Ontario Innovation Tax Credit: Eligible R&D Expenses

If you run R&D in Ontario, knowing which costs qualify for the Ontario Innovation Tax Credit (OITC) can mean tens of thousands of dollars back in cash. Many businesses miss out because they assume only lab work counts, or they track expenses the wrong way. The OITC is a refundable Ontario corporate tax credit tied directly to eligible SR&ED work performed in the province.

Eligible R&D Expenses

The Ontario Innovation Tax Credit is calculated on qualified SR&ED expenditures that also qualify for the federal Scientific Research and Experimental Development (SR&ED) program, as long as the work is done in Ontario.

Core eligible R&D expenses

Your business can usually claim the following costs if they directly support eligible SR&ED activities:

Employee wages and salaries
- Salaries, wages, bonuses, and taxable benefits for employees performing or directly supporting SR&ED.
- Only the portion of time spent on SR&ED work counts.
Materials consumed or transformed
- Raw materials, prototypes, and components used up or changed during experimentation.
- Materials that remain intact after testing are usually not eligible.
SR&ED contracts and third-party payments
- Payments to contractors performing SR&ED on your behalf in Ontario.
- Must meet federal SR&ED rules and documentation standards.
Overhead and other expenditures (traditional method)
- Utilities, rent, and maintenance directly related to SR&ED.
- Must be clearly tied to eligible R&D activities.

These expenses must first qualify under federal SR&ED rules because the OITC uses the same base definition.

Tools like GrantHub’s eligibility matcher can help you filter Ontario R&D incentives by business type and confirm which expenses typically qualify.

Ineligible Expenses

Not every innovation-related cost counts as SR&ED. Common ineligible expenses include:

Market research or customer surveys
Quality control or routine testing
Commercial production after the experimental phase
Sales, marketing, or distribution costs
Capital expenditures such as buildings or large equipment

If the work does not aim to resolve a scientific or technological uncertainty, it will not qualify, even if it feels innovative.

How to Claim the OITC

Understanding how the OITC is calculated can help you plan your R&D budget.

Credit rate:
- 8% for taxation years that begin after May 31, 2016.
- Proration applies for taxation years that straddle this date.
- Earlier years used a 10% rate.
Maximum credit:
- Up to $240,000 per taxation year for years starting after May 31, 2016.
- Prorated maximums apply for straddle years.
Refundable:
- You receive the credit even if your corporation owes no Ontario corporate tax.

The OITC is claimed when you file your Ontario corporate income tax return, alongside your federal SR&ED claim. You must file a valid federal SR&ED claim first. The same pool of eligible expenditures is used for both programs. The OITC reduces the SR&ED expenditure pool for future years. This can affect your long-term planning.

Many Ontario tech and manufacturing firms use this combined approach to help offset R&D payroll costs.

Common Mistakes to Avoid

Claiming non-SR&ED work
Software updates, styling changes, or routine engineering improvements are often rejected.
Poor time tracking
CRA and Ontario both expect clear support for how much employee time went to SR&ED.
Forgetting subcontractor documentation
Contracts should clearly describe the SR&ED work performed in Ontario.
Assuming profitability is required
The OITC is refundable. You can claim it even in a loss year.

Frequently Asked Questions

Q: What is the Ontario Innovation Tax Credit?
It is a refundable Ontario corporate tax credit for eligible SR&ED expenditures performed in Ontario. It is claimed alongside the federal SR&ED program.

Q: Who can claim the Ontario Innovation Tax Credit?
Qualifying corporations that carry out eligible SR&ED activities in Ontario can claim the credit.

Q: What expenses qualify for the Ontario Innovation Tax Credit?
Eligible expenses generally include SR&ED wages, materials, and certain overhead costs that meet federal SR&ED rules.

Q: What is the current OITC rate?
The rate is 8% for taxation years beginning after May 31, 2016, with proration rules for straddle years.

Q: Can the Ontario Innovation Tax Credit be combined with SR&ED?
Yes. The OITC is typically claimed in addition to federal SR&ED investment tax credits.

GrantHub tracks hundreds of active grant and tax credit programs across Canada—including provincial R&D incentives—so you can quickly see which ones match your business profile.

Next Steps

If you are already tracking SR&ED work, reviewing your expense categories is the fastest way to increase your Ontario Innovation Tax Credit claim. GrantHub helps Ontario businesses identify R&D funding and tax credits that fit their industry, size, and growth stage, all in one place.

Ontario Innovation Tax Credit: Eligible R&D Expenses