A male engineer points to a laptop while a female engineer looks over his shoulder at what he is gesturing to. In the foreground and background, the technology of their start-up business is on display.

Start-up Success: Maximizing Tax Credits and Incentives for Start-up Businesses in B.C.

June 3, 2024

Starting a new business is an exciting adventure, filled with potential and promise. As an entrepreneur, you’re probably focused on innovation, growth, and creating a lasting impact. But amidst the excitement, remember to leverage some of the most important resources that can significantly bolster your start-up’s financial health—tax credits and incentives. These valuable programs can offer substantial savings and provide much-needed financial support as you navigate the early stages of your business journey.

In this guide, we’ll explore some of the most important tax credits and incentives available to start-up businesses in B.C., explain how to apply for them, and show you how to make the most of these opportunities.

Federal Incentives

Scientific Research and Experimental Development (SR&ED) Tax Credit

The SR&ED tax credit is a powerful federal incentive aimed at encouraging research and development by businesses across various industries. This program offers two key tax incentives: an income tax deduction and an investment tax credit. It covers eligible expenses such as wages, materials, and overheads directly related to R&D activities, making it indispensable for start-ups in the tech and innovation sectors. To apply, you need to file form T661 and form T2038(IND) or T2SCH31 (depending on your situation) with your corporate tax return (T2), providing detailed project descriptions and expenditure breakdowns.

National Research Council (NRC) Industrial Research Assistance Program (IRAP)

The NRC IRAP provides funding and advisory services to small and medium-sized enterprises (SMEs) developing new technologies. This program supports innovation by offering financial assistance for R&D projects, making it a critical resource for technologically focused start-ups. You must apply directly to the NRC, detailing your R&D projects and demonstrating alignment with IRAP’s objectives, including the following information:

  • The project’s technical aspects and potential impacts on your business;
  • Your business, management, and financial capacity;
  • Your assessed potential to achieve expected results;
  • Your commercialization plan;
  • The overall market and commercialization opportunity; and,
  • The anticipated benefits to Canada

Provincial incentives in B.C.

B.C. Scientific Research and Experimental Development (SR&ED) Tax Credit

In addition to the federal SR&ED credit, B.C. offers a provincial SR&ED tax credit aimed at further encouraging research and development within the province. This includes a refundable credit equal to the lesser of the corporation’s SR&ED qualified B.C. expenditures for the tax year, or the expenditure limit (generally $3 million), and a non-refundable credit for expenditures in excess of the limit. This credit can be claimed on eligible R&D expenses that are also eligible for the federal SR&ED program. You must include the provincial claim on your corporate tax return. While the federal credit offers a broader range of support, the provincial credit provides additional relief specifically to companies operating within B.C., enhancing the overall benefits for R&D activities.

B.C. Interactive Digital Media Tax Credit

This provincial tax credit offers a refundable 17.5% credit on eligible salaries and wages incurred in developing interactive digital media products. It represents a huge opportunity for savings for start-ups in the digital media and gaming industries. You can claim this credit on their corporate tax return.

Other incentives to consider

B.C. Small Business Venture Capital Tax Credit

The B.C. Small Business Venture Capital Tax Credit encourages investment in small businesses by providing a 30% tax credit to equity capital investors. While not an incentive for the start-up business itself, this initiative is crucial for attracting early-stage investment and helping start-ups secure the capital needed for growth. To benefit, you must register your business with the B.C. Ministry of Jobs, Economic Development and Innovation and obtain approval for their equity capital investments.

B.C. Mining Exploration Tax Credit

The B.C. Mining Exploration Tax Credit offers a refundable credit for eligible mining exploration expenses incurred in the province. It provides vital support to start-ups in the mining sector, enabling them to offset some of their exploration costs. You can claim this credit on your corporate tax return.

Investment tax credits for clean technologies

As part of Budget 2024, the federal government announced updates and expansions to a range of investment tax credits for clean technologies. These Investment Tax Credits (ITCs) are designed to support businesses that invest in eco-friendly innovations and infrastructure, offering substantial financial incentives to help offset the costs of adopting and implementing green technologies. These include the following:

  • Investment Tax Credit for Clean Technology Manufacturing: Offers a 30% refundable tax credit on the cost of capital equipment purchased for clean technology manufacturing and processing as well as critical mineral extraction.
  • Investment Tax Credit for Clean Hydrogen: Provides a refundable tax credit of up to 40% of the cost of purchasing and installing eligible equipment for projects that produce hydrogen from electrolysis or natural gas, provided emissions are abated using carbon capture and storage.
  • Investment Tax Credit for Clean Electricity: Offers a 15% refundable tax credit for eligible investments in non-emitting electricity generation systems, abated natural gas-fired electricity generation, and stationary electricity storage systems that do not use fossil fuels.
  • Investment Tax Credit for Clean Technologies: Provides a 30% refundable tax credit for investments in clean technologies, including electricity generating stations, stationary electricity storage systems that do not use fossil fuels, low-carbon heat equipment, and industrial zero-emission vehicles.
  • Investment Tax Credit for Carbon Capture Utilization and Storage (CCUS): Offers a refundable tax credit of up to 60% of the cost of purchasing and installing equipment used solely to capture, transport, store, or use carbon dioxide as part of a qualified CCUS project in Canada. This credit is essential for start-ups involved in carbon capture and reduction technologies.

Read our 2024 federal budget highlights or talk to your DMCL advisor for more information on how these credits work and where they apply.

How to apply for these incentives

  • Identify eligibility: Ensure your start-up meets the eligibility criteria for each incentive, which involves assessing your business activities, expenditures, and sector alignment.
  • Maintain detailed records: Accurate record-keeping is essential. Document all relevant activities, expenses, and supporting evidence such as invoices, payroll records, and project descriptions.
  • Complete and submit applications: Carefully complete the required forms and attach necessary supporting documents, ensuring they are submitted by the specified deadlines.
  • Follow up: Monitor the status of your applications and be prepared to provide additional information if requested by tax authorities.

At DMCL, our advisors are well-versed in the intricacies of tax credits, incentives, and the application process. Your DMCL advisor can provide you with guidance and assistance in completing the above steps, as well as insights into more niche industry incentives that might apply to your business.

Leveraging these incentives can significantly enhance your start-up’s financial health, allowing you to reinvest savings into growth and innovation. For personalized assistance and expert advice, reach out to your DMCL advisor—they’re here to help you maximize your business potential through smart financial strategies and expert guidance.