In Canada, businesses of all sizes and in all sectors can take advantage of federal tax credits designed to encourage innovation, stimulate investment and support economic growth. As a business owner, this is a great opportunity to reduce your tax bill and invest more in your company's sustainable future.
Learn more about the major tax credits available to understand how they work and the positive impact they can have on your business.
What do I need to know about business tax credits in Canada?
Whether you're already incorporated or considering incorporation, understanding the difference between refundable and non-refundable tax credits and how they apply can improve your tax strategy and help your business grow.
The ability to identify and take advantage of these specific tax credits can significantly reduce your tax burden, freeing up valuable financial resources. These savings, strategically reinvested, can catalyze the development and expansion of your business, marking a turning point in your company's history. Enlist the help of our experienced tax accountants to obtain such credits when filing your business taxes and legal obligations.
What is non-refundable Tax Credits
Non-refundable tax credits are designed to reduce your company's income tax to zero. However, if the amount of these credits exceeds the amount of tax owed, the difference will not be refunded to you.
For Canadian businesses, this means you can reduce your tax burden, but it's important to plan the use of these credits wisely to maximize their impact without leaving unused amounts.
What is refundable Tax Credits
Conversely, refundable tax credits represent an even more attractive opportunity for businesses. If these credits exceed your tax liability, you will be refunded the difference.
Even if your company has no tax liability for the current year, you can benefit from a refund, providing additional cash flow that can be reinvested in key areas of your business. This is especially true for research and development, marketing, or expanding your operations.
What are the main federal tax credits?
In Canada, business owners can take advantage of several tax credits available at the federal level. In some cases, these credits may also be available in the various provinces and territories across the country.
Here are just a few of the available tax credits for which your business may be eligible.
Scientific Research and Experimental Development (SR&ED) Tax Credit
The SR&ED tax credit stimulates innovation by providing tax support to Canadian companies engaged in research and development. Available to all sectors, it is refundable for SMEs, while large corporations benefit from a non-refundable advantage, encouraging technological advancement across the country.
To be eligible, activities must fall within the scope of scientific research or experimental development aimed at creating new knowledge or improving existing products or processes. Eligible expenses include salaries, supplies, certain types of research contracts and R&D-related capital expenditures.
Small Business Investment Tax Credit (SBITC)
The Small Business Investment Tax Credit is available to Canadian small businesses to reduce income taxes on the purchase of certain capital goods or machinery for use in the business's Canadian operations. The primary objective of the ITC is to encourage productive business investment by reducing the net cost of acquiring eligible assets.
Assets eligible for the ITC generally include manufacturing and processing equipment, computer hardware and certain software, and other assets that can improve a company's production capacity or technology.
Federal Foreign Business Income Tax Credit
The Federal Foreign Business Income Tax Credit is a tax measure designed to avoid double taxation for Canadian corporations that earn income abroad. When a Canadian company pays income tax to a foreign government, it may be entitled to a tax credit for the amounts paid, which can be applied to its income tax liability in Canada. The purpose of this credit is to ensure that international income is taxed fairly without creating an excessive tax burden due to the overlap between the Canadian and foreign tax systems.
To qualify for the credit, the company must demonstrate that the tax was actually paid to a foreign jurisdiction and that the payment relates to income that is also taxable in Canada. The amount of the credit is generally limited to the amount of Canadian income tax payable on that foreign income to avoid a tax benefit in excess of the foreign tax actually paid.
Federal Foreign Non-Business Income Tax Credit
The Federal Foreign Non-Business Income Tax Credit is a tax measure introduced by the Government of Canada to avoid double taxation of Canadian residents on foreign source income.
To be eligible for the credit, the corporation must be resident in Canada for the relevant tax year, have paid taxes on non-business income to a foreign government, as evidenced by official documentation, and report the foreign income on its Canadian tax return.
This credit is particularly relevant for corporations that receive investment income, dividends, interest, rents or other forms of non-business income from outside Canada.
Other tax credits available to businesses and entrepreneurs
The Government of Canada offers other tax credits to support key economic sectors, encourage sustainable practices or promote Canadian culture.
These tax measures reflect Canada's commitment to sustainability, innovation and the promotion of culture and responsible business practices. To navigate these incentives, it is advisable to consult a tax professional.
Federal Environmental Trust Tax Credit
Encourages contributions to environmental conservation by trusts engaged in the protection and restoration of natural resources. Trusts must meet certain eligibility requirements.
Air Quality Improvement Tax Credit
Encourages businesses to invest in heating, ventilation and air conditioning (HVAC) equipment and air filtration systems to improve indoor air quality and the health of employees and customers.
Tax Credit for Refunding Fuel Levy Proceeds to Farmers
Provides financial assistance to farmers to offset the cost of the carbon tax, recognizing the unique challenges of the agricultural sector in managing energy costs.
Federal Logging Tax Credit
For companies generating income from forestry operations in Canada, this credit offsets taxes paid to the governments of Quebec or British Columbia, thereby reducing the tax burden on the forestry sector.
Canadian Journalism Employment Tax Credit
Supports news organizations by providing tax relief for the hiring and retention of journalists, underscoring the importance of independent journalism to democracy.
Canadian Film or Video Production Tax Credit
Encourages the production of audiovisual content in Canada by supporting the Canadian film and television industry through financial incentives for eligible expenses.
Film or Video Production Services Tax Credit
Encourages Canadian and foreign production companies to carry out their projects in Canada, thereby stimulating the local economy and developing technical and creative skills.
Canadian Manufacturing and Processing (M&P) Deduction and Zero Emission Technology Manufacturing Deduction
Stimulates economic activity in the manufacturing, processing and cleantech development sectors, promoting economic growth and environmental transition.
Use T2inc.ca to obtain federal tax credits in Canada
Federal business tax credits in Canada offer a variety of ways to reduce tax burdens, encourage innovation and promote sustainable economic growth. Whether they support research and development, encourage environmental practices or help expand international operations, these tax incentives play a vital role in strengthening the Canadian economy.It's important for businesses to understand these tax credits and plan strategically to maximize their benefits. At T2inc.ca, we're dedicated to helping business owners by providing the advice and support you need to make the most of the tax credits and deductions available to you.
Let's explore together how these tax incentives can transform your business and mark a turning point in its history. Contact us today for more information!
Frédéric Roy-Gobeil
CPA, M. TAX
As President of T2inc.ca and an entrepreneur at heart, I have founded many start-ups such as delve Labs and T2inc.ca. A former tax specialist at Ernst & Young, I am also a member of the Ordre des comptables professionnels agréés CPA and have a master's degree in taxation from the Université de Sherbrooke. With a passion for the world of entrepreneurship and the growth mindset, I have authored numerous articles and videos on the industry and the business world, as well as on accounting, taxation, financial statements and financial independence.
