Investment Tax Credits for Canadian Small Businesses
Good business fuels the Canadian economy. Canadian start-ups and small businesses provide jobs and re-distribute income back into our country. The Canadian government leverages Investment Tax Credits to encourage innovative citizens to launch businesses and adhere to financial best practices, enhancing our Canadian landscape. Investment Tax Credits (ITCs) reduce the amount of tax that a Canadian business owner must payout on his/her taxable income. However, the government has a long list of criteria for companies who hope to apply for tax credits. Below, we briefly cover the general rules to abide by when applying for a Canadian tax credit.
The taxation forms that you must fill out will depend on your decision to file as an individual or a corporation. What type of business you run and how you have decided to structure it will shape this decision. Regardless of how you decide to file, be aware that any rebates (e.g. HST/GST rebates) that you received during your taxable year must be deducted before you apply for ITCs
What Investment Tax Credits Are Available to Canadian Small Businesses?
The Investment Tax Credits that are available to Canadian small businesses include:
- The Cost of Qualified Property
- Research & Development Investment Tax Credit & Refund
- Investment Tax Credit for Child Care Spaces
- Apprenticeship Job Creation Tax Credit
We have previously covered number 3 and number 4 in our blog, “What Tax Breaks Exist for Canadian Small Businesses.” If these credits directly apply to your business, click here to learn how to establish your eligibility and properly apply.
In certain provinces, small businesses are able to claim the cost of qualified property. Businesses who implement designated activities on or with their property are eligible for this investment credit. Qualified property is described as the property that is purchased during the taxable year to leverage for designated activities. These designated activities generally refer to any activity whereby a Canadian business creates products for sale or lease. You may be eligible for investment credits if you are a Canadian business leveraging Canadian land to extract minerals, oils, natural gases, or to farm produce or meat. You must be using your property to create goods that will be sold or leased to generate income for a property situated in Canada.
Receiving an Investment Credit from the CRA
The Canada Revenue Agency (CRA) will determine if your company, “advances the understanding of scientific relations or technologies, addresses scientific or technological uncertainty, and incorporates a systemic investigation by qualified personnel.” If you meet CRA’s requirements, upon successful application, your company should receive an Investment Credit.
Please know that this particular credit is not limited to corporations. Partnerships and sole-proprietors may also qualify for a Research and Development Tax Credit — if their work is regarded as aligning itself with the aforementioned qualifiers. The misconception that only corporations qualify may stem from the fact that larger corporations will typically benefit the most from these tax credits, as they are apt to have a greater amount of taxable income. Further, the actual percentage of income that Canadian corporations are able to claim is greater than small businesses on up to the first $3 million of qualified expenditures.
Research and Development Tax Credits
If you do not operate a property that produces sellable goods, but instead dedicate your time to research and development, you may still be eligible for an Investment Tax Credit. This tax credit does not apply to every single company that claims to research or develop any number of things. In order to be eligible for Research Development Tax Credits, you must prove that your company is actually achieving scientific or technological advancement.
Over and above the tax credits offered by the federal government, provinces offer a unique set of tax credits for their small business owners. Visit the Canada Revenue Agency website to learn about your province’s Investment Tax Credit model. Otherwise, contact our team of knowledge taxation professionals. We will be happy to collaborate with you to establish which tax credits you are eligible for. Our accountants will prepare your financial reports, so that you can take advantage of all of the beneficial tax breaks that are relevant to you.
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