Investment Tax Credits (ITCs) reduce the amount of Part I tax that a corporation has to pay or the amount of tax an individual has to pay (depending on whether one's business is set up as a corporation or as a sole proprietorship or partnership).
An Investment Tax Credit allows a corporation or an individual to apply a specified percentage to the cost of acquiring certain property or on certain expenditures.
Claiming Investment Tax Credits
If you are claiming Investment Tax Credits as an individual, complete Form T2038 (IND): Investment Tax Credit (Individuals) and then claim the appropriate amount on Line 412 of your T1 Income Tax Form.
If your corporation is claiming Investment Tax Credits, use Form T2SCH31: Investment Tax Credit – Corporations and then claim the appropriate amount on Line 652 of the T2 Corporation Income Tax Form.
However, when you are calculating these Canadian Tax Credits, be aware that before you apply the specified percentage, you need "to reduce the capital cost of the property or expenditure by any government or non-government assistance you received or will receive for that property or the expenditure" (Canada Revenue Agency).
This includes any related GST/HST Input Tax Credits or rebates!
What Investment Tax Credits Are Available?
Currently, Canadian small businesses can earn federal Investment Tax Credits on:
- 5) Pre-Production Mining Expenditures - as defined in subsection 127 (9) of the Income Tax Act and Regulations of Canada.
Provincial Investment Tax Credits
Individual provinces and territories also offer various tax credits. These are listed and explained in the Provincial and Territorial Tax section of T2 Corporation - Income Tax Guide (Chapter 8).