SBLR Chartered Accountants

Let’s take a look at a few tax credits that could potentially reap thousands of dollars – each year – for business owners and their corporations with the proper tax strategies:

1) Scientific Research and Experimental Development (SR&ED) Tax Credits

In an effort to encourage Canadian companies to invest in experimentation and innovation, the Canadian government has allocated approximately $8 Billion each year to assist businesses that undertake such activities. A federal tax credit of up to 35% and an Ontario tax credit of up to 10% can be claimed on qualifying expenditures made by qualifying corporations.

The SR&ED program is Canada’s largest, yet most underutilized, tax incentive plan. Many companies assume they aren’t eligible for the credit because of the common misconception that the advances have to be scientific in nature. This is simply not true. In general, if you have created a new product, process, piece of equipment or software – or improved an existing one - you may be engaging in SR&ED activity.

Let’s put this into perspective: in addition to qualifying expenditures such as materials, machinery and equipment and subcontractors, you can effectively recover up to $0.68 of every $1.00 in actual wages spent on qualified SRED activities. This means that if your company spent $200,000 in qualified wages, it could recuperate $136,000 to offset against taxes otherwise payable with any excess credits coming in the form of a cash refund. When is the last time you got a cheque from the Canada Revenue Agency that wasn’t just a return of your own money…?!

2) Apprenticeship Training Tax Credits (ATTC)

Designed to encourage the hiring of apprentices in the construction, industrial and manufacturing sectors, the Ontario government introduced the ATTC in order to make apprenticeship training programs more affordable for employers. It is also an effective component of an overall tax strategy for many businesses.

The ATTC is based on salaries and wages paid to an apprentice. Corporations, proprietorships and general partnerships can obtain a refundable credit of up to $10,000 per taxation year for each qualifying apprentice, during the first 4 years of their work placement. The refundable credit first reduces the Ontario taxes otherwise payable for the taxation year, and any excesses are refunded as cash.

There are over 100 different categories of workers that are eligible for the Apprenticeship Training Tax Credit. They include such trades as sheet metal workers, plumbers, construction and maintenance electricians, hoisting engineers, brick and stone masons, etc.

 
3) Ontario Interactive Digital Media Tax Credit (OIDMTC)

The OIDMTC is a refundable tax credit based on eligible Ontario labor, marketing and distribution expenditures claimed by qualifying corporations with regard to their work on interactive digital media products. The credit is an advantageous addition to many companies’ tax strategy. It has been designed to encourage development in the area of digital media and can result in significant tax savings.

The OIDMTC is calculated as up to 40% of qualifying labor expenses plus marketing and distribution expenses. It is available to qualifying corporations that develop an eligible product at a permanent establishment in Ontario and who file an Ontario tax return. The primary purpose of the digital media product must be to educate, inform and/or entertain and the information must be presented in the form of at least two of: (i) text; (ii) sound and (iii) images. Some examples of acceptable products include DVDs, CD-ROMs, kiosks, interactive websites and digital media games.

 Let’s put this into perspective: you can recover up to $0.40 of every $1.00 in wages spent on qualified interactive digital media products made by qualifying corporations. This means that if your company spent $200,000 in qualified wages, it could recuperate $80,000 to offset against provincial taxes otherwise payable and any remaining balance would translate into a direct cash refund. In addition, you can claim marketing and distribution expenses up to $100,000 per eligible product and receive a credit and/or refund of up to $40,000 for these qualified expenditures.
 

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