Ontario Innovation & SR&ED Tax Credits (2025 Guide)

Ontario businesses at the forefront of innovation, technology, and research can access a powerful suite of provincial and federal tax credits—dramatically reducing the cost of R&D, digital product development, and scientific experimentation. The two main Ontario innovation credits, the Ontario Innovation Tax Credit (OITC) and the Ontario Research & Development Tax Credit (ORDTC), are fully stackable with the federal SR&ED program, and are among the most generous R&D incentives in Canada. Whether you’re a startup, growing SME, manufacturer, or tech firm, understanding these credits—and how to coordinate claims—can put hundreds of thousands of dollars back into your business.

Eligibility for OITC, ORDTC, and SR&ED
How to stack Ontario and federal credits
Digital media & interactive media credits overview
Application and documentation requirements
Step-by-step claim process and expert tips

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Ontario Innovation Tax Credit (OITC)

What is it? The OITC is a 10% refundable tax credit for eligible scientific research and experimental development (SR&ED) expenditures performed in Ontario, up to $3 million in annual eligible expenditures. Refundable means your company gets cash back even if you have no taxes owing.
Who can claim? Canadian-Controlled Private Corporations (CCPCs) with a permanent establishment in Ontario, qualifying for the federal SR&ED program, and with less than $800 million in prior-year worldwide taxable capital.
Eligible expenditures: Salaries/wages, materials, overhead, and certain contracts directly related to SR&ED activities performed in Ontario. Must be claimed as eligible under the federal T661 schedule.
Step-by-step claim process:
1. Track eligible SR&ED expenditures by project and location throughout the fiscal year.
2. Prepare the federal T661 SR&ED claim and ensure all Ontario expenditures are clearly identified.
3. Complete Ontario Schedule 566 (OITC) and attach to your T2 corporate return.
4. Submit within 18 months of your fiscal year-end.
Calculation example: If your Ontario CCPC spends $250,000 on eligible R&D, you receive a $25,000 OITC refund (10% x $250,000), even if you have no Ontario tax owing.
Documentation required: Payroll records, timesheets, technical reports, contracts, and allocation of expenses by province and project. Keep records for at least 7 years.
Stacking: OITC is fully stackable with federal SR&ED and the ORDTC—plan claims to maximize total refund. Deduct the OITC refund from your federal claim as required.

Ontario Research & Development Tax Credit (ORDTC)

What is it? The ORDTC is a 3.5% non-refundable tax credit for qualifying SR&ED expenditures performed in Ontario. Non-refundable means it can be used to reduce Ontario tax, but not paid out as a cash refund.
Who can claim? All corporations with a permanent establishment in Ontario (not just CCPCs) and eligible SR&ED expenditures in the province.
Step-by-step claim process:
1. Identify SR&ED expenditures performed in Ontario when preparing your T661 claim.
2. Complete Ontario Schedule 508 (ORDTC) and attach to your T2 corporate return.
3. ORDTC can be carried forward 20 years or back 3 years if not used immediately.
Calculation example: If your corporation incurs $400,000 in eligible Ontario SR&ED, you can claim $14,000 ORDTC (3.5% x $400,000). If you have no Ontario taxes payable, the credit is carried forward.
Documentation required: As for OITC: SR&ED project documentation, payroll, contracts, and cost allocations. Must be able to demonstrate Ontario location of work.
Stacking: Can be claimed in addition to OITC and federal SR&ED, but expenditures must be coordinated to avoid double-counting (you cannot claim the same dollar on more than one schedule).

Tip: Most Ontario SMEs claim both OITC (refundable) and ORDTC (non-refundable). Use OITC to recover costs early—carry forward ORDTC to offset future profits.

Federal SR&ED: Scientific Research & Experimental Development

The federal SR&ED program is Canada’s largest R&D tax incentive, offering up to 35% refundable credit for CCPCs and 15% non-refundable for other corporations.
Eligible work includes basic/applied research, experimental development, and support activities (engineering, design, data collection, etc.) performed in Canada.
Ontario businesses can claim federal SR&ED and both OITC & ORDTC on the same expenditures (with adjustment for net eligible costs).
Claim process: File the federal T661 with your T2 return, and coordinate your Ontario schedules to ensure expenditures are properly allocated.
Key documentation: Detailed technical descriptions (Part 2 of T661), timesheets, payroll, and cost breakout by project and province.
Nuances: You must reduce your federal SR&ED claim by the amount of provincial credits received. File within 18 months of year-end.

Ontario Digital Media & Interactive Credits (Related)

Ontario Interactive Digital Media Tax Credit (OIDMTC): Refundable credit (up to 40%) for eligible labour, marketing, and distribution costs related to digital games, e-learning, or interactive media developed in Ontario.
Film/Animation Credits: Ontario offers generous refundable credits for qualifying film, TV, animation, and VFX projects—stackable with federal CPTC/PSTC.
Who can claim? Incorporated digital media, gaming, animation, and film companies with Ontario-based content, staff, and expenditures.
Step-by-step claim process:
1. Apply for eligibility certification through Ontario Creates (OMDC) before or during production.
2. Track eligible Ontario labour and costs by project.
3. File OIDMTC and/or film schedules with your T2 corporate return after project completion.
Calculation example: A Toronto gaming studio spends $500,000 on Ontario labour. They claim a $200,000 OIDMTC refund (40% x $500,000).
Documentation required: Payroll, contracts, project plans, OMDC certificate, and proof of Ontario work and residency for staff.
Stacking: OIDMTC and film credits can be stacked with federal incentives and (if eligible) SR&ED/OITC, provided you do not double-claim the same expense. Maintain very clear cost separation by project and program.

Tip: OIDMTC can be claimed for both in-house and contract development. Keep detailed project records and payroll documentation.

Practical Scenarios & Calculation Examples

Scenario 1: Stacking Ontario and Federal SR&ED Credits

Example: Ontario CCPC with $500,000 eligible SR&ED expenditures (all Ontario-based).

Federal SR&ED (refundable): 35% x $500,000 = $175,000
Ontario OITC (refundable): 10% x $500,000 = $50,000
Ontario ORDTC (non-refundable): 3.5% x $500,000 = $17,500
Total refund/credit: $242,500 (ORDTC can be carried forward if not needed this year)

Note: Federal claim must be reduced by the amount of provincial credits received.

Scenario 2: OIDMTC and OITC Stacking for a Startup

Example: A startup digital media company spends $200,000 on Ontario labour for a new e-learning platform. It claims:

OIDMTC (40% of $200,000): $80,000 (refundable)
OITC (if SR&ED eligible, 10% of $200,000): $20,000 (refundable)
If eligible, also claims federal SR&ED: 35% x $200,000 = $70,000 (refundable, net of provincial credits)

Each credit must be claimed on distinct expenditures (no double-counting). Keep costs and documentation separate for audit.

Scenario 3: ORDTC Carryforward

Example: An Ontario manufacturer incurs $600,000 in eligible SR&ED. They receive $60,000 OITC (10%), $21,000 ORDTC (3.5%). If the company is not profitable in this tax year, the ORDTC is carried forward up to 20 years to offset future Ontario taxes.

Audit Risk, Common Errors & Documentation Best Practices

Audit risk is high for SR&ED and digital media claims—CRA and Ontario Ministry of Finance often review technical and cost documentation.
Common errors:
- Failing to separate Ontario and out-of-province expenditures.
- Claiming the same expense for multiple credits (e.g., OITC and OIDMTC) without proper allocation.
- Missing the application deadline (18 months after year-end).
- Insufficient technical documentation (lack of project details, payroll, or timesheets).
- Late or missing eligibility certificate for OIDMTC/film credits.
Best practices:
- Keep all technical project reports, time logs, payroll, contracts, and cost allocations for at least 7 years.
- Maintain a clear file for each credit and project (including correspondence, certificates, and receipts).
- Review guidelines annually—rates and rules can change.
- Consult an R&D tax specialist or experienced accountant for complex or high-value claims.

Internal Links: Related Ontario and Canada-Wide Innovation & Business Credit Guides

Official Resources & More Information

Frequently Asked Questions: Ontario Innovation & R&D Credits

Can I claim both OITC and ORDTC?

Yes. Most CCPCs claim both credits for the same expenditures, maximizing cash refunds and future tax reductions. Ensure you follow the order of claim and coordinate with federal SR&ED. OITC is refundable, ORDTC is non-refundable and can be carried forward 20 years.

What if my business is not a CCPC?

Non-CCPCs (public or foreign-owned) can claim the non-refundable ORDTC, but are not eligible for the refundable OITC. Only expenditures performed in Ontario qualify.

How far back can I claim these credits?

SR&ED and Ontario credits must generally be claimed within 18 months of the tax year-end in which expenses were incurred. ORDTC carryforward/back rules allow you to use unused credit for up to 20 years or back 3 years.

Can I claim OITC or ORDTC if my R&D is performed outside Ontario?

No. Only eligible SR&ED expenditures performed in Ontario qualify for OITC/ORDTC. You must track expenditures by province and maintain supporting documentation for the Ontario work.

Do I need to submit supporting documentation with my claim?

You do not submit supporting documents with your return, but you must keep all technical, payroll, and financial records in case of audit by the CRA or Ontario Ministry of Finance. Be prepared to provide detailed project descriptions, timesheets, and cost breakdowns.

Can digital media, gaming, or film/animation companies claim both the OIDMTC and OITC/SR&ED?

Yes, provided you claim distinct expenditures for each credit and maintain clear separation of project costs. Many Ontario tech, media, and gaming firms claim both. Double-claiming is a common audit risk, so keep detailed cost records by project and program.

What are the most common audit triggers or mistakes?

Common triggers include: insufficient technical documentation, lack of separation between Ontario and out-of-province costs, double-claiming expenses, missing eligibility certificates (for OIDMTC/film), and late filings. Always document each project, maintain logs, and file on time.

How do I coordinate stacking of OITC, ORDTC, and federal SR&ED?

Claim eligible SR&ED expenditures on federal T661 first. Claim OITC (refundable) and ORDTC (non-refundable) on Ontario schedules, and reduce your federal claim by the amount of provincial credits. Track all cost allocations and deductions carefully. Consult a tax professional for complex claims.