The dreaded tax season is approaching. For many of us, it’s a time to gather our receipts and papers, groan over how much we owe, and then file our taxes electronically or by paper. For entrepreneurs and startup founders in Ontario, there are a few extra reasons to be happy as well, and they are – tax credits.
Several investment tax credits are available to businesses in Ontario, ranging from those that incentivize hiring to those that encourage research and development. As a founder, it’s essential to be aware of these credits so you can take advantage of them and offset Ontario taxes.
Let’s examine six of the most popular tax credits for Ontario businesses.
1. Ontario small business deduction
The first and most well-known is the small business deduction. This deduction allows businesses to pay a lower tax rate of 3.2%. This is calculated by multiplying your business income for the tax year by the small business deduction rate of the year (currently 8.3%).
To be eligible for the small business deduction, your company must:
- Be a Canadian-controlled private corporation
- Have taxable capital employed in Canada of less than $10 million
- Not be a professional corporation (e.g. lawyers, accountants, dentists)
The small business deduction is a great way to save your startup money on taxes, and it’s important to be aware of the eligibility requirements so you can take advantage of it.
2. Ontario business-research institute tax credit
The Ontario business-research institute tax credit (OBRIC) is a refundable tax credit worth up to 20% of eligible expenditures on research and development (R&D). Expenditures must be incurred for the tax year under a qualified contract with an eligible institution.
A company should have an establishment in Ontario and carry out R&D activities in the province to be eligible. The R&D activities must aim to achieve technological advancement and involve some uncertainty. They must also be undertaken to generate new knowledge or create new applications, products, processes, or services.
Eligible expenditures include salaries and wages, professional and technical fees, and materials used in carrying out R&D activities.
3. Ontario research and development tax
The Ontario research and development tax credit (ORDTC) is a refundable tax credit worth up to 3.5% of eligible R&D expenditures. To be eligible, a company must have an establishment in Ontario and carry out R&D activities in the province.
Eligible expenses include salaries and wages paid to employees working on the R&D project and contractor fees. Other expenses include the cost of materials and supplies consumed during the R&D activities and certain overhead costs.
4. Ontario corporate minimum tax credit
The Ontario corporate minimum tax credit (OMTC) helps eligible corporations offset the Ontario corporate minimum tax.
To be eligible for the credit, a corporation must first calculate its regular income tax payable before considering any tax credits. If the amount of regular income tax payable is less than the corporation’s Ontario corporate minimum tax, the difference is the amount of the OMTC to which the corporation would be entitled.
5. Ontario regional opportunities investment tax credit
The Ontario regional opportunities investment tax credit (OROITC) is a 10% refundable tax credit for capital investments. The credit is available to Ontario businesses that have made property investments in certain “regions of opportunity” in the province.
To be eligible, a company must have its headquarters or a significant presence in Ontario, and make an equity investment of at least $50,000 in capital property. This property must be located in a specified province region the government has designated as needing economic development.
The investment must also be made for the purpose of expanding or adding to an existing business. Eligible expenses include the cost of machinery and equipment, as well as certain buildings and leasehold improvements.
6. Ontario co-operative education tax credit
If your business provided cooperative education opportunities to students in the tax year, you may be eligible for a cooperative education tax credit. The credit can go from 25% to 35% of qualified expenditures, up to a maximum credit of $3,000 per student placement.
To qualify, your business must provide work placements that are part of an approved cooperative education program.
Bottom line
Taxes in Ontario can be daunting for entrepreneurs. Fortunately, there are a number of tax credits available that can help you save on business costs. Be sure to research the different credits available to take advantage of them come tax season.
Each of these tax credits requires different amounts of paperwork and has different deadlines, so it’s important to plan ahead and give yourself enough time to gather the necessary documentation. Accountero’s tax credit experts understand the nuances of the application and approval process improving the probability of acceptance by the respective authority.
Accountero is a tech-powered service provider offering bookkeeping, tax advisory and fractional CFO. Accountero is not a public accounting firm and does not offer services that require a public accounting practice license.