How to Start a Tech Company in Ontario
The complete step-by-step guide to starting a technology company in Ontario. Covers incorporation, SR&ED tax credits, investor-ready share structure, stock options, IP assignment, CCA on equipment, SaaS HST rules and startup funding programs. Written by a licensed Ontario CPA.
Step 1: Incorporate Your Tech Company
Incorporation is the first step for every Ontario tech startup. Unlike many industries where incorporation is primarily about liability protection, for tech companies incorporation unlocks the most valuable tax credit in Canada: the SR&ED refundable credit at 35% for CCPCs. This credit is only available at the enhanced 35% refundable rate if your company is a Canadian-Controlled Private Corporation. Operating as a sole proprietor reduces the credit to 15% and makes it non-refundable. For a pre-revenue startup spending $200,000 on developer salaries, the difference is $70,000 refundable (CCPC) vs. $30,000 non-refundable (sole prop). That $70,000 cash refund can fund another 4 to 6 months of development.
Incorporation is also functionally required for raising capital. Angel investors, venture capital firms and accelerator programs invest in corporations, not sole proprietorships. Investors need shares to acquire, a cap table to reference and a corporate structure that supports future financing rounds. No serious investor will fund a sole proprietorship.
| Factor | Sole Proprietorship | Corporation (CCPC) |
|---|---|---|
| SR&ED credit rate | 15% non-refundable | 35% refundable on first $2M of eligible expenditures |
| SR&ED cash impact on $200K eligible spend | $30,000 non-refundable (offsets future tax only) | $70,000 cash refund deposited to your bank account |
| Ability to raise investment capital | Not possible. Investors require corporate shares. | Issue common shares, preferred shares, SAFE notes, convertible notes. |
| Stock option plans for employees | Not available | Section 7 stock options available to attract talent at below-market cash compensation |
| IP ownership | IP owned by you personally. No corporate separation. | IP assigned to corporation. Protects IP from personal creditors and enables future IP licensing structures. |
| Tax rate on net income | 20% to 53.53% personal rates | 12.2% on first $500,000 active business income (SBD) |
| Incorporation cost through Gondaliya CPA | N/A | $35 federal or $335 Ontario (all-inclusive) |
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Federal incorporation includes government fee, NUANS, Articles, minute book and CRA registration.
Step 2: Set Up an Investor-Ready Share Structure
The share structure you define in the Articles of Incorporation determines your ability to raise capital, issue stock options, bring on co-founders and eventually sell the company. Getting this wrong at incorporation forces an expensive share reorganisation later. Getting it right costs nothing extra.
| Share Class | Purpose | Typical Rights |
|---|---|---|
| Class A Common (Founders) | Issued to founders at incorporation. Voting control. Full economic participation. | Voting, dividends, dissolution. Typically issued at $0.001 per share (nominal value). |
| Class B Common (Co-Founders / Employees) | Issued to co-founders, key employees or stock option holders. Can have different vesting schedules. | Voting or non-voting (configurable). Dividends, dissolution. Subject to vesting and repurchase agreements. |
| Class C Preferred (Investors) | Issued in seed, Series A and later funding rounds. Investor-specific rights. | Liquidation preference, anti-dilution, participation rights, board seat rights. Defined in the term sheet. |
| Class D Non-Voting (Family / LCGE) | Issued to spouse and adult children for LCGE multiplication on a future exit. | Non-voting. Dividends, dissolution. Enables $1,016,836 LCGE per family member on qualifying share sale. |
Do Not Use a Single Class of Shares: A single class of common shares cannot accommodate investor preferred rights (liquidation preference, anti-dilution), employee stock options with different terms, or family LCGE multiplication. Define at minimum Class A (founders, voting) and Class B (non-voting) at incorporation. Add Preferred classes when you raise your first round. A share reorganisation after a funding round is expensive and can trigger tax consequences under Section 86. Set up the multi-class structure from day one.
Step 3: Assign Intellectual Property to the Corporation
Every piece of intellectual property created for the business must be legally assigned to the corporation. This includes source code, algorithms, product designs, trade secrets, trademarks, domain names and any inventions. If IP is not formally assigned, it may be legally owned by the individual founder or the contractor who created it, not the corporation.
| IP Action | What to Do | Why It Matters |
|---|---|---|
| Founder IP assignment agreement | Each founder signs an IP assignment agreement transferring all pre-incorporation and future IP to the corporation. | Investors will not fund a company that does not clearly own its core IP. Due diligence reveals unassigned IP immediately. |
| Employee IP clauses in employment agreements | Every employment agreement must include a clause assigning all work-product IP to the corporation. | Under Canadian law, an employee's inventions may belong to the employee unless the employment agreement explicitly assigns them to the employer. |
| Contractor IP assignment in service agreements | Every contractor agreement must include an IP assignment clause. Under Canadian copyright law, contractors own their work unless the agreement says otherwise. | Code written by a freelance developer belongs to the developer unless the contract assigns it. A $50,000 development project without an IP clause means you do not own the code. |
| Trademark registration | Register your brand name and logo with the Canadian Intellectual Property Office (CIPO) through the corporation. | Unregistered trademarks have limited protection. Registration costs $347 per class and provides 10-year renewable national protection. |
IP Ownership Is the #1 Due Diligence Issue for Tech Investors: Every angel investor and VC firm conducts IP due diligence before funding. If the corporation cannot demonstrate clean IP ownership through signed founder assignments, employee agreements and contractor agreements, the deal will stall or collapse. Prepare these documents at incorporation, not when a term sheet arrives. We include IP assignment templates in our tech company incorporation package.
Step 4: Claim SR&ED Tax Credits on Your R&D
| Credit | Rate | What Qualifies for Tech Companies | Dollar Impact |
|---|---|---|---|
| Federal SR&ED (CCPC enhanced rate) | 35% refundable on first $2M eligible expenditures | Custom software development, algorithm design, machine learning model training, API integration involving technological uncertainty, hardware prototyping, cybersecurity R&D, chip design, NLP and computer vision development | $300,000 in developer salaries = $105,000 cash refund |
| Federal SR&ED (non-CCPC rate) | 15% non-refundable | Same eligible activities but at a lower rate for non-CCPCs or expenditures above $2M | $300,000 eligible = $45,000 credit (non-refundable) |
| Ontario Innovation Tax Credit (OITC) | 8% non-refundable on Ontario SR&ED expenditures | Provincial complement to the federal credit. Applied in addition to the 35%. | $300,000 eligible = $24,000 Ontario credit |
| Ontario Interactive Digital Media Tax Credit (OIDMTC) | 40% refundable on eligible labour for qualifying interactive digital media products | Video games, educational software, interactive training platforms developed in Ontario by Ontario-based companies | $200,000 in Ontario labour = $80,000 refundable credit |
SR&ED Is Not Just for "Deep Tech": Many Ontario tech founders assume SR&ED requires a lab, patents or hardware R&D. This is incorrect. Custom SaaS development, building proprietary algorithms, training machine learning models, developing novel API architectures, creating cybersecurity detection systems and designing new data pipeline architectures all qualify if they involve technological uncertainty that cannot be resolved using standard industry knowledge. The key requirement is systematic investigation. We assess SR&ED eligibility for every tech client. SR&ED Assessment →
SR&ED Assessment Included with Every Tech Incorporation
We assess your R&D eligibility, prepare T661 technical narratives and file your SR&ED claim.
Step 5: Register with CRA and Understand SaaS HST Rules
| Transaction Type | HST Treatment | Key Rule |
|---|---|---|
| SaaS subscriptions sold to Ontario customers | Taxable at 13% | SaaS is a taxable supply under the Excise Tax Act. Charge HST based on the customer's province of delivery. |
| SaaS sold to customers in non-HST provinces (AB, BC, SK, MB) | 5% GST | Place-of-supply rules: charge only the 5% GST component for customers in provinces without a harmonised sales tax. |
| SaaS sold to US or international customers | Zero-rated (0%) | Exports of digital services are zero-rated. Charge 0% HST but claim full ITCs on all Canadian development expenses. |
| Custom software development services (B2B) | Taxable at 13% (Ontario) or per place of supply | Development services follow the general place-of-supply rules. If the customer is in Ontario, charge 13%. |
| Digital advertising revenue (Google AdSense, affiliate) | Depends on payer location | Ad revenue from non-resident platforms is generally zero-rated. Keep records of payer location and jurisdiction. |
Register for HST Early: Tech startups should register for HST at incorporation, even before generating revenue. Every dollar of HST paid on cloud infrastructure (AWS, Azure, GCP), development tools, coworking space, equipment and professional services is recoverable as an ITC. Pre-revenue startups with significant development expenses are frequently in a net HST refund position. Register first, claim ITCs immediately.
Step 6: CCA Classes for Tech Equipment and Software
| CCA Class | Rate | What Qualifies | Example |
|---|---|---|---|
| Class 50 | 55% declining balance | Computer hardware and systems software acquired after March 2007 | Laptops, desktops, servers, monitors, network equipment, GPU rigs for ML training |
| Class 12 | 100% | Computer software (application software, SaaS tools purchased outright, development tools). Also tools under $500. | Software licences, IDE licences, design tools, testing tools, production software |
| Class 8 | 20% declining balance | Office furniture, fixtures and general equipment not classified elsewhere | Standing desks, chairs, whiteboards, conference room equipment |
| Class 14 | Straight-line over life of right | Patents and licences with a limited life | Licensed technology, patent acquisitions, licensing agreements with a defined term |
| Class 14.1 | 5% declining balance | Goodwill, trademarks, customer lists and other intangible capital property with an unlimited life | Trademark registrations, brand assets, acquired customer databases |
Immediate Expensing for CCPCs: The Immediate Expensing incentive allows CCPCs to write off up to $1.5 million in eligible capital property in the year of acquisition. For a tech startup purchasing $50,000 in laptops, servers and development equipment, the full $50,000 is deductible in year one. Combined with 100% Class 12 on software, most tech startup equipment costs are fully deductible in the year of purchase.
Step 7: Hire Developers Correctly (Employee vs. Contractor)
| Factor | Employee | Independent Contractor |
|---|---|---|
| Control over work | Company directs how, when and where work is done | Contractor controls their own methods, schedule and tools |
| Tools and equipment | Company provides laptop, software, accounts | Contractor uses their own equipment and licences |
| Financial risk | Employee has no financial risk. Paid regardless of outcome. | Contractor bears financial risk. Fixed-price or milestone-based payment. |
| Ability to subcontract | Employee cannot delegate their work to someone else | Contractor can hire sub-contractors or delegate |
| Integration into business | Fully integrated. Attends standups, uses company Slack, reports to a manager. | Operates independently. Delivers defined deliverables. Not integrated into daily team operations. |
| CRA consequence of misclassification | N/A | Retroactive CPP, EI, income tax source deductions plus penalties. $60,000 developer reclassified = $6,000+ in retroactive liability. |
| SR&ED eligibility | Employee salaries are directly eligible for SR&ED | Contractor payments eligible at 80% for SR&ED (contract proxy method) |
Most "Freelance Developers" Are Employees Under CRA's Test: If your developer works exclusively for you, uses your Slack and GitHub, attends your daily standups, cannot subcontract their tasks and is paid hourly or monthly rather than by deliverable, CRA will classify them as an employee regardless of what the contract says. The contract does not override the reality of the working relationship. Misclassification of 3 developers at $80,000 each can trigger $24,000+ in retroactive CPP, EI and source deductions plus penalties. Structure contractor relationships correctly from day one or hire them as employees.
Step 8: Understand Funding Options and Government Programs
| Funding Source | Amount | What You Need | Best For |
|---|---|---|---|
| Bootstrapping (personal savings + SR&ED refunds) | $10,000 to $200,000 | Incorporation, SR&ED claim filed, personal runway | Solo founders and small teams building MVP. SR&ED refund provides cash without dilution. |
| NRC IRAP (Industrial Research Assistance Program) | Up to $1,000,000 in non-repayable contributions | Incorporated CCPC with under 500 employees. R&D project with commercial potential. | Pre-revenue and early-revenue startups with genuine R&D. Most valuable non-dilutive funding in Canada. |
| Angel investors | $25,000 to $500,000 | Incorporation, clean IP ownership, cap table, pitch deck, MVP or traction | Pre-seed and seed stage. Typically issues SAFE notes or convertible notes. |
| Venture capital | $500,000 to $10,000,000+ | Incorporation, clean cap table, significant traction or revenue, scalable business model | Series A and beyond. Issues preferred shares with liquidation preference and anti-dilution. |
| CSBFP loan (Canada Small Business Financing) | Up to $1,000,000 for equipment and leaseholds; $150,000 for working capital | Incorporation, annual revenue under $10M | Hardware-intensive startups, office build-outs, equipment purchases |
| Ontario programs (OCE, Ontario Creates, OIDMTC) | Varies by program | Ontario-based CCPC, specific program criteria | Digital media (OIDMTC 40%), clean tech, life sciences, advanced manufacturing |
NRC IRAP Is the Most Valuable Non-Dilutive Funding: The National Research Council's Industrial Research Assistance Program provides up to $1,000,000 in non-repayable contributions (grants) for R&D projects. Unlike investor funding, IRAP does not take equity. Unlike loans, it does not require repayment. IRAP advisors also provide free technical and business guidance. Every Ontario tech startup with genuine R&D should apply. Incorporation as a CCPC is required.
Step 9: Set Up Tech Startup Bookkeeping
| System | What to Set Up | Why |
|---|---|---|
| Cloud accounting software | QuickBooks Online or Xero. Configure chart of accounts for tech: SaaS revenue, development labour (SR&ED-eligible vs. non-eligible), cloud infrastructure costs, contractor payments, stock-based compensation. | Monthly bookkeeping, HST filing, SR&ED documentation, financial statements for investors and T2 preparation. |
| Time tracking for SR&ED | Toggl, Harvest or Clockify. Track developer hours by project and activity (SR&ED-eligible vs. routine maintenance). | SR&ED requires time allocation records. CRA reviewers examine time tracking as primary evidence of eligible work. No time records = denied SR&ED claim. |
| Subscription management | Track all SaaS subscriptions (AWS, GitHub, Figma, Slack, etc.) with renewal dates and monthly costs. | Tech startups average 15 to 30 active subscriptions. Untracked subscriptions waste cash and produce missing ITCs. |
| Bank account | Dedicated business chequing account. All revenue deposited. All expenses paid from business. No personal. | CRA compares deposits to revenue. Investor due diligence reviews bank statements. Mixed accounts fail both. |
| Cap table management | Carta, Pulley or a simple spreadsheet tracking all share issuances, option grants, vesting schedules and dilution. | Investors require a clean cap table. Every share issuance, option grant and transfer must be documented and reconciled. |
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Step 10: Budget Your Tech Startup Costs
| Expense Category | Solo Founder (bootstrapped) | Small Team (3 to 5) | Funded Startup (10+) |
|---|---|---|---|
| Incorporation and CRA registration | $35 | $35 | $35 |
| Equipment (laptops, monitors, peripherals) | $3,000 | $15,000 | $50,000 |
| Cloud infrastructure (AWS/Azure/GCP, first year) | $2,000 | $12,000 | $60,000 |
| Software subscriptions (GitHub, Figma, Slack, etc.) | $2,000 | $8,000 | $30,000 |
| Developer salaries (annual) | $0 (founder-only) | $240,000 | $800,000 |
| Office or coworking space | $0 (home-based) | $12,000 | $60,000 |
| Legal (IP assignment, shareholder agreement) | $1,000 | $3,000 | $10,000 |
| Insurance (CGL, E&O) | $1,500 | $3,000 | $8,000 |
| Working capital (6 months runway) | $15,000 | $60,000 | $300,000 |
| Total estimated first-year cost | $24,535 | $353,035 | $1,318,035 |
| SR&ED refund (estimated, year one) | $0 (no eligible salaries) | $84,000 (35% of $240K salaries) | $280,000 (35% of $800K salaries) |
10 Mistakes New Ontario Tech Companies Make
| # | Mistake | Consequence |
|---|---|---|
| 1 | Not incorporating before writing code | SR&ED credit at 15% non-refundable instead of 35% refundable. Cannot issue shares to co-founders or investors. IP ownership unclear. |
| 2 | Single class of shares | Cannot accommodate investor preferred rights, employee stock options or family LCGE. Requires expensive share reorganisation before first funding round. |
| 3 | No founder IP assignment agreement | Corporation does not legally own its core IP. Investor due diligence fails. Deal collapses. |
| 4 | No contractor IP assignment clause | Contractor legally owns the code they wrote. A $50,000 development project without an IP clause means you do not own the output. |
| 5 | Not claiming SR&ED in the first year | Lost $70,000+ in refundable credits per year (on $200K eligible spend). SR&ED can be claimed retroactively for the prior 18 months only. |
| 6 | No time tracking for developers | SR&ED claim denied or significantly reduced. CRA requires time allocation records as primary evidence of eligible R&D work. |
| 7 | Misclassifying employee developers as contractors | CRA reclassification with retroactive CPP, EI, source deductions and penalties. $80K developer = $8,000+ in retroactive liability. |
| 8 | Not registering for HST before generating revenue | Cannot claim ITCs on pre-revenue expenses (cloud, equipment, office). Thousands in lost refunds. |
| 9 | No cap table management from day one | Investor due diligence reveals inconsistent share records. Delays or kills funding rounds. |
| 10 | No bookkeeping or financial statements in year one | Cannot apply for IRAP, file SR&ED accurately, report to investors or file T2 on time. $5,000+ cleanup cost and late-filing penalties. |
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Launch Checklist for Ontario Tech Companies
- Corporation incorporated (federal recommended for national name protection and US registration)
- Multi-class share structure defined (Class A voting + Class B non-voting minimum)
- Founder IP assignment agreements signed by all founders
- CRA Business Number registered (HST, Payroll, Corporate Tax)
- HST registered immediately at incorporation (claim ITCs on pre-revenue expenses)
- Founder shares issued at nominal value ($0.001 per share)
- Employment agreements with IP assignment clauses for all employees
- Contractor agreements with IP assignment clauses for all developers
- Time tracking system deployed for all developers (Toggl, Harvest, Clockify)
- QBO or Xero configured with tech startup chart of accounts
- Business bank account opened, separate from personal
- Cap table created and maintained (Carta, Pulley or spreadsheet)
- SR&ED eligibility assessment scheduled with CPA for first fiscal year
- IRAP application submitted (if genuine R&D with commercial potential)
Frequently Asked Questions: Starting a Tech Company in Ontario
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