Tax credits for R&D in Canada: SR&ED and the Ontario Innovation Tax Credit explained

If your business does research and development in Canada, the largest and most widely used support is not a grant at all. It is a set of tax incentives you claim on your corporate tax return. The federal one is the Scientific Research and Experimental Development program, known as SR&ED, and Ontario adds its own credits on top for work done in the province. This guide explains how they relate and where to read the current rules.

The federal credit: SR&ED

Scientific Research and Experimental Development (SR&ED) Tax Incentive is currently ongoing. It combines a deduction of eligible expenditures with an investment tax credit. Our data summarises it this way: Tax deduction plus investment tax credit for businesses conducting eligible R&D in Canada. Most CCPCs earn an enhanced, refundable 35% ITC up to an expenditure limit; other claimants earn 15%. The published rates in our database read:

Basic ITC 15%; enhanced ITC 35% for most CCPCs on up to $6 million of qualified expenditures for tax years beginning after December 15, 2024 ($3 million before). ITC at 35% on current expenditures is 100% refundable; on capital expenditures 40% refundable; other qualifying corporations get a 40% refund of the 15% ITC.

Note what that figure is: a limit on qualifying expenditures, not a payment ceiling. The enhanced rate generally applies to Canadian-controlled private corporations, and the limit can be reduced for larger or associated corporations, so read the current CRA rules for your situation.

What counts as R&D

SR&ED is about systematic investigation or search carried out to achieve scientific or technological advancement, and it is wider than laboratory work. Software, manufacturing process improvements and engineering can qualify when you were trying to resolve a technological uncertainty that standard practice could not. Routine testing, market research and ordinary production usually do not. Whether your project qualifies is decided by the program's definition, not by how innovative it feels, so read the official guidance before you assume.

The Ontario Innovation Tax Credit

Ontario Innovation Tax Credit (OITC) is ongoing. It is aimed at smaller R&D-performing corporations with a permanent establishment in Ontario. According to the published terms:

8% refundable credit on qualified expenditures, based on a $3 million expenditure limit; maximum credit $240,000 (years commencing after May 31, 2016)

Because it is refundable, it can pay you in cash even when you owe no Ontario tax, which matters for early-stage companies that are not yet profitable. Eligibility depends on the federal SR&ED claim, so the two are filed together.

The Ontario Research and Development Tax Credit

Ontario Research and Development Tax Credit (ORDTC) is ongoing and works differently: its published terms are "3.5% non-refundable credit for taxation years commencing after May 31, 2016". Non-refundable means it reduces Ontario corporate income tax you owe and cannot be paid out as cash, although unused credits can be carried to other years under the program's rules.

How the three fit together

• You start with the federal SR&ED claim, which establishes which of your work and costs qualify as SR&ED.
• If your corporation has a permanent establishment in Ontario and the work is done in Ontario, you may also claim the Ontario credits that build on that federal claim.
• Refundable credits improve cash flow; non-refundable credits only help if you owe tax now or can use them in other years.
• Claims are filed with your tax return, on specific CRA forms. Check the official pages for the forms and deadlines tied to your tax year-end.

Other research-related support

Ontario also lists Ontario Business-Research Institute Tax Credit (OBRITC), which is ongoing, for businesses that contract research to eligible institutes. Beyond tax credits, there are research grants and collaboration programs; see research and development programs for small businesses and for corporations.

Preparing a claim

Good R&D claims rest on records made while the work was happening: project descriptions, the technological uncertainty you faced, time sheets, invoices and payroll. Describe what was uncertain and how you tried to resolve it, not just what you built. Many businesses work with an accountant or a specialist consultant familiar with SR&ED; this guide is general information, not tax advice, and rules and rates change, so confirm everything on the official CRA and Ontario pages before you file.

Not claiming yet? Read how credits differ from grants and loans, or browse all tax credits.