If you run a business in Toronto, you probably hate tax season. It is stressful, it is expensive, and it usually involves writing a cheque to the government.
But what if the government wrote a cheque to you?
I am talking about SR&ED (Scientific Research and Experimental Development). It is the single biggest source of federal government support for industrial R&D. And here is the kicker: most people in Toronto get it wrong. They think it is only for guys in white lab coats at U of T or massive tech giants on King Street.
It is not.
If you are solving technical problems—even if you are just a small manufacturing shop in Scarborough or a dev team in Liberty Village—you might be sitting on a goldmine.
With the massive changes hitting in 2026, including a jump to a $6 million limit, this is the year you need to pay attention. I have dug through the CRA jargon, the new 2026 budget updates, and the specific Ontario rules to break this down for you. No corporate fluff. Just the facts on how to save Toronto tax money.
The Big Changes for 2026
If you have looked at SR&ED before and shrugged, look again. The rules are changing for the 2025/2026 tax years, and it is huge.
The biggest headline is the $6 Million Limit. For years, the enhanced 35% refund rate was capped at $3 million of taxable capital. If you spent more, your rate dropped to 15%. Starting for tax years after December 2024, that limit effectively doubles to $6 million.
This is a game-changer for scaling tech companies in downtown Toronto. You can now claim significantly more R&D spend at the highest refund rate. That is potentially millions of dollars in extra refundable cash compared to the old rules.
Also, capital expenditures are back. This is huge for manufacturers in the GTA. Years ago, the government stopped letting you claim machinery and equipment. In 2026, capital expenditures are eligible again. If you buy hardware, machinery, or equipment specifically for R&D, you can include that in your claim. For a machine shop in Etobicoke trying to automate a process, this is massive.
The Toronto Advantage: Stacking the Credits
Living in Toronto is expensive. We all know that. But when it comes to SR&ED, being in Ontario is actually a sweet deal because you get to stack credits. You do not just get the federal money; you get the provincial money too.
Here is the math for a typical Toronto-based private company in 2026. You get a federal refundable credit of 35% on eligible expenses. Then, you get the Ontario Innovation Tax Credit (OITC), which is another 8% refundable credit.
When you do the complex tax math because the provincial credit reduces the federal pool, you usually end up getting back between 60 to 70 cents on every dollar you spend on salaries for eligible work.
Think about that. You pay a developer $100,000. The government gives you back $65,000. Your net cost is $35,000. If that does not wake you up, I do not know what will.
Do You Actually Qualify?
You do not need a PhD to figure this out. The courts established five questions to see if you qualify. I will translate them into plain English.
First, was there a doubt? Could a standard expert in your field solve this easily? If the answer was “I don’t know, let’s test it,” you pass.
Second, did you form a hypothesis? Did you have a plan to fix it? Essentially, did you say, “If we change X, maybe Y will happen?”
Third, did you test it? Did you actually run the code, build the prototype, or mix the chemicals?
Fourth, did you learn something? Even if it failed? Especially if it failed. The CRA pays you for the attempt, not just the success.
Fifth, did you keep records? This is the boring part, but you need proof.
The Boring Truth About Documentation
I hate paperwork. You hate paperwork. But if you want that cheque, you need to track your time.
The biggest reason claims get denied in Toronto is not because the tech was not cool. It is because the company could not prove who did the work.
My advice is simple. Do not wait until year-end. Use a simple time-tracking tool. Tag hours as R&D or Routine. Even a rough estimate in Jira or Trello is better than nothing. The CRA loves contemporaneous documentation, which is just fancy speak for notes you took while it was happening.
Choosing the Right Help
If you Google tax consultants toronto or sr&ed toronto, you will be bombarded with ads. Everyone wants a cut of your refund.
Here is how it usually works. You hire a consultant. They write the technical report. They file it. If you get the money, they take a percentage.
Should you DIY? Probably not. Unless you are a tax pro. The T661 form is a beast. One wrong word can trigger an audit. And trust me, you do not want a CRA audit if you can avoid it.
If you are looking for tax advice downtown Toronto, avoid the mills. There are chop shop consultants who will claim your coffee machine is a spaceship just to pump up the refund. The CRA knows who they are. If you use them, you get flagged.
Look for engineers on staff. You need someone who understands your tech, not just an accountant. Look for audit protection. If the CRA comes knocking, will they defend you for free? And look for fair fees. 20% is standard. Anything over 30% is robbery.
Beyond SR&ED: Other Tax Strategies
While we are talking about saving money, let’s look at the bigger picture. SR&ED is great, but it is just one piece of the puzzle.
If you are a business owner, you need to be maximizing your TFSA strategies in Toronto. I see so many entrepreneurs pouring everything into the business and ignoring their personal shelter. If you take that SR&ED refund and dividend it out to yourself, dump it into a TFSA. Investments grow tax-free. It is the only true tax haven we have left in Canada.
Also, consider the downtown factor. If your office is in the core, you are paying a premium for rent. Make sure you are claiming the right portion of your rent against your SR&ED overhead if you are using the Proxy Method. Ask your accountant about the Proxy Method as it is usually better for software companies.
Common Pitfalls to Avoid
I have seen Toronto businesses crash and burn on their claims because of dumb mistakes.
Claiming routine work is the most common error. Bug fixing is not R&D. Making a website look pretty is not R&D. It has to be difficult.
Ignoring subcontractors is another big one. If you hire a contractor in Mississauga to do the code, you can only claim 80% of that cost. If you hire a contractor in India? You get zero. The work must be done in Canada.
Waiting too long is fatal. You have 18 months from your fiscal year-end to file. One day late? Your claim is dead. No appeals.
Final Thoughts for 2026
The year 2026 is shaping up to be the Year of R&D in Canada. With the limit bumping to $6 million and capital expenditures coming back, the government is practically begging you to innovate.
Don’t leave that money on the table.
If you are unsure, get tips toronto tax experts to look at your books. Most reputable consultants will do a free assessment to see if you qualify. You are already doing the hard work. You might as well get paid for it.