In Canada, different tax credits (e.g., R&D tax credits) and business incentives are offered by different levels of government. These tax credits are designed to encourage businesses to undertake activities that will have a positive economic effect on the country. The incentives promote outcomes such as innovation, job creation and environmental awareness.
For all tax credit programs, it is essential to have all aspects of your claim well documented. This may be as simple as having formal employment contracts, or it may mean you need to record your hypothesis and the results of research and development (R&D) work.
One of the best known tax credits offered in Canada is the Scientific Research and Experimental Development (SR&ED) program. You do not have to be conducting groundbreaking R&D to be eligible for the program! Most often, SR&ED tax credits are related to incremental advancements.
If your work involves scientific or technological advancement and the development of technical content and there is an element of scientific or technological uncertainty, you may be eligible.
For eligible projects, the federal government provides refundable tax credits of 15% to 35% of the eligible costs, including salaries, contractor fees and materials (note capital expenditures are no longer eligible). As of January 1, 2014, at least 90% of the eligible costs must have been incurred in Canada for your claim to be eligible.
The CETC encourages work experience for students in the field they are studying. If your business employs students enrolled in an eligible program at an Ontario university or college, you are eligible for this credit.
The credit is worth a maximum $3,000 per co-op employee, for work terms from 10 weeks to four months. It is a refundable tax credit available to both corporations and unincorporated businesses.
The OIDMTC is meant to encourage the development of interactive digital media in Ontario. Eligible products could include educational software, informational websites and video games.
If you are developing content that will be delivered in a digital form and is intended to inform, educate or entertain, you may be eligible to receive a refundable tax credit of 40% of your eligible expenditures. Additionally, you may be eligible for a tax credit on up to $100,000 (resulting in up to a $40,000 refund) for marketing and distribution expenditures per eligible product. All of the costs must be substantially incurred (90% or more) in Ontario, to be eligible.
It is important that the product not be primarily for promotional or marketing purposes.
Apprenticeship tax credits are also meant to encourage job creation in certain fields.
In Canada, the federal government offers an incentive called the Apprenticeship Job Creation Tax Credit (AJCTC). If you employ trade workers on apprenticeship contracts, you may be eligible to receive 10% of those salaries as non-refundable tax credits (the credit will decrease the amount of taxes you pay to the government, but will not be refunded to you if you have no corporate taxes payable). As with the CETC, this credit is available to both corporations and unincorporated businesses.
The Ontario government offers the Apprenticeship Training Tax Credit. Administered through the Canada Revenue Agency (CRA), this tax credit is based on the salaries and wages paid to apprentices, with the maximum annual credit per apprenticeship being $10,000.
When filing a claim for any of these tax credit programs, it is important not only to show in the claim the validity of your project, but also how your project fits into the incentive program. This is particularly important for SR&ED and OIDMTC, where detailed technical descriptions are required. Accountants or tax credit advisors can be an invaluable resource for this. They have experience working with many claims and know what specific information needs to be included to streamline the review process. An advisor can also help with individual parts of the claim, such as the technical descriptions.
Working with a tax credit advisor can be billed on an hourly basis, as a fixed fee, or as a percentage (ranging from 15% to 25%) of the amount that you recover.