Starting and growing a business can be an emotional and rewarding journey. Cash is still king for new and legacy economies alike, so relentless control of your business’ cash flow is critical. Some sources of cash come with a price tag: bank interest or demands from investors. However, there are various tax and business incentives offered by different levels of government that generate cash refunds and spare you the dilutive impact that other forms of financing may incur.
Every business owner should take some time to learn about these incentive programs as a first step towards accessing the benefits. To help, here are some examples of the most popular Canadian tax credits and incentives:
Scientific Research and Experimental Development (SR&ED). Are you creating new products, developing new processes or using new materials? If so, you may be eligible to claim the SR&ED tax credit. For eligible projects, the federal government provides refundable tax credits of 35 per cent of the eligible costs plus overhead, including salaries, contractor fees and materials. Some provinces also have lucrative tagalong SR&ED programs such as Ontario’s 10 per cent refundable Innovation Tax Credit.
These programs provide refundable tax credits to Canadian-controlled private companies that engage in qualified research and development. You don’t even have to be conducting groundbreaking research and development to be eligible for the program.
Ontario Interactive Digital Media Tax Credit (OIDMTC). Although currently under review by the Ontario government, the Ontario Interactive Digital Media Tax Credit (OIDMTC) is a refundable tax credit based on eligible Ontario labour and marketing and distribution expenditures claimed by qualifying corporations with regard to their work on interactive digital media products.
If your business revolves around the development of 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 35 per cent to 40 per cent of your eligible expenditures, depending on the developed product.
Apprenticeship tax credits. Businesses that employ trade workers on apprenticeship contracts may be eligible to receive apprenticeship tax credits. The federal government offers an incentive called the Apprenticeship Job Creation Tax Credit where you’re eligible to receive 10 per cent of apprentice salaries as non-refundable tax credits. In Ontario, the Apprenticeship Training Tax Credit provides a 35 per cent to 45 per cent cash refundable credit based on the salaries and wages paid to apprentices, with the maximum annual credit per apprenticeship being $10,000, and $40,000 over a four year period.
Other helpful programs. It’s important to realize that tax credits provide after-the-fact funding. For more ‘up-front’ arrangements, the federal and provincial governments have grant and funding programs such as the Industrial Research Assistance Program (IRAP) or the Ontario Centres of Excellence. New businesses should also consider entrepreneurial friendly lending such as Business Development Bank of Canada and Canadian Small Business Financing Program.
Doing homework around tax credits and other programs that your growth-stage business may qualify for can help preserve much needed capital. Given the competitive landscape, tax credits and incentives must be part of your businesses’ agenda to thrive and grow.
Gabriel Baron is a tax partner in EY’s Private Mid-Market practice. Follow EY’s Private Mid-Market practice on Twitter @EY_CAPrivateCo and follow Gabriel Baron @GabrielBaronCA.
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