Ontario SR&ED Tax Credits Up to 40%
Combine the federal SR&ED credit with the Ontario Innovation Tax Credit (OITC) to maximize your R&D tax recovery in Ontario.
Ontario Innovation Tax Credit (OITC)
The Ontario SR&ED tax credit is the Ontario Innovation Tax Credit (OITC): a refundable 8% credit on up to $3 million of eligible SR&ED expenditures per year, available to CCPCs with a permanent establishment in Ontario and claimed on top of the federal credit. Because the CRA treats provincial credits as government assistance that reduces the federal expenditure base, the effective combined rate with the federal enhanced 35% is roughly 40% — not the additive 43% (illustrative; the exact figure depends on your expenditure mix and proxy treatment). The OITC's $3 million limit is Ontario's own and did not move when the federal expenditure limit doubled to $6 million, so spend between $3M and $6M earns the federal 35% with no provincial top-up. Corporations that don't qualify for the OITC — non-CCPCs, or CCPCs past its phase-out thresholds — can claim the separate ORDTC instead: 3.5%, non-refundable, no stated expenditure limit.
Provincial Credit Rate (OITC)
8% (refundable)
Refundable
Yes (CCPCs only)
Expenditure Limit
$3M provincial (max credit $240K)
Effective Combined Rate (CCPC)
≈40% (after federal grind, illustrative)
OITC Phase-Out
$500K–$800K prior-year taxable income; $25M–$50M taxable capital
ORDTC Rate (Non-refundable)
3.5%, carryforward 20 years / carryback 3 years
Federal + ON Credit Stacking
Here's how the credits combine for a CCPC with $500,000 in eligible R&D salaries.
Enhanced rate for CCPCs, applied to the base net of the provincial credit
Refundable
Effective rate: ≈40%
This example uses salaries only. Including contractor costs (at 80%) and materials would increase the total. Overhead (55% proxy) is added automatically. Use our calculator for a detailed estimate.
How to Claim the ON Credit
The forms, schedules, and deadlines you need to capture the Ontario Innovation Tax Credit (OITC).
Form
Schedule 566 — Ontario Innovation Tax Credit (Schedule 508 for the ORDTC)
Schedule
Schedule 566 filed with the T2 for the OITC; Schedule 508 plus line 416 of Schedule 5 for the ORDTC
Deadline
Filed with your T2. The OITC requires a filed federal T661, and the federal SR&ED reporting deadline — 12 months after your T2 due date, i.e. 18 months after year end — is absolute: the CRA cannot grant extensions, so a late federal claim takes the Ontario credit down with it.
- 1Confirm you qualify: CCPC status (for the OITC), a permanent establishment in Ontario, SR&ED performed in Ontario, and eligibility for the federal ITC under section 127.
- 2Prepare the federal claim first — Form T661 and Schedule T2SCH31 — since the OITC requires a filed T661 for the year and uses the same expenditure definitions.
- 3Complete Schedule 566 with your Ontario-attributable eligible expenditures, applying the $3M provincial limit and any phase-out from prior-year taxable income or taxable capital.
- 4If you also claim the ORDTC (or the OITC isn't available to you), complete Schedule 508 and enter the credit on line 416 of Schedule 5.
- 5File everything together with your T2 — the CRA administers Ontario's credits through the federal return, so there is no separate provincial submission.
- 6File well inside the 18-month federal SR&ED reporting deadline; there are no extensions, and the Ontario credits depend on the federal claim being accepted.
Ontario Eligibility Requirements
- You need a permanent establishment in Ontario, and the SR&ED must be carried out in Ontario
- You must be eligible for the federal investment tax credit under section 127 and have filed Form T661 for the year — the OITC rides on the federal claim, not instead of it
- Eligible expenditures mirror federal SR&ED definitions; only the Ontario-attributable share qualifies provincially
- The OITC has its own $3M expenditure limit (maximum credit $240,000), separate from the federal $6M limit; associated corporations share it
- The OITC phases out when prior-year taxable income exceeds $500K (gone at $800K) or taxable capital exceeds $25M (gone at $50M)
- The OITC is claimed on Schedule 566 filed with your T2 — the CRA administers the credit on behalf of Ontario, so there is no separate provincial filing
Important: Provincial credits are claimed on your Ontario corporate tax return, separate from your federal T661 filing with the CRA. Ensure you file both to capture the full combined benefit.
Other Ontario R&D Incentives
Beyond SR&ED, Ontario offers additional programs that can be stacked with your tax credits.
Ontario Research and Development Tax Credit (ORDTC)
A non-refundable 3.5% credit on eligible Ontario SR&ED expenditures, available to all corporations including non-CCPCs, with no stated expenditure limit. Claimed on Schedule 508 (entered on line 416 of Schedule 5) with your T2. Unused credit carries back 3 years or forward 20 years — the fallback for companies that outgrow the OITC.
Who Should Think Twice
SR&ED isn't the right fit for everyone. Skip the claim if any of these describe you.
- You're not a CCPC. The OITC is CCPC-only — claim the 3.5% non-refundable ORDTC instead and carry forward what you can't use.
- Your prior-year taxable income is past $800K or taxable capital is past $50M. The OITC is fully phased out at those levels even though your federal claim isn't; the ORDTC is what remains.
- Your R&D isn't performed in Ontario or you have no permanent establishment there. Only the Ontario-attributable share of your spend qualifies provincially, even if all of it qualifies federally.
Maximize Your Ontario SR&ED Credits
Glauq automates your federal and Ontario provincial SR&ED claims — ensuring you capture every eligible dollar across both programs.
Ontario SR&ED FAQ
What is the Ontario Innovation Tax Credit (OITC)?
The OITC is Ontario's refundable SR&ED credit: 8% of eligible SR&ED expenditures incurred in Ontario, available to CCPCs with a permanent establishment in the province, on up to $3 million of expenditures per year (maximum credit $240,000). It's claimed on Schedule 566 filed with your T2 alongside your federal SR&ED claim — the CRA administers it on behalf of Ontario.
How does the OITC interact with the federal SR&ED credit?
They stack, but not additively. The CRA treats the OITC as government assistance, so it reduces the expenditure base your federal credit is calculated on. Illustratively, a CCPC with $500,000 in eligible Ontario salaries receives $40,000 provincial (8%) plus $161,000 federal (35% of the remaining $460,000) — $201,000 combined, an effective rate of roughly 40%, not the additive 43%. The exact figure depends on your expenditure mix and proxy treatment.
What is the difference between the OITC and the ORDTC?
The OITC is refundable (8%, cash even with no tax payable) but is CCPC-only, capped at $3 million of expenditures, and phases out at higher income and capital. The ORDTC is non-refundable (3.5%, only offsets Ontario tax payable) but is available to all corporations with no stated expenditure limit, and unused amounts carry back 3 years or forward 20. Larger and non-CCPC companies typically use the ORDTC.
When does the OITC phase out?
The $3 million expenditure limit is gradually reduced when the prior year's federal taxable income exceeds $500,000 — eliminated entirely at $800,000 — or when prior-year taxable capital exceeds $25 million, eliminated at $50 million. Associated corporations share the limit, and it's prorated for short tax years. Past those thresholds, the non-refundable ORDTC is the remaining Ontario credit.
Did Ontario's limit increase when the federal expenditure limit doubled to $6 million?
No. The federal enhanced 35% rate now applies to up to $6 million of qualifying expenditures for tax years beginning after December 15, 2024, but the OITC's own limit is still $3 million. Spend between $3 million and $6 million earns the federal 35% with no Ontario top-up — and no provincial grind on that band either.
How and when do I file for the Ontario credits?
Both credits are filed with your T2: the OITC on Schedule 566, the ORDTC on Schedule 508 with the amount entered on line 416 of Schedule 5. The OITC requires a filed federal T661, and the federal SR&ED reporting deadline is 18 months after your fiscal year end with no extensions — miss it and the Ontario credit is lost along with the federal one.