for research services) or a research grant to the institute for a specific project.
Corporation in Ontario: The claimant must be a corporation with a permanent establishment in Ontario, subject to Ontario corporate tax (both CCPCs and other corporations can qualify). The R&D work must be related to your business and meet the definition of SR&ED.
Documentation: You will need documentation such as research agreements, invoices from the institute, and details of the work performed to support the OBRITC claim. The credit is claimed on Schedule 568 of the tax return, with a supplemental form Schedule 569 detailing each eligible research contract.
The OBRITC is a valuable incentive for companies that might lack certain R&D facilities or expertise internally and choose to team up with Ontario’s world-class educational and research institutions. It effectively subsidizes a fifth of the cost of such collaboration. By using OBRITC alongside OITC/ORDTC, Ontario businesses can significantly reduce the net cost of innovation, all while benefiting from the knowledge and infrastructure available in universities and labs. This strengthens both the business and the broader research community in Ontario.
Ontario Interactive Digital Media Tax Credit (OIDMTC)
Ontario’s economy boasts a vibrant digital media and software sector, and the province offers the Ontario Interactive Digital Media Tax Credit (OIDMTC) to support companies developing interactive digital products. If your business creates interactive digital media – such as video games, educational software, mobile apps, or other digital content that engages users – you could be eligible for this substantial credit. The OIDMTC is a refundable tax credit that has been instrumental in making Ontario a hub for game development and digital media innovation.
Credit Amount
Generous Refundable Credit: The OIDMTC provides a 35% to 40% refundable tax credit on eligible expenditures for developing interactive digital media products in Ontario. The exact rate depends on the scenario:
40% credit on qualifying Ontario labor expenses and certain marketing and distribution costs for products that are developed and marketed by the company itself (often called “non-specified products”). This higher rate benefits companies that create their own digital media products for sale or licensing.
35% credit on eligible Ontario labor expenditures for products developed under a fee-for-service arrangement (“specified products”). This applies when a company is hired to develop a product for a client. In this case, marketing costs aren’t eligible, since the product is for a third party, but labor still gets a 35% credit.
35% credit on labor expenditures also applies to specialized digital game corporations that meet certain size criteria (large video game companies can claim 35% on labor, often under specific rules).
No Cap on Labor Costs: Uniquely, the OIDMTC has no maximum limit on the amount of eligible labor expenditures that can qualify. This means even large projects can benefit significantly. However, for the 40% credit, eligible marketing and distribution expenses are capped at $100,000 per product. With such high rates, companies can recuperate a large fraction of their development payroll costs, making Ontario an attractive place to hire talent for digital product creation.
Refundable to All Corporations: The credit is refundable, and both small and large corporations (Canadian or foreign-owned) with a permanent establishment in Ontario can qualify, as long as they develop the product in Ontario. This makes OIDMTC a cornerstone of Ontario business tax incentives in the tech and creative sector – even new startups with no tax owing can get a refund check that covers a significant portion of their development costs.
Eligibility and Application Process
Eligible Products: Interactive digital media products generally include video games, educational software, mobile apps, e-learning tools, and other software that has user interaction as a primary element (websites with interactive content can also qualify in some cases). The product must be intended to educate, inform, or entertain the user. Note that traditional software for business administration or products mainly containing advertising, etc., may not qualify. There are also exclusions (like gambling programs or just operating system software).
Qualifying Corporations: To claim OIDMTC, you must be a corporation (either CCPC or other) developing the product at a permanent establishment in Ontario. You must file an Ontario corporate tax return. Certain companies are not eligible, such as tax-exempt corporations or those controlled by tax-exempt entities, and typically you need to be an arm’s length producer (not just producing for your own internal use).
Certification: Unlike some credits that are claimed directly on the tax return, the OIDMTC requires an application and certification process through Ontario Creates (the provincial agency that administers cultural media tax credits). A company must apply for an OIDMTC certificate for each eligible product. This involves submitting details of the project, budgets, and product content to Ontario Creates. Once the project is reviewed and approved, a certificate is issued which you then file with your tax return to claim the credit on Schedule T2SCH 560. The application must typically be made within 18 months of the end of the tax year in which the expenditures were incurred.
Labour and Expenditure Criteria: There are specific rules regarding the proportion of work done in Ontario. For instance, there used to be tests such as the “80/25 rule” (at least 80% of total labor must be in Ontario, and 25% of total production costs in Ontario labor) for certain products, though recent modernizations have adjusted some rules. The key is that the majority of development work should be done by Ontario employees or contractors, and the company should incur at least $1 million in qualifying labor (for a 12-month period) to claim annually, unless it’s a specialized digital game corporation which has its own thresholds. Smaller independent projects may claim once the product is complete if below those thresholds.
The Ontario Interactive Digital Media Tax Credit has been a game-changer for Ontario startups and companies in the digital media space, effectively acting like a 35-40% rebate on developer salaries and wages. It encourages companies to hire locally and develop innovative digital products within the province. The refundability aspect ensures that even a pre-revenue game studio can benefit. To maximize this credit, ensure you plan your projects in accordance with the eligibility rules, keep meticulous records of Ontario labor hours and costs, and submit your certification application promptly. Many firms also hire consultants specializing in digital media credits to assist with the technical application process, given its complexity. With proper execution, OIDMTC can substantially finance the development of the next big app or video game coming out of Ontario.
Ontario Apprenticeship Training Tax Credit (Historical)
(Note: The Ontario Apprenticeship Training Tax Credit (ATTC) was a program available in past years to encourage hiring and training of apprentices. It has been discontinued for new apprenticeships in recent years. However, it’s worth understanding as a historical incentive, and there are other supports for apprenticeship training currently.)
Ontario has long recognized the importance of on-the-job training in skilled trades. The Apprenticeship Training Tax Credit was a refundable tax credit that helped employers offset the costs of hiring and training apprentices in certain trades. While active, it provided significant support for small businesses engaging in apprenticeship programs.
Credit Overview (when it was active)
Credit Rate and Cap: The ATTC typically provided a credit of up to 35% of eligible salaries and wages paid to an apprentice during their training term, up to a maximum credit of $5,000 per apprentice per year. For smaller employers (often defined as those with incomes below a certain threshold), the rate could be higher (for example, 45% for small businesses). Over the first 36 to 48 months of an apprenticeship, an employer could claim this credit, helping to cover wages while the apprentice is learning the trade. Lifetime caps per apprentice were around $15,000 in credits.
Eligible Trades: The program focused on apprentices in skilled trades that are in high demand, such as construction, industrial, motive power, and certain service trades – for instance, electricians, plumbers, automotive service technicians, cooks, etc. The apprentice had to be in a qualifying apprenticeship program in Ontario and be registered with the provincial apprenticeship authority.
Refundable: The credit was refundable, meaning if the employer’s tax liability was less than the credit, they got the difference as a payment. This made it attractive to small companies that might not have large tax bills but still wanted to invest in training new workers.
Changes and Current Status
Discontinued Program: The Ontario Apprenticeship Training Tax Credit was discontinued for new hires starting after November 14, 2017. Employers could only claim the credit for apprentices who began their programs before that cutoff date (and only up to the completion of their term). As a result, this tax credit is no longer available for current or future apprentices in Ontario via the corporate tax system.
Successor Initiatives: In place of the tax credit, Ontario introduced alternative supports. For example, there are grant programs like the Apprenticeship Employer Signing Bonus and the Apprenticeship Completion Employer Bonus, which provide lump sum grants to employers when their apprentices reach certain milestones (e.g., $1,000-$2,000 when an apprentice is signed/registered, and another bonus when they become certified). Additionally, the federal government for a time offered the Apprenticeship Job Creation Tax Credit (a federal credit similar to ATTC, which has also been phased out and replaced by grants to employers through programs like the Apprenticeship Service).
Current Supports: While the tax credit is gone, small businesses in Ontario can still benefit from apprenticeships through those grants and through Ontario youth apprenticeship programs and wage subsidies that exist outside the tax system. Also, from the apprentice’s side, there are grants and personal tax credits (like the Canada Apprentice Loan and the Tradesperson’s Tool Deduction) that indirectly support the process.
Even though you can no longer claim the ATTC on your corporate tax return, it’s important to know that hiring apprentices is still financially supported by the government in other ways. Businesses should check current Ontario programs if they plan to bring on an apprentice. And for context, we include this historical credit here because many guides on Ontario small business tax credits still reference it and similar incentives for training. The key takeaway for business owners is that training the next generation of skilled workers is encouraged and there are dollars available – just not in the form of a tax credit anymore, but rather through direct grants or other training incentives.
Ontario Co-operative Education Tax Credit (Historical)
(Note: Similar to the apprenticeship credit above, the Ontario Co-operative Education Tax Credit (CETC) was a program that provided tax credits to employers hiring co-op students from post-secondary institutions. The program has been discontinued in recent years, but we outline it for completeness and to highlight support for experiential learning.)
The Co-operative Education Tax Credit was aimed at encouraging businesses to provide work placements for students in recognized co-op programs at colleges and universities. Co-op placements give students practical experience and help businesses access young talent. Ontario’s tax credit helped share the cost of employing these students.
Credit Overview (when it was active)
Credit Rate and Maximum: The CETC offered a refundable tax credit of 25% of eligible salaries and wages paid to a co-op student during their work term. For small businesses, the rate was even higher – 30% of wages – to encourage more SMEs to participate. The credit was capped at $3,000 per student work placement. For example, if an SME hired a co-op student for a 4-month term and paid them $10,000 in that period, the company could claim up to $3,000 back (30% of $10k is $3k, hitting the cap). Larger employers would claim 25%, up to that same $3,000 max.
Eligibility: The employer could be a corporation or unincorporated business with a permanent establishment in Ontario (even individual sole proprietors could claim it on their personal taxes if they hired a co-op student in their business). The student must be in a qualifying co-operative education program, meaning their academic program includes formal co-op work terms and the institution approves and monitors the placement. Common examples are engineering co-ops, business internships, computer science co-ops, etc., where the student alternates between school and work terms.
Placement Requirements: The work placement usually needed to be at least 10 weeks (or 8 months if it was an internship/co-op that spans two semesters) within a taxation year. The employer had to supervise the student and provide a meaningful work experience related to their field of study. The wages or salary paid had to be reasonable and actually paid to the student. Any government wage subsidies received would reduce the eligible amount (to prevent “double-dipping”).
Current Status and Alternatives
Discontinued Credit: The Ontario Co-operative Education Tax Credit was phased out in recent years (around 2018). As a result, new co-op placements after that are no longer eligible for this provincial tax credit. Employers who had qualifying placements before the phase-out could still claim them on returns for those years, but going forward the credit is not part of the Ontario tax code.
Ongoing Support for Co-op Hiring: Even though the tax credit is gone, Ontario businesses still have reasons to hire co-op students. Many post-secondary institutions have co-op programs that effectively subsidize student wages through other means. The federal government and other organizations have introduced student work placement programs and wage subsidy funds that employers can tap into. For instance, the federal Student Work Placement Program offers grants to employers who hire students in STEM and business fields. Additionally, engaging co-op students yields long-term benefits: a pipeline of skilled future employees and fresh perspectives in the workplace.
Tax Considerations: While there isn’t a direct tax credit, the salaries you pay to co-op students are, of course, deductible business expenses as with any wages. And if any regional or industry-specific funding is received to hire a student, that is usually outside of the tax return (but must be accounted for).
In summary, the Co-operative Education Tax Credit was a valuable program that many Ontario SMEs used to reduce the cost of hiring interns and co-op students. Its discontinuation means employers no longer get a refund at tax time for these placements. However, co-op education remains a cornerstone of workforce development in Ontario, and businesses can still benefit from participating – both from the productivity of the students and through alternative funding programs. It’s advisable for businesses to stay in touch with local colleges/universities and provincial employment initiatives to learn about current incentives for student hiring, which can change over time.
(Despite the historical nature of the last two sections, we've included them because many guides on Ontario small business grants and credits mention training incentives. Always check the latest information for current programs.)
Ontario Regional Opportunities Investment Tax Credit (ROITC)
To stimulate economic growth across all regions of the province, Ontario introduced the Regional Opportunities Investment Tax Credit (ROITC). This credit is designed to encourage businesses to make capital investments (such as constructing or renovating facilities, or purchasing equipment) in regions of Ontario that face economic challenges or slower growth. By investing in these areas, companies can not only expand their operations but also earn a substantial tax credit. The ROITC is a refundable corporate income tax credit aimed particularly at small and medium-sized businesses investing outside the major urban centers.
Credit Details
Credit Rate: The ROITC provides a 10% refundable tax credit on eligible investments. During a temporary enhancement period (from 2021 to the end of 2023), the credit rate was doubled to 20% to further incentivize investments as part of pandemic recovery efforts. As of 2024, the rate is 10% unless new extensions are legislated. Even at 10%, the credit significantly lowers the cost of new capital projects in the targeted regions.
Eligible Investments: Qualifying investments generally include expenditures for constructing, renovating, or acquiring qualifying commercial or industrial buildings, and for machinery and equipment used in those buildings, in designated regions. For instance, if a company builds a new manufacturing facility or expands a warehouse in a qualifying region, or purchases new processing equipment for a plant in that area, those expenditures would qualify. The assets must become available for use before a certain date (initially there were deadlines which have been extended along with the temporary rate enhancement, currently needing to be in use by the end of 2023 for the 20% rate; future budgets may extend timelines or adjust as needed).
Investment Threshold and Cap: The credit only applies to incremental investment above a threshold. Specifically, eligible expenditures must exceed $50,000 in a year to start generating the credit, and the credit is available on expenditures up to a maximum of $500,000 per year. This means in a given taxation year, the first $50k of investment doesn’t get credit, but the next up to $500k does. At the 10% rate, that would yield up to $45,000 of credit per year (10% of $450k maximum eligible amount). At the enhanced 20% rate, it was up to $90,000 credit (20% of $450k) in a year. This cap is per associated group of companies, so associated corporations share the $500k limit.
Refundable: As a refundable credit, ROITC can generate a cash refund if the corporation doesn’t have enough tax liability to absorb it. This is very helpful for small businesses making a big investment – you can still benefit even if your taxable income is low in the year of expansion.
Regional Eligibility and Criteria
Designated Regions: Not all areas of Ontario qualify. The government defines specific designated regional areas that are meant to benefit from this incentive. These generally exclude the Ottawa and Greater Toronto Area (GTA) because those regions typically have stronger growth. The credit is targeted at Northern Ontario and certain rural or economically distressed areas in Southern Ontario. For example, cities and districts in northern Ontario, and many rural Eastern or Southwestern Ontario communities, are likely within the designated boundaries. Always consult the official map or list of eligible regions provided by the Ontario Ministry of Finance to confirm if a location is eligible.
Qualifying Corporation: To claim the credit, you must be a Canadian-controlled private corporation with a permanent establishment in Ontario. This credit is primarily geared towards CCPCs (i.e., small and medium businesses). Your corporation must not be tax-exempt. The expenditure must be made while you are a qualifying corporation. Large or public companies are not the focus for ROITC (they have other supports).
Qualifying Property: The property invested in must fall under specific capital cost allowance (CCA) classes – generally Class 1 (buildings) or Class 6 (additions to buildings) for structures, and various machinery/equipment classes (like Class 8 or Class 53 for manufacturing equipment). Importantly, the building must be used for eligible business activities (manufacturing, processing, logistics, farming, mining, etc. – basically commercial activities, not residential or recreational). Also, at least 90% of the building’s area should be used for non-residential (i.e., business) purposes to count.
Claiming the ROITC is done through the corporate tax return (Schedule T2SCH 568) with supporting details on the investments. Often, an accountant will help ensure the property is eligible and the location qualifies. Businesses considering a major investment in a new location should factor in the ROITC; it can effectively give a 10% discount on your project from the tax refund. Also note, Ontario’s 2023 and 2024 budgets introduced separate but related incentives like the “Ontario Made Manufacturing Investment Tax Credit” for manufacturing equipment (at 10% rate, soon 15% as proposed for 2025) which can overlap if you’re manufacturing in a region – in such cases, careful tax planning is needed to maximize benefits without double counting the same expenditures.
The Ontario Regional Opportunities Investment Tax Credit underscores the province’s commitment to regional economic development. By taking advantage of this credit, businesses not only reduce their cost of expansion but also contribute to job creation and economic diversification in communities across Ontario.
Maximizing Savings: Tips for Claiming Credits and Incentives
Understanding the available credits is the first step; effectively utilizing them is the next. Here are some practical tips for Ontario businesses to maximize their tax savings through credits and incentives:
Keep Excellent Records – Documentation is key. Maintain detailed records of all expenditures related to any credit you plan to claim. For R&D credits, keep project descriptions, experiment results, time sheets, and invoices. For hiring credits (like historical apprenticeship/co-op), retain employment contracts, proof of apprentice registration, and wage records. For investment credits, keep invoices for equipment and construction, and documents proving the location is in a designated region. Good record-keeping will make the claiming process smoother and substantiate your claims in case of audit.
File the Required Schedules/Forms – Each credit has its own forms and schedules on the tax return. Missing a schedule can mean missing out on the credit. For example, R&D credits require federal Form T661 and Ontario Schedules 566/568/508 as applicable; digital media credits require an Ontario Creates certificate number on Schedule 560; ROITC goes on a specific line of Schedule 5 with Schedule 住. Work with a tax professional or use tax preparation software updated for corporate returns to ensure all necessary forms are completed. Pay attention to deadlines: some credits like OIDMTC require separate applications within a certain timeframe.
Consult a Tax Professional or Advisor – Ontario’s array of tax credits can be complex, especially when combining multiple incentives. A tax professional (CPA or tax consultant) experienced in Ontario corporate tax credits can help identify all opportunities and ensure you meet eligibility criteria. They can also advise on interactions between federal and provincial programs, and on strategic decisions (for instance, sometimes you might choose to waive a smaller credit in order to maximize a larger one in another jurisdiction or future year). The cost of professional advice is often easily offset by the additional credits or tax savings uncovered.
Stay Updated on Changes – Tax credit programs can change with new budgets and economic conditions. For example, we saw the apprenticeship and co-op credits get replaced by grants, the ROITC rate temporarily double, and a new manufacturing tax credit introduced recently. Keep an eye on Ontario’s budget announcements each year for new business tax incentives or changes to thresholds and rates. Subscribe to updates from Ontario’s Ministry of Finance or reputable business journals. By staying informed, you can plan investments and hiring to align with the most beneficial programs (e.g., timing an equipment purchase to qualify for a new credit).
Consider Grants and Non-Tax Programs – In addition to tax credits, Ontario and the federal government offer small business grants and loans that can complement your tax planning. Sometimes an expense might qualify for either a grant or a tax credit or both. For instance, there are grants for hiring youth or for undertaking certain research projects. While this guide focuses on tax credits, savvy businesses will explore all funding avenues. Just remember that if you receive a grant for a particular expense, you usually have to reduce the amount you claim for a tax credit by that grant – but you’ll still benefit financially overall. A holistic approach to Ontario small business grants and credits will yield the best outcome.
Plan Your Growth with Credits in Mind – If you are in the early stages of a startup, think ahead about which credits could apply as you grow. For example, if you anticipate developing software, plan to apply for OIDMTC certification. If you expect to scale up manufacturing, be aware of the manufacturing and regional investment credits. If hiring employees, consider co-op students or apprentices where appropriate to take advantage of available subsidies (grant or tax-based). By integrating these incentives into your business plan, you essentially “bake in” some cost savings from the start.
Ensure Compliance and Eligibility – This may seem obvious, but always ensure you truly meet the criteria for a credit before claiming it. Filing for a credit you aren’t eligible for can lead to reassessments, interest, or penalties. For example, don’t try to claim an R&D credit for work that doesn’t meet the scientific criteria, or a regional credit for a location just outside the boundary. Use the exact definitions provided by the government (many have interpretation bulletins or guides). When in doubt, get clarification from the CRA or Ontario Ministry of Finance. It’s better to claim correctly and confidently than to over-claim and lose sleep over a potential clawback.
By following these tips, Ontario businesses can fully leverage the tax incentives available while staying onside with the rules. The combination of lower small business tax rates, targeted tax credits, and strategic planning can lead to substantial financial benefits, strengthening your business’s ability to compete and grow.
Conclusion
Ontario offers a robust toolkit of tax credits and business incentives to support small businesses, entrepreneurs, and corporations in the province. From the foundational Ontario small business deduction that lowers corporate tax rates, to specialized credits like the Ontario Innovation Tax Credit for R&D and the Interactive Digital Media Tax Credit for creative digital production, these programs are designed to fuel investment, innovation, and job creation. Business owners should view these incentives not as afterthoughts, but as integral components of their financial planning.
In this guide, we covered general tax-saving strategies and dove deep into specific incentives: R&D credits (OITC and ORDTC) that reward innovation, digital media credits that support our growing tech sector, hiring and training credits (like the former apprenticeship and co-op programs) that built workforce skills, and regional and sector-specific credits that encourage expansion across Ontario. Each program has its nuances in eligibility and application, but all share a common goal – helping Ontario small businesses thrive and remain competitive.
The importance of these tax credits cannot be overstated. They represent money that can be reinvested into a new piece of equipment, used to hire an extra employee, or simply improve your bottom line in challenging times. Particularly for startups and SMEs, incentives like refundable tax credits can provide lifeline funding when revenue is just ramping up. Established businesses, on the other hand, can reduce their tax load and finance strategic growth initiatives.
As a final encouragement, we advise all business owners in Ontario to explore and leverage these financial supports. Take the time to identify which credits apply to your operations – you might be pleasantly surprised at the range of activities that qualify. Engage with your accountant or financial advisor to incorporate credits into your tax filings, and don’t hesitate to reach out to government resources for guidance on applications (for example, Ontario’s program guides or CRA’s information lines). The Ontario government wants you to succeed, and these tax credits and incentives are concrete ways they are investing in your success.
By staying informed and proactive, you can ensure your business accesses every dollar of tax relief available. In doing so, you’ll improve your company’s financial health and contribute to the broader economic growth and innovation that make Ontario a great place to do business. Ontario small business tax credits and incentives are there to be used – make them a part of your growth story. Here’s to your continued success and savings!
