Startup Tax Incentives in Canada: Comprehensive Guide for 2025

SR&ED: Scientific Research & Experimental Development Tax Credit

• What it is: The SR&ED program is Canada’s largest innovation tax incentive, providing refundable and non-refundable tax credits for qualifying R&D expenditures—available to incorporated startups and SMEs.
• Who qualifies: Canadian Controlled Private Corporations (CCPCs) carrying out scientific or technological innovation (e.g., new software, hardware, processes, algorithms, or products). Proprietorships and partnerships may also access a reduced credit.
• How much: Up to 35% refundable credit on eligible salaries, materials, overhead, and contractor costs (up to $3M) for CCPCs; 15% non-refundable for others.
• Claim process: File form T661 with your corporate tax return (T2), including technical project descriptions and expense breakdowns. Many startups engage SR&ED consultants—though this is not required.
• Stackable: You can combine federal SR&ED with provincial R&D credits.
• Tip: Track employee hours and technical progress from day 1, even pre-revenue. Many software, AI, and SaaS firms qualify—even for “failed” or unfinished projects.
• Resources: Official SR&ED Program (CRA)

Digital Media & Technology Tax Credits

• What they are: Many provinces offer refundable tax credits for digital media, game development, e-learning, animation, and VFX production—stackable with federal incentives.
• Who qualifies: Startups developing video games, interactive apps, educational software, digital media platforms, or animation/VFX. Most require BC, Ontario, Quebec, or Nova Scotia incorporation and “eligible labour/content.”
• Major credits:
  • Ontario Interactive Digital Media Tax Credit (OIDMTC): Up to 40% refundable credit on qualifying labour and production costs. Applies to in-house, contract, and even “startup incubator” projects.
  • BC Interactive Digital Media Tax Credit (IDMTC): 17.5% refundable credit for BC-based digital media development.
  • Quebec Multimedia Titles Credit: Up to 37.5% refundable credit for eligible salaries in multimedia/game development.
  • Nova Scotia Digital Media Tax Credit: 50% on eligible salaries (with caps).
• Claim process: Register with the relevant provincial agency (e.g., Ontario Creates, Creative BC, SODEC in Quebec) and file supporting payroll/project records.
• Tip: Digital media credits can be claimed before profit and often result in a cash refund—even for pre-revenue startups!

Angel Investor & Venture Capital Tax Credits

• What they are: Several provinces offer tax credits to investors who buy shares in eligible startups—making it easier to attract capital.
• How it helps startups: Startups can market their “angel eligibility” to investors, increasing fundraising success and speed.
• Major credits:
  • British Columbia: 30% refundable credit for eligible investments in BC-based startups (maximum $120,000 per investor per year).
  • Ontario: Ontario Venture Capital Tax Credit (paused, but may return), and the federal Labour-Sponsored Venture Capital Corporation (LSVCC) credit.
  • Quebec: 30% credit for investments in eligible innovative companies or funds.
  • New Brunswick, Nova Scotia, Manitoba: 15–50% credits for investments in qualifying local startups.
• Claim process: Startups must register and obtain eligibility before issuing shares. Investors receive a slip for their personal tax return.
• Tip: Highlight these credits in your pitch deck and on your website to attract local investors.

Hiring, Training & Wage Subsidy Incentives

• Canada Job Grant: Subsidizes up to 66% (maximum $10,000) of training costs for new hires or upskilling current staff. Available in every province with local variations.
• Student & Youth Hiring Programs: Canada Summer Jobs, Mitacs internships, and provincial co-op credits reduce payroll costs for startups hiring students, grads, or in-demand tech talent.
  • Ontario Co-operative Education Tax Credit: Up to $3,000 per co-op student placement.
  • BC Co-op and Training Tax Credits: Up to $2,700 per placement; additional for apprenticeships or underrepresented groups.
  • Quebec Co-op/Intern Credits: Refundable credits for eligible student salaries.
• Apprenticeship Job Creation Tax Credit: 10% federal credit (up to $2,000/employee/year) for hiring eligible apprentices in Red Seal trades.
• Work-Sharing & Wage Subsidy Programs: Temporary wage support in downturns or for re-skilling, often available to early-stage tech and innovation startups.
• Tip: Apply early—some programs are first-come, first-served. Many can be stacked with R&D or digital credits.

Startup-Friendly Deductions & Tax Planning

• Startup Costs: Expenses incurred before your business opens (incorporation fees, legal, market research, prototype costs) are deductible in your first year.
• Capital Cost Allowance (CCA): Accelerated depreciation for computers, technology equipment, and manufacturing assets. Many innovation assets qualify for enhanced write-offs.
• Home Office & Remote Work: Deduct a portion of rent, utilities, and internet if you operate from home.
• Professional Fees: Deduct costs for legal, accounting, patent filings, and consulting—even if incurred pre-revenue.
• Business-Use-of-Vehicle: Deduct eligible vehicle expenses for business travel, meetings, or sales.
• GST/HST Input Tax Credits: Recover sales tax paid on business purchases, including pre-revenue R&D or prototype expenses, once registered.
• Tip: Meticulous record-keeping is essential—track all expenses, payroll, and contracts from day one.
• More: See our Small Business Deductions guide for a full list.

Provincial Startup & Innovation Incentives (Highlights)

For province-specific business credit guides, visit:
Ontario | BC | Quebec | Alberta

How to Maximize Your Startup Incentives

• Apply Early: Some credits (angel, digital media, wage grants) require pre-approval or registration before issuing shares or hiring.
• Stack Credits: Most federal and provincial innovation credits are stackable, letting you claim multiple refunds on the same dollars spent.
• Track Time & Expenses: Keep detailed records and logs for all R&D, labour, and eligible expenditures for audit defence.
• Leverage Incubators/Accelerators: Many offer grant-writing help and connect startups to regional funding programs.
• Consult Advisors: For complex claims (SR&ED, digital media), a specialized tax advisor can help optimize and defend your claim.
• File On Time: Most credits must be claimed with your corporate tax return (T2)—late filings may forfeit your refund.
• Review Annually: Programs change—check for new incentives each year and when expanding to new provinces.

Frequently Asked Questions: Startup Tax Incentives