Navigating government grants and subsidies as a small business
If you own a small business, chances are high that budgetary concerns are high up on your list of priorities. But what many don’t realize is that there’s actually a decent amount of available funding out there for Canadian small businesses—funding that’s just waiting to be tapped into.
Not sure where to begin? You’ve come to the right place.
Types of financial support available
Let’s break it down, shall we? The most common types of financing available to small business include:
- Non-repayable grants: non-repayable government funding awarded to support specific projects or initiatives, such as research and development, business expansion, or innovation.
- Conditionally repayable contributions: financial supports from the government that require repayment only if certain conditions are met, such as achieving specific financial benchmarks. They are often used to mitigate risk for innovative or growth-oriented projects.
- Tax credits: reductions in the amount of taxes owed, offered as incentives for specific activities like research and development, hiring, or investing in certain types of equipment. Tax credits can help reduce the overall tax burden and encourage business growth.
Key government programs for Canadian small businesses
The search for funding can be overwhelming. To get you started, here are some of the main government programs offering funding to SMBs:
Industrial Research Assistance Program (IRAP): The Industrial Research Assistance Program (IRAP) offers financial support, advisory services, tax credits, and technical assistance to small and medium-sized businesses to help them undertake technology innovation and research and development projects that drive growth and competitiveness.
Canada Small Business Financing Program (CSBFP): The Canada Small Business Financing Program (CSBFP) helps small businesses secure loans of up to $1 million from financial institutions for purchasing or improving business assets, such as real estate, equipment, or leasehold improvements, by sharing the risk with lenders through government guarantees.
Provincial programs: Investissement Quebec offers a variety of funding options, including loans, equity investments, and non-repayable contributions, to support the growth, innovation, and export activities of Quebec-based small businesses. Funding is tailored to meet the specific needs and development stage of each business. Other Canadian provinces and territories offer localized funding in a similar vein.
Tips for tax planning
When your small business receives grants and subsidies, it can impact your taxes in several ways. The grant or subsidy may be considered taxable income, increasing your business’s taxable income. That being said, certain grants and subsidies may also qualify for specific tax credits or deductions, offsetting some of the tax liability incurred by your increased income.
Optimizing the overall financial impact of any grants or subsidies you receive is key.
Here are a few tips for doing just that:
Understand tax implications early: educate yourself on whether the grants or subsidies you receive are considered taxable income, and if so, how they will impact your overall tax liability.
Careful record-keeping and documentation: keep thorough records of all grant or subsidy receipts, expenditures, and related documentation to support your tax filings and ensure compliance with reporting requirements. Doing so will help minimize the risk of errors or audits.
Maximize eligible deductions and credits: take full advantage of any deductions or tax credits available for expenses related to your grant-funded activities, such as research and development costs or capital expenditures.
Receiving a government grant or subsidy can make a world of difference in the life of your small business—and leveraging the experience of accounting experts to optimize your tax benefits and ensure compliance can take it to the next level. You heard it here first.
