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Small business owners in Ontario face unique challenges when it comes to taxation. Fortunately, there are several tax credits available to small businesses that can help alleviate some of the financial burden. In this article, we’ll cover some of the most common small business tax credits available in Ontario and how to take advantage of them.

What are small business tax credits?

Small business tax credits are deductions or credits applied to your business’s tax liability. Simply put, a tax credit reduces the amount of tax you owe while a tax deduction reduces your taxable income. Tax credits are typically more valuable than tax deductions because they directly reduce your tax liability, while deductions only reduce the amount of income subject to taxation.

Small Business Deduction

The small business deduction is a tax credit that allows small businesses in Canada to reduce their tax liability on the first $500,000 of active business income. To qualify for the deduction, your business must be a Canadian-controlled private corporation (CCPC) and meet certain criteria with regards to the type of income earned. If your business meets these requirements, you can save up to $50,000 in taxes.

Apprenticeship Job Creation Tax Credit

The Apprenticeship Job Creation Tax Credit is a tax credit for employers who hire and train apprentices in certain trades. Employers can claim a credit of 10% of the wages paid to eligible apprentices, up to $2,000 per year per apprentice. This credit is available to small and medium-sized businesses that employ apprentices and is meant to encourage businesses to invest in the training and development of apprentices.

Scientific Research and Experimental Development Tax Credit

The Scientific Research and Experimental Development (SR&ED) Tax Credit is a federal tax incentive program available to businesses that conduct scientific research and experimental development. This tax credit allows Canadian businesses to recover up to 35% of their eligible research and development expenses. This program is meant to encourage businesses to invest in research and development, which can ultimately lead to innovation and growth in the economy.

Ontario Computer Animation and Special Effects Tax Credit

The Ontario Computer Animation and Special Effects (OCASE) Tax Credit is a refundable tax credit for companies that produce computer animation and special effects for film or television. The credit is equal to 18% of eligible Ontario labour expenditures and is applied to the company’s Ontario corporate income tax. This credit is meant to encourage investment in the film and television industry within Ontario.

Eligibility and Claiming Small Business Tax Credits

Each tax credit has its own eligibility requirements and claiming process. The best way to determine your eligibility is to consult with a tax professional or accountant. They can help you determine which tax credits you qualify for and how to claim them on your tax return.

In general, to claim a small business tax credit, you’ll need to keep thorough records of your business’s income and expenses. This may include receipts, invoices, and bank statements. It’s also important to ensure that you are paying the appropriate taxes and that your business is registered with the appropriate authorities to take advantage of these tax credits.

Conclusion

Small business tax credits can be a significant source of relief for Ontario business owners. By taking advantage of these tax incentives, small business owners can reduce their tax liabilities and save money. While each tax credit has its own eligibility requirements and claiming process, a tax professional can help ensure you’re taking full advantage of the credits available to you. By practicing good record-keeping and staying up to date on your tax obligations, you can take full advantage of the tax benefits available to your business.

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