What Is the Ontario Innovation Tax Credit (OITC)?
For CCPCs and other Canadian tech companies, access to funding is crucial for driving scientific research and experimental development (SR&ED). While federal programs like the SR&ED tax credit offer support, Ontario-based companies have an additional advantage—the Ontario Innovation Tax Credit (OITC).
The OITC is an 8% refundable tax credit on eligible R&D expenditures incurred in Ontario. This means that if your business is conducting qualifying R&D activities, you could receive a refund on a portion of your eligible expenses—helping you reinvest in innovation and scale your company without giving up equity.
According to Revenue Canada, Canada’s SR&ED and innovation tax credit system contributes approximately $4.5 billion annually to private-sector R&D. The Ontario Innovation Tax Credit is a key part of this ecosystem, helping businesses offset their R&D expenses and extend their financial runway.
Who Is Eligible for the Ontario Innovation Tax Credit?
To qualify for the OITC, your company must meet all of the following conditions:
Your business had a permanent establishment in Ontario during the tax year.
Your company carried out SR&ED activities in Ontario.
You are not tax-exempt under Part III of the Taxation Act, 2007 (Ontario).
You are eligible for the federal investment tax credit for qualified expenditures under section 127 of the Income Tax Act (Canada).
You have filed:
Form T661 (Scientific Research & Experimental Development (SR&ED) Expenditures Claim)
Schedule 31 (Investment Tax Credit – Corporations)
Schedule 566 (Ontario Innovation Tax Credit)
If your company is already claiming federal SR&ED tax credits, you are likely also eligible for the OITC, increasing your refund potential.
How Much Can You Claim for the Ontario Innovation Tax Credit (OITC)?
Understanding the Credit & Expenditure Limits
The OITC provides an 8% refundable tax credit to a maximum of $300,000 on your company’s qualified R&D expenditures incurred in Ontario. However, there are limits to how much you can claim:
Maximum annual expenditure limit: $3 millionEligible costs include: Salaries, wages, materials, overhead, and SR&ED-related expenses.
Expenditure Limit Reductions
While the maximum claimable amount is $3 million, this limit gradually reduces based on your company’s:
Federal taxable income:
Reduction begins at $500,000 and reaches $0 at $800,000.
Specified capital amount (total assets including associated corporations):
Reduction starts at $25 million and is completely phased out at $50 million.
OITC + SR&ED: A Winning Combination for Canadian Startups
The best way to maximize non-dilutive funding is to combine the OITC with the federal SR&ED program. Here’s why:
For a Canadian Controlled Private Corporation (CCPC)
Federal SR&ED Refundable Credit: 35% on eligible R&D expenditures
Ontario Innovation Tax Credit (OITC): 8% on R&D expenditures (up to $3M)
Ontario Research and Development Tax Credit: 3.5% offset on federal benefit inclusion
For a Foreign-Owned or Public Corporation (non-CCPC)
Federal SR&ED Credit: 15% ITC (investment tax credit) — non-refundable
Ontario Innovation Tax Credit (OITC): 8% refundable credit
Ontario R&D Tax Credit: 3.5% non-refundable ITC
This means that CCPCs benefit the most from SR&ED and OITC, as they receive higher refundable tax credits, even if they have no tax payable.
How to Claim the Ontario Innovation Tax Credit
Filing for the OITC requires submitting the correct forms along with your corporate tax return.
Key Forms to File:
Schedule 566 – Ontario Innovation Tax Credit
Form T661 – Scientific Research & Experimental Development (SR&ED) Expenditures Claim
Schedule 31 – Investment Tax Credit – Corporations
Schedule 5 – Tax Calculation Supplementary – Corporations (enter the OITC amount on line 468)
To ensure your company receives the maximum eligible tax credit, companies are encouraged to have an expert review these forms.
Common Mistakes & How to Avoid Them
Many businesses miss out on funding due to small errors, inaccuracies, or not understanding the complexities of R&D funding. Here are some common mistakes that can make it challenging to receive the tax credit:
Not properly tracking R&D expenses – Ensure you keep detailed records of all eligible SR&ED expenditures.Failing to file the required forms – OITC requires multiple forms; missing even one could delay your claim. Misunderstanding the expenditure limits – Know how income and capital affect your maximum claim. Waiting too long to apply – Late submissions can lead to lost funding opportunities.
If you're unsure whether you're maximizing your claim, working with grant and tax credit specialists can help streamline the process and increase your refund.
Why This Tax Credit Matters for Startups & Scale-Ups
For early-stage companies, non-dilutive funding is one of the best ways to fuel growth without giving up ownership.
Cash Flow Advantage: The OITC is refundable, meaning you receive the benefit even if your company has no taxable income.
Stacking with Other Incentives: You can combine OITC with federal SR&ED tax credits to maximize funding.
Extends Runway: More funding means more resources for R&D, hiring, and scaling—without raising additional capital.
An Example of The SR&ED & OITC Impact on a CCPC
For a small Ontario-based CCPC with an R&D spend of $1,300,000, the refundable tax credits would be:
Ontario Innovation Tax Credit (OITC) (8%) → $104,000 (Refundable)
Ontario Research & Development Tax Credit (3.5%) → $45,500 (Non-Refundable)
Federal SR&ED Credit (35%) → $455,000 (Refundable)
Total Non-Dilutive Funding: $604,500
This funding significantly reduces R&D costs without giving up equity, making it a valuable tool for startups and scale-ups.
Need Help Maximizing Your OITC Claim?
Navigating tax credits can be complex and time-consuming—but you don’t have to do it alone. At Panna, we specialize in helping startups and scale-ups secure non-dilutive funding, including SR&ED and innovation tax credits.