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Tax Relief Incentives for Small Businesses in Canada

Marin Perez
Tattoo shop owner in his studio

Small businesses are the driving force of Canada's economy. That's why the CRA offers tax relief incentives for many small businesses in Canada. Here's what to know.

What are tax relief incentives for small businesses in Canada?

The government offers many tax relief incentives to spur small businesses. The government believes small businesses are vital to the economy. In fact, according to the Business Development Bank of Canada, 98.2 percent of Canadian businesses have less than 100 employees.  There are a number of tax credits and grants that support small businesses. Keep reading for a list of small business tips that you may be able to benefit from if you're a Canadian business owner.

The scientific research and experimental development tax credit

If you are in the business of creating new products or processes, you may be eligible to receive the SR&ED tax credit. The same is true if you use new materials in the products you develop. The tax credit for eligible projects is equal to 35 percent of your business costs, including salaries, materials and other fees.  To qualify for this tax credit, your work must meet the requirements outlined in subsection 248(1) of the Canada Income Tax Act. This implies research and development pertaining to a field of science or technology and may include any of the following:

  • Basic research
  • Applied research
  • Experimental development
  • Work that corresponds to the needs of the above-mentioned activities in the fields of engineering, design, operations research, mathematical analysis, computer programming, data collection, testing or psychological research.

The tax credit does not apply to:

  • Market research or sales promotion
  • Quality control or routine testing of materials, devices, products or processes
  • Research in the social sciences or the humanities
  • Prospecting, exploring or drilling for, or producing, minerals, petroleum or natural gas
  • The commercial production of new or improved material, device or product or the commercial use of a new or improved process
  • Style changes
  • Routine data collection.

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The apprenticeship job creation tax credit

If your business employs trade workers on an apprenticeship contract, you may be eligible to apply for the Apprenticeship Job Creation Tax Credit. This tax credit is equal to 10 percent of salaries paid to eligible apprentices in the first two years of an apprenticeship contract.

Energy efficiency grants

If you own your place of business, you may be eligible for certain energy efficiency renovation grants. In Quebec, Gaz Metro will help pay for 50 percent of renovations required to retrofit any building with natural gas, up to $100,000.  In Ontario, small manufacturers can look into the Smart Green Program. It provides grants of up to $250,000 to support technology investments that will help to reduce greenhouse gas emissions.  In BC, the home renovation rebate helps homeowners reduce their energy costs by supporting the purchase of natural gas and energy-efficient appliances.  For a complete list of energy efficiency financial incentives by province, you can consult Natural Resources Canada.

Input tax credits

If your business has a GST/HST/PST account, you can recover the sales taxes paid on business expenses. Remember to hold on to those receipts!

The Atlantic Investment tax credit

This investment tax credit may be available to you if you purchase new buildings, machinery or equipment for use in farming, fishing, logging and several other industries in Canada's Atlantic region. For the purposes of this tax credit, the Atlantic region includes Nova Scotia, New Brunswick, Newfoundland, Prince Edward Island, and the Gaspe Peninsula of Quebec.

How to claim tax incentives for small business

In order to claim investment tax credits for your small business, you will need to fill out form T2038(IND). Corporations must use form T2SCH31.  As a general rule, unused investment tax credits can be carried back as far as three years and carried forward 20 years.

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