SR&ED Ontario: how the OITC stacks with your federal credit to hit 43%

Key takeaway: The SR&ED Ontario tax credit is really two credits. The Ontario Innovation Tax Credit (OITC) is refundable at 8%, but only on the first $3 million of eligible expenditures. Stack it with the federal enhanced rate of 35%, and a CCPC gets up to 43% back on that first $3 million — but on the next $3 million up to the federal government's new $6 million limit, you get the 35% federal rate alone, because Ontario's own limit didn't move. That gap is the part most Ontario founders miss.

Ontario has the largest concentration of tech companies in Canada, concentrated in the Toronto-Waterloo corridor, and most of them are eligible for two SR&ED credits at once without realizing it. The federal SR&ED program is the same everywhere in the country. What changes province to province is what gets added on top, and in Ontario that's the Ontario Innovation Tax Credit — plus a second, less-used credit for companies that don't qualify for the first one.

Here's what the SR&ED Ontario tax credit actually pays, where its limit diverges from the federal one, who qualifies for which credit, and a worked example so the stacking math is concrete instead of abstract.

What is the Ontario Innovation Tax Credit (OITC)?

The OITC is Ontario's refundable SR&ED credit, worth 8% of eligible SR&ED expenditures, on top of whatever you claim federally. It's a straightforward add-on: file your federal T661 claim, and if your corporation has a permanent establishment in Ontario, the OITC rides alongside it on your provincial return. (For the mechanics of how the two credits combine dollar-for-dollar, see our Ontario SR&ED credit stacking breakdown.)

Two details matter more than the headline rate:

• It has its own $3 million expenditure limit, per the Ontario government's OITC page. That's a provincial limit, separate from the federal expenditure limit, and it applies to the OITC specifically.
• It phases out for larger companies — based on prior-year taxable income between $500,000 and $800,000, and taxable capital between $25 million and $50 million, per the CRA's provincial credits summary. If your corporation is past those thresholds, the OITC shrinks or disappears even though your federal claim doesn't.

The OITC is only available to CCPCs. If your company isn't a CCPC, or you've grown past the phase-out range, the OITC isn't your credit — the ORDTC further down is.

How the OITC stacks with the federal SR&ED credit

The federal side of your claim is the enhanced 35% refundable investment tax credit, available to CCPCs on qualifying expenditures. Add the Ontario government's 8% OITC rate on top, and the combined rate on eligible salary-based spending is 43%.

That's the number most articles stop at. It's also incomplete, because the two credits don't share a limit.

Since Bill C-15 received royal assent on March 26, 2026, the federal enhanced rate applies to up to $6 million of qualifying expenditures per year for tax years beginning after December 15, 2024 — double the old $3 million ceiling. The OITC's own expenditure limit is still $3 million, per Ontario's page, with no indication it moved when the federal limit did.

Run the math and the stacking looks like this for a CCPC spending at the new federal ceiling:

• On the first $3 million of eligible expenditures: 35% federal + 8% OITC = 43% combined.
• On the next $3 million, up to the $6 million federal limit: 35% federal alone. The OITC doesn't apply past its own $3 million limit, so there's no Ontario top-up on that band.

For a company spending $3 million in eligible salaries, that's straightforward: $1.05 million federal plus $240,000 OITC, for $1.29 million total. For a company spending the full $6 million, the last $3 million earns federal credits only — $1.05 million more, with no additional 8% from Ontario. The blended rate on the full $6 million works out to roughly 39%, not the 43% headline number. Founders modeling their claim off the combined percentage alone, without checking which band their spend falls into, tend to overestimate what the provincial side contributes once they're past $3 million.

The ORDTC: the credit for companies that don't qualify for the OITC

If you're not a CCPC, or you're a CCPC past the OITC's phase-out range, Ontario still has a credit for you: the Ontario Research and Development Tax Credit (ORDTC), at 3.5% and non-refundable, with a 20-year carryforward.

The trade-offs run in opposite directions:

• OITC: 8%, refundable (cash even at zero tax payable), capped at $3 million of expenditures, CCPCs only, phases out at higher income and capital.
• ORDTC: 3.5%, non-refundable (it only offsets tax you actually owe), no expenditure limit stated on the CRA's page, available to any corporation including non-CCPCs, 20-year carryforward if you can't use it immediately.

A profitable, larger Ontario company that's grown out of CCPC status, or past the OITC's phase-out thresholds, doesn't lose access to a provincial credit — it just gets the non-refundable one instead of the refundable one. That's a materially different cash-flow outcome, and it's worth knowing before you assume "we're too big for Ontario's credit" is the end of the story.

Who qualifies for the SR&ED Ontario tax credit

Provincial eligibility rides on top of federal eligibility, not instead of it. You need to clear the federal bar first: work that advances scientific knowledge or resolves technological uncertainty, carried out through systematic investigation. That's the same test everywhere in Canada — the CRA doesn't run a different eligibility standard for Ontario claimants.

What Ontario adds is a residency requirement: your corporation needs a permanent establishment in the province, and the expenditures claimed for the OITC or ORDTC need to be incurred there. If your team works across provinces — engineers in Toronto, a contractor in Halifax — only the Ontario-attributable share qualifies for the Ontario credit, even though all of it can still qualify federally.

Practically, most Ontario-headquartered software and hardware startups doing real product R&D clear both bars without much extra work: the federal eligibility test and the Ontario permanent-establishment requirement. The part that actually trips people up isn't eligibility — it's the paperwork. The OITC and ORDTC are claimed on your Ontario corporate tax return, separate from the federal T661 filing with the CRA. File your federal SR&ED claim and skip the Ontario schedule, and you leave the provincial credit on the table even though you qualified for it.

A worked example: $500,000 in Ontario R&D salaries

Take a CCPC with a permanent establishment in Ontario, spending $500,000 in eligible SR&ED salaries in a year — comfortably inside the OITC's $3 million limit.

• Federal enhanced ITC (35%): $175,000, 100% refundable up to the expenditure limit.
• Ontario OITC (8%): $40,000, refundable.
• Combined: $215,000, or 43% of the $500,000 spent.

That's before the prescribed proxy amount, which adds 55% of your salary base as a standardized overhead allowance if you use the proxy method instead of tracking actual overhead costs — meaning the credit base is typically larger than the raw salary figure once overhead is included. The exact effect depends on your specific expenditures, so Glauq's calculator is a faster way to get a number for your actual numbers than doing the proxy math by hand.

Now scale that same company up to the federal expenditure limit, spending $6 million in eligible expenditures in a year, to see where the OITC's separate cap actually bites:

• First $3 million: $1.05 million federal (35%) + $240,000 OITC (8%) = $1.29 million, a 43% blended rate on that portion.
• Next $3 million, up to the $6 million federal ceiling: $1.05 million federal (35%) only — the OITC doesn't extend past its own $3 million limit, so there's no additional 8% here.
• Total on $6 million spent: $2.34 million, which works out to a 39% blended rate on the full amount — not the 43% a founder might expect from reading the OITC and federal rates side by side.

That $240,000 gap between "43% of $6 million" ($2.58 million) and the actual $2.34 million is the single most common modeling error we see in Ontario claim estimates, and it only shows up once a company's spend crosses the $3 million mark.

How Ontario compares to the rest of the country

Ontario's 8% OITC isn't the highest provincial rate in Canada, and it's worth knowing that honestly rather than only hearing it from a sales pitch. A few points of comparison, based on verified provincial rates:

• British Columbia offers a 10% refundable credit for CCPCs, and — unlike Ontario's OITC — BC's provincial limit now tracks the federal $6 million expenditure limit, following BC's 2026 budget. That means a BC CCPC spending the full $6 million gets the provincial top-up on the whole amount, where an Ontario CCPC only gets it on the first $3 million.
• Quebec runs a different structure entirely: the refundable CRIC credit pays 30% on the first $1 million above an exclusion threshold and 20% above that, for tax years beginning after March 25, 2025.
• Alberta's Innovation Employment Grant pays 8% up to a base spend level and 20% above it, up to $4 million in annual R&D spend — a different mechanism (a grant layered on the federal credit, not a stacked tax credit) but comparable in effect.
• NWT, Nunavut, and PEI have no provincial R&D credit at all, per the CRA's own provincial credits summary.

None of that is a reason to relocate a company for tax purposes — provincial credit differences are real but usually smaller than the cost and disruption of moving a team, and Ontario's talent pool and ecosystem density are worth more to most startups than a few percentage points of provincial rate. It is a reason to know your actual combined number instead of assuming "43%" applies past $3 million, and to check whether a BC-based team member's spend might genuinely earn more on the provincial side if your company happens to have operations in both provinces already.

Filing: what's different at the provincial level

The federal and Ontario credits are filed separately, and missing that catches people who assume one filing covers both.

• Federal claim: Form T661 plus Schedule T2SCH31, filed with your T2 corporate return, due 18 months after your fiscal year end — the same hard deadline with no extensions that applies everywhere in Canada.
• Ontario claim (OITC or ORDTC): filed on your Ontario corporate tax return, alongside the federal filing rather than as part of it.

Both need to be complete and filed on time to capture the full combined benefit. A federal claim filed correctly with no corresponding Ontario schedule still gets you the 35%, but leaves the OITC's refundable 8% — real cash — unclaimed.

How the 2026 federal changes affect Ontario claimants

The base OITC rate and its $3 million limit are provincial and untouched by federal legislation. What changed federally, per Bill C-15, still reshapes the overall math for Ontario companies:

• The federal expenditure limit doubled to $6 million, so Ontario CCPCs can now earn the 35% federal rate on twice as much spend — even though the OITC's own $3 million limit means the provincial top-up doesn't follow it past that point.
• The taxable-capital phase-out range moved to $15 million–$75 million federally, letting growing Ontario companies keep the federal enhanced rate longer. The OITC's own phase-out ($25 million–$50 million taxable capital, per the CRA's provincial page) is a separate threshold and didn't move with it.
• Capital expenditures incurred after December 15, 2024 are eligible again federally.

The net effect for a scaling Ontario software company: the federal side of the claim can now grow well past what the OITC covers, which makes the $3 million provincial ceiling worth watching as your R&D spend grows, rather than something to check once and forget.

Where pre-claim approval fits for a growing Ontario claim

As of April 1, 2026, the CRA offers an optional pre-claim approval process, applied for through My Business Account before you start the work. It's a federal program, not an Ontario-specific one, but it's particularly useful for a scaling Ontario company for one specific reason: it settles the federal eligibility question for up to three projects, for up to three years, before you've committed the spend.

That matters because the provincial OITC and ORDTC ride on top of federal eligibility. If a project is pre-approved federally, you've removed the biggest source of claim risk before you decide how much of that $3 million-to-$6 million range to spend on it. The program is open to CCPCs, other Canadian corporations, and partnerships with gross business income under $25 million, in good standing, on projects not previously claimed or under litigation. A determination arrives within 8 weeks, and claims made up only of pre-approved projects get a faster, expenditures-only review — 90 days instead of the standard 180. None of this changes your 18-month filing deadline or either provincial credit's own limit, but for a growing team deciding whether next year's roadmap clears the SR&ED bar, it's a lower-risk way to find out than waiting until claim time.

Software is where most Ontario claims already are

Ontario's tech sector skews heavily toward software, and that lines up with the national numbers: software development accounted for 42.6% of the investment tax credits allowed nationally in FY2025-26, the single largest category by a wide margin. If your Ontario company builds software and you've assumed SR&ED is mainly for hardware or lab-based R&D, that assumption is backwards — more of what your engineering team does likely qualifies than you'd guess, and the OITC applies to software salary costs the same way it applies to any other eligible expenditure.

That same CRA dataset shows 90% of claims nationally were accepted as filed with no review in FY2025-26, and refundable claims accepted as filed were processed within 60 calendar days 95% of the time. Those figures are federal service standards for the CRA's SR&ED review, not the Ontario government's processing of the OITC or ORDTC — the two credits are assessed on separate returns, so a fast federal outcome doesn't guarantee an identical timeline on the Ontario side.

Frequently asked questions

What is the SR&ED Ontario tax credit rate? It depends which credit you're claiming. The Ontario Innovation Tax Credit (OITC) is 8%, refundable, for CCPCs on up to $3 million of eligible expenditures. Combined with the federal enhanced rate of 35%, that's up to 43% on that first $3 million. The alternative Ontario Research and Development Tax Credit (ORDTC) is 3.5%, non-refundable, with no stated expenditure limit and available to any corporation.

Can I claim both the OITC and the federal SR&ED credit? Yes — they're designed to stack. The OITC is filed on your Ontario corporate tax return alongside, not instead of, your federal T661 and Schedule T2SCH31. A CCPC with $500,000 in eligible Ontario salaries would receive $175,000 federal (35%) plus $40,000 Ontario (8%), for $215,000 combined.

Does the Ontario credit apply to the same $6 million limit as the federal credit? No. The federal enhanced rate now applies to up to $6 million of qualifying expenditures, per Bill C-15. The OITC's own expenditure limit is $3 million and doesn't track the federal number. Spend between $3 million and $6 million earns the federal 35% but not the Ontario 8% top-up.

What if my company isn't a CCPC? The OITC is CCPC-only. Other corporations can claim the Ontario Research and Development Tax Credit (ORDTC) instead — 3.5%, non-refundable, carried forward up to 20 years, with no expenditure limit stated on the CRA's page.

Do I need a permanent establishment in Ontario to claim these credits? Yes. Both the OITC and ORDTC require a permanent establishment in Ontario, and the expenditures claimed need to be incurred there. Federal SR&ED eligibility has no such requirement — a team split across provinces can still claim 100% federally, but only the Ontario-attributable share qualifies for Ontario's credits.

Is Ontario's SR&ED credit the most generous in Canada? No, and it's worth saying plainly. BC's 10% and Quebec's CRIC (30% on the first $1 million above a threshold) both pay a higher provincial rate, per BC's SR&ED page and Quebec's CRIC page. Ontario's advantage is ecosystem density, not tax rate — SR&ED eligibility itself and your talent pool usually matter more to where you build than a few points of provincial credit.

The federal and provincial rules interact in ways that are easy to model wrong from the headline rate alone — the 43% number is real, but it only applies to the first $3 million, and knowing where that line sits is the difference between an accurate claim estimate and an optimistic one.

See what your Ontario SR&ED claim could be worth — estimate your combined federal and OITC refund, read the full 2026 SR&ED guide, or check your eligibility.