Ontario Innovation Tax Credit

Insider Tip

File Form T661 within the 18-month deadline even if your SR&ED eligibility is uncertain — you can refine the claim through the CRA review process, but you cannot file late. Use CRA's free SR&ED Pre-Claim Consultation service to get informal confirmation of project eligibility before filing, which also creates a paper trail of CRA guidance that helps in audit. For first-time claimants, hiring an SR&ED consultant on contingency costs nothing upfront and significantly reduces audit risk through proper project narrative structuring.

Rejection Pitfalls 10

• Underlying SR&ED claim disallowed by CRA technical reviewer — insufficient evidence of technological uncertainty or advancement beyond routine engineering
• Missing 18-month T661/Schedule 566 filing deadline (permanent, no appeals process for late filing)
• Including ineligible expenditures (routine testing, maintenance, market research, administration)

Success Profile

Ontario-based CCPC with prior-year taxable income under $500K and taxable capital under $25M, conducting qualifying SR&ED activities (software, biotech, advanced manufacturing, AI/ML, materials science). R&D team of 5–20 people with annual Ontario R&D payroll of $500K–$3M. Uses specialist SR&ED consultant for claim preparation. Has contemporaneous project documentation (timesheets, lab notebooks, Git commit history). Files T2 + T661 + Schedule 566 together well before the 18-month deadline.

Evaluation Criteria

Non-competitive entitlement. Evaluation is a two-part check: (1) does the corporation qualify for the federal SR&ED ITC under ITA s.127, and (2) does it have a permanent establishment in Ontario? The OITC rate and cap phase-out is applied automatically based on the corporation's taxable income and taxable capital from the prior year. CRA adjudicates all SR&ED technical questions; Ontario does not conduct separate technical reviews.

Application Steps

Required Documents 11

Eligible Expenses 6

• Ontario-attributable SR&ED salaries and wages (including employer-paid CPP, EI, and provincial health levies)
• Materials consumed or transformed in SR&ED experimentation
• Overhead via 55% proxy method on eligible SR&ED salaries
• Arm's-length subcontractor SR&ED payments (at 80% of amount paid)
• Non-arm's-length subcontractor SR&ED (at 100% of salaries paid to subcontractor employees)
• Capital expenditures for SR&ED equipment used 90%+ for SR&ED (eligible post-Budget 2025)

Ineligible Expenses 6

• Routine engineering, software maintenance, or quality assurance testing
• Market research, social science, or humanities research
• Administration, HR, and overhead not captured by proxy method
• Foreign subcontractor payments
• R&D activities conducted outside Ontario (costs must be Ontario-attributable)
• Expenditures of corporations with taxable capital (associated group) exceeding $50M (phase-out complete)

Intake Periods

Ongoing — no intake windows. File with the T2 within 18 months of fiscal year-end.

Deadline Notes

Ongoing statutory entitlement — no program sunset date. Claim deadline is 18 months after corporation's fiscal year-end (T661 and Schedule 566 must be filed by then). Missing this deadline results in permanent forfeiture of the credit for that year.

Open Application Portal →

Ineligible Organizations

• Sole proprietors and self-employed individuals
• Partnerships (partners may claim their proportional share individually)
• Trusts
• Non-profit organizations without taxable income
• Corporations without a permanent establishment in Ontario during the tax year
• Corporations with prior-year taxable capital (associated group) exceeding $50M (phase-out complete — zero OITC, may still claim non-refundable ORDTC)

Compatible Programs

Clawback Risk

Low Risk

Low. Clawback occurs only if CRA reassesses and reduces the federal SR&ED qualified expenditure base (e.g., after a technical audit disallows certain projects). Ontario automatically recalculates Schedule 566 based on the revised federal base. Interest accrues on over-claimed amounts from the original refund date.