Ontario Small Business tax credits & deductions: A complete guide

Ontario offers a variety of tax credits designed to support small businesses, reduce their tax burden, and promote innovation and investment. Whether you’re investing in research and development, hiring apprentices, or expanding your business, these credits can significantly lower your corporate tax liability.

In this guide, we’ll break down the key tax credits available to incorporated businesses in Ontario, explain how they work, who qualifies, and how to claim them.

Ontario Small Business Deduction tax credit (SBD)

The Ontario Small Business Tax Credit helps Canadian-controlled private corporations (CCPCs) reduce their corporate income tax rate, making it easier to reinvest in growth, employees, and operations. This credit applies to the first $500,000 of taxable income, allowing businesses to retain more capital for expansion, hiring, and day-to-day expenses. It is particularly beneficial for start-ups and growing businesses looking to remain competitive in Ontario.

The credit is phased out for corporations whose taxable capital exceeds $10 million and is completely eliminated at $15 million.

Credit Amount

• 3.2% reduced tax rate on the first $500,000 of taxable income (instead of the general 11.5% rate).
• Phased out for corporations with taxable capital between $10 million and $15 million.

Eligibility

• The business must be a Canadian-controlled private corporation (CCPC).
• Taxable capital must be below $15 million to qualify for at least part of the credit.

Ontario Research and Development Tax Credit (ORDTC)

The Ontario Research and Development Tax Credit is a non-refundable tax credit designed to offset R&D costs for businesses investing in scientific research and experimental development (SR&ED). This credit helps businesses develop new products, processes, and technologies while reducing R&D expenses.

This provincial credit can be combined with the federal SR&ED tax credit, allowing businesses to maximize tax savings and reinvest in further innovation. Corporations may claim the tax credit on Schedule 508 and file it with their T2 corporation income tax return.

Credit Amount

• 3.5% of eligible R&D expenditures incurred in Ontario.
• Can be claimed in addition to the SR&ED tax credit in Ontario.

Eligibility

• The business must conduct qualifying R&D activities in Ontario.
• The expenditures must meet Canada Revenue Agency (CRA) criteria for SR&ED.

Ontario Innovation Tax Credit (OITC)

The Ontario Innovation Tax Credit is a refundable tax incentive designed to encourage corporate investment in research and development (R&D). It is particularly beneficial for startups and small businesses, as it provides financial relief for eligible R&D expenses, even if the company has no corporate tax liability.

Unlike non-refundable credits, if the credit exceeds the company’s Ontario corporate tax payable, the excess amount is refunded, allowing businesses to reinvest in further innovation. This credit can also be combined with the federal SR&ED tax credit, maximizing overall tax savings. Corporations may claim the tax credit on Schedule 566 and file it with their T2 corporation income tax return.

Credit Amount

• 8% of qualifying R&D expenses.
• Annual cap of $3 million in eligible expenditures.
• Phased out for corporations with taxable capital between $25 million and $50 million.

Eligibility

• The company must be a Canadian-controlled private corporation (CCPC).
• The expenses must be incurred in Ontario.
• The company must be eligible for the federal investment tax credit under Section 127 of the Income Tax Act.
• The business must have filed an SR&ED claim using federal Form T661.

Ontario Interactive Digital Media Tax Credit (OIDMTC)

The Ontario Interactive Digital Media Tax Credit (OIDMTC) is designed to support companies that develop interactive multimedia products such as video games, mobile applications and educational software.

To qualify, projects must be interactive, meaning that the user actively engages with the content, rather than simply viewing it. Eligible costs include labor, subcontractor fees and development overhead.

Credit Amount

• 40% credit on eligible expenses, including marketing and distribution costs, up to $100,000 per product.
• 35% credit on eligible expenses, excluding marketing and distribution costs.

Eligibility

• Eligible expenses must be incurred in Ontario and directly attributable to the development of an interactive multimedia product.
• Company must have a permanent establishment in Ontario and be actively engaged in business.

Ontario Business Research Institute Tax Credit (OBRITC)

The Ontario Business Research Institute Tax Credit is a refundable tax credit designed to encourage businesses to collaborate with eligible research institutions on scientific research and experimental development (SR&ED) projects in Ontario. This incentive helps businesses gain access to specialized expertise, state-of-the-art facilities and advanced research capabilities by fostering partnerships with universities, colleges and other recognized research institutions.

Eligible expenses include payments made to qualified research organizations to conduct SR&ED activities on behalf of the company. This tax credit not only supports innovation within individual companies, but also strengthens Ontario's research ecosystem by fostering stronger links between businesses and academic institutions. Corporations may claim the tax credit on Schedule 568 and file it with their T2 corporate income tax return. Corporations should also complete and file Schedule 569 for each eligible contract.

Credit Amount

• 20% of eligible R&D expenditures incurred in partnership with an approved Ontario research institute

Eligibility

• The company must conduct R&D in Ontario.
• Collaboration must be with a recognized Ontario research institution.

Ontario Regional Opportunities Investment Tax Credit

The Ontario Regional Opportunities Investment Tax Credit is a refundable tax credit designed to encourage businesses to invest in commercial and industrial property in designated regions of Ontario. The goal is to stimulate economic growth in regions that may face challenges in attracting business investment, thereby helping to create jobs and stimulate local economic development.

Eligible properties include new buildings, additions and renovations used for business activities such as manufacturing, processing, warehousing and commercial operations. To qualify, the investment must be made in one of the designated regions identified by the Ontario government as being in need of economic support.

Credit Amount

• 10% refundable tax credit on eligible expenditures.
• Up to $500,000 per year.

Eligibility

• The company must invest in commercial or industrial property in designated areas.

Ontario Apprenticeship Job Creation Tax Credit

The Apprenticeship Job Creation Tax Credit is a refundable tax credit designed to encourage businesses to hire and train apprentices in skilled trades. Eligible expenses typically include wages paid to apprentices during their training period in approved apprenticeship programs.

For businesses in the construction, manufacturing, automotive and electrical trades, this credit helps offset the cost of on-the-job training, making it easier to invest in new talent and bridge the skills gap.

Credit Amount

• 10% of eligible salaries and wages, up to $2,000 per apprentice.

Eligibility

• The apprentice must be in an eligible trade program.
• The employer must be based in Ontario.

Ontario Film & Television Tax Credit (OFTTC)

The Ontario Film and Television Tax Credit is a refundable tax incentive that supports film and television production in the province. By offsetting production costs, it helps producers, studios and content creators reinvest in talent, equipment and infrastructure, ensuring that high-quality productions remain financially viable. This credit strengthens Ontario's position as a leading destination for film and television production, attracting both domestic and international companies to invest in the province's thriving entertainment industry.

The credit applies to labour costs associated with the production of qualifying films and television shows, ensuring that productions contribute to local job creation and economic growth. Eligible productions must meet specific Canadian content and spending requirements and be certified by Ontario Creates, the province's film and media development agency.

Credit Amount

• 35% of eligible Ontario labor expenditures.
• Additional 10% bonus for productions shot outside the Greater Toronto Area.

Eligibility

• The business must be a qualified production company operating in Ontario.
• The production must meet Ontario Creates’ requirements.

Ontario Made Manufacturing Investment Tax Credit

The Ontario Made Manufacturing Investment Tax Credit is a refundable tax credit designed to encourage businesses to invest in new manufacturing and processing equipment. This incentive is particularly useful for companies looking to expand production capacity, reduce operating costs through automation, or transition to more sustainable and energy-efficient technologies. By reducing the upfront costs of purchasing essential equipment, the Ontario Investment Tax Credit helps businesses accelerate growth and innovation in a competitive marketplace.

Eligible investments typically include new machinery, equipment and certain property improvements used in manufacturing, processing and related industrial activities in Ontario. By supporting these investments, the credit not only benefits individual businesses, but also strengthens Ontario's industrial sector, creating jobs and fostering long-term economic growth.

Credit Amount

• 10% of eligible investments in new machinery and equipment.

Eligibility

• The business must be incorporated in Ontario.
• The investment must be used primarily for manufacturing or processing.

Ontario Political Contribution Tax Credit for corporations

The Ontario Political Contribution Tax Credit is a refundable tax credit that provides businesses and individuals with tax relief on contributions made to registered Ontario political parties, electoral associations, or candidates. This credit is designed to encourage businesses to support political entities that align with their interests, helping to foster a more representative and engaged political environment.

This incentive is particularly valuable for companies looking to support policies that impact their industry, local economy, or business environment while benefiting from a financial offset on their contributions.

Eligible contributions include monetary donations made to registered political organizations in Ontario. The tax credit is structured to partially reimburse the donor, helping to lower the overall cost of political participation. However, annual limits apply to ensure fairness and transparency in political funding. Beyond the financial benefit for corporations, this credit also helps maintain a diverse and well-funded electoral process, contributing to a stronger democratic system in Ontario.

Corporations may claim the tax credit on Schedule 525 and file it with their T2 corporate income tax return.

Credit Amount

• Refundable tax credit based on political contributions made to registered Ontario parties.

Eligibility

• The business must have made qualifying political donations.

Ontario Foreign Tax Credit

The Ontario Foreign Tax Credit is a non-refundable tax credit that helps businesses offset foreign income taxes paid on income earned outside of Canada. This credit is designed to prevent double taxation by ensuring that Ontario-based businesses are not taxed twice - once by the foreign jurisdiction where they earned the income and again by the Ontario government.

For companies that operate internationally or derive income from foreign investments, contracts or operations, this credit provides essential tax relief that makes global expansion and cross-border trade more financially viable. It helps maintain Ontario's competitiveness by allowing companies to engage in international business without excessive tax burdens.

The credit applies to foreign income taxes paid on business income, investment income and certain other eligible income. Because the credit is non-refundable, it can only be used to reduce Ontario corporate income tax liability and cannot be refunded if the credit exceeds the tax liability.

Credit Amount

• The credit is based on the foreign taxes paid on income earned outside Canada.

Eligibility

• The business must be subject to foreign tax on non-Canadian income.

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How to apply for Ontario business tax credits?

Here’s the step-by-step process to claim these tax credits:

1. Determine eligibility:

Each tax credit has specific eligibility requirements, making it essential to consult the official guidelines on Ontario.ca and the Canada Revenue Agency (CRA) website to ensure compliance.

Before applying for any tax credit, it’s essential to confirm that:

• Verify that your business structure and expenses qualify.
• Ensure your business activities align with the credit’s requirements.

2. Keep proper documentation:

Proper record-keeping is key to successfully claiming tax credits. Organized and detailed documentation reduces the risk of audits and ensures faster processing of tax credits.

The required documentation will vary depending on the credit, but in general, businesses should maintain:

• Receipts and invoices for qualifying expenses (e.g., equipment purchases, R&D materials, software development costs).
• Payroll records for employment-based credits (e.g., apprenticeship and hiring incentives).
• Financial statements showing how the credit-eligible expenses impact your business.
• Contracts and agreements with third-party service providers if claiming credits for subcontracted work (e.g., Ontario Business Research Institute Tax Credit).

3. Complete the required forms:

Most Ontario business tax credits require businesses to submit additional tax forms along with their corporate income tax return. Review the Ontario Ministry of Finance and CRA guidelines for a comprehensive list of required forms based on the credits you’re applying for.

Some common forms include:

• T661 – Scientific Research & Experimental Development Expenditures (for RS&DE-related credits).
• Schedule 552 – Ontario Innovation Tax Credit (for RS&DE activities in Ontario).
• Schedule 566 – Ontario Research and Development Tax Credit (for eligible research projects).
• Schedule 560 – Ontario Apprenticeship Training Tax Credit (for businesses hiring apprentices in skilled trades).

4. File with your corporate tax return (T2):

To claim tax credits, you must file your corporate taxes. Failing to file the correct forms or missing deadlines can result in lost tax credit opportunities.

To officially claim your Ontario business tax credits, you must:

• Include the relevant provincial schedules when filing your T2 corporate income tax return.
• Submit the return electronically via the CRA’s Corporation Internet Filing service.
• Ensure all deadlines are met to avoid missing out on tax credits.

Need help claiming your Ontario business tax credits?

Maximizing your Ontario business tax credits requires careful planning and a deep understanding of the tax system. To gain a clearer overview of corporate taxation in Ontario, check out our Ontario Small Business Tax Rate guide. With multiple incentives available, from R&D and investment credits to hiring and industry-specific tax breaks, ensuring you claim every dollar you're entitled to can be complex.

At T2inc.ca, we specialize in corporate tax filing for small and medium-sized businesses across Canada. Our team can help you navigate Ontario's tax incentives, optimize your return and reduce your corporate tax burden. Whether you're claiming R&D credits, investment tax credits or apprenticeship incentives, we'll ensure a seamless, compliant and streamlined process.

Don't leave valuable tax savings on the table. Contact T2inc.ca today and let our experts maximize your business tax benefits!