How to fund a startup in Canada: every option, and what each one costs you

Founders open the funding conversation by asking how much they need. It is the wrong first question. Two hundred thousand dollars from an angel and two hundred thousand dollars from a refundable tax credit are the same number and nothing like the same transaction. One of them puts a permanent shareholder on your cap table with a claim on every exit you will ever have. The other is a cheque from the Receiver General for work you were going to do anyway.

So sort by what it costs.

Most Canadian startups should work down that list, not up it. The reason they do not is that the cheap money is administratively dull and nobody congratulates you for it.

SR&ED: the biggest cheque most startups never claim

The Scientific Research and Experimental Development credit is the largest source of non-dilutive capital available to a Canadian technology company, and it was substantially expanded for tax years beginning after 15 December 2024.

A Canadian-controlled private corporation earns a refundable investment tax credit at 35% of qualified SR&D expenditures, up to an expenditure limit that rose from $3 million to $6 million. Refundable is the word that matters: a company with no revenue and no tax payable still receives the money. The basic rate above the limit, and for most other entities, is 15%.

Three other changes came in at the same time. The expenditure limit now begins to grind at $15 million of prior-year taxable capital employed in Canada and reaches nil at $75 million (up from $10 million and $50 million). Capital expenditures are eligible again. And eligible Canadian public corporations can now access the enhanced 35% rate, which was previously closed to them.

Two practical notes. CRA opened an optional pre-claim approval process on 1 April 2026 that gives an eligibility determination in about eight weeks — worth using if you are betting a hiring plan on the refund. And CRA's older SR&ED policy pages still show the retired $10 million and $50 million thresholds, so check the date on whatever page your adviser is quoting.

Ontario Creates, the OIDMTC, and Ontario's other credits

If you build software that entertains or educates, Ontario is generous in a way that surprises people who only know about SR&ED.

The Ontario Interactive Digital Media Tax Credit pays 40% of eligible Ontario labour and eligible marketing and distribution expenses for products you develop for your own sale, and 35% for products developed under a fee-for-service arrangement or claimed by a qualifying digital game corporation. It is refundable. Marketing and distribution is capped at $100,000 per product, but on labour, in Ontario Creates' own words, "there is no limit on the amount of eligible Ontario labour expenditures which may qualify and there is no per-project or annual corporate limits."

The traps are in the eligibility, not the arithmetic. Since 2015 the product's primary purpose must be to entertain, or to educate users under 12 — "inform" came out of the test, which removed a great deal of business software. Most websites are excluded outright. And the 80/25 rule requires that 80% of development labour be performed in Ontario and 25% be paid to your own Ontario employees.

Alongside it: the Ontario Innovation Tax Credit at 8% refundable on up to $3 million of qualified SR&ED expenditures (maximum $240,000, ground down on prior-year taxable income above $500,000 and eliminated at $800,000); the Ontario Research and Development Tax Credit at 3.5%, non-refundable; and the Ontario Business-Research Institute Tax Credit at 20% refundable on up to $20 million of contract research done with an Ontario university, college, hospital research institute or designated non-profit.

One correction, because most funding guides have not caught up: Ontario Creates' Interactive Digital Media Fund and Film Fund no longer exist. Both were replaced by the Intellectual Property (IP) Fund, whose interactive stream runs from $15,000–$50,000 for pre-production up to $250,000–$500,000 for production, as a contribution of up to half of eligible Ontario expenses.

Where your payroll sits changes what you get

Where you incorporate does not determine your credits. A federally incorporated company with all its staff in Toronto claims Ontario credits. A company incorporated under the Ontario Business Corporations Act that moves its engineering team to Halifax claims Nova Scotia credits. What these programs attach to is a permanent establishment in the province and, in most cases, wages actually paid to residents of that province. The money follows the people.

And the provinces are genuinely different. Compare the R&D side:

Read the second and third columns together. New Brunswick's 15% credit is fully refundable with no cap and no corporate size test, which for a pre-revenue company is a better deal than Ontario's 8%. Nova Scotia's digital media credit can reach 50% of Nova Scotia labour, and 60% outside Halifax, against Ontario's 40%. Quebec rebuilt its entire R&D system in 2025, folding seven separate credits into the CRIC at 30% with the old asset test removed. British Columbia tripled its expenditure limit to $6 million and, in Budget 2026, removed the sunset date that had hung over the program for years.

Before anyone relocates: the credits reduce each other. Provincial government assistance grinds the federal qualified expenditure base, so you cannot add 35% and 15% and expect 50%. Model the combination, not the headline rates. And a permanent establishment is a question of fact — a mailing address and a director's home office will not support a claim that your R&D happens in a province where nobody works.

Angels, and the credit that decides where they invest

Here is a fact that changes how a Canadian angel round gets built. An individual who invests $100,000 in an eligible British Columbia company receives a 30% refundable credit — $30,000 back, with a maximum annual credit of $300,000 for investments made on or after 4 March 2025, up from $120,000. The same individual investing $100,000 in an Ontario company receives nothing. Ontario has no personal tax credit for investing in a private small business; its only investor-side personal credit is a 5% flow-through share credit confined to mineral exploration.

Almost all of these are non-refundable — they reduce tax the investor owes, so they are worth more to an angel with income than to one without. British Columbia's is the exception for individuals.

Now the trap, and it is the reason this section belongs in a legal article rather than an accounting one. Nearly every one of these programs requires the company to be registered and approved before it issues the shares. British Columbia requires an equity authorization. Manitoba says plainly that businesses "must be pre-approved through the application process before they are able to issue SBVCTC eligible shares." New Brunswick issues a certificate of registration and gives you 90 days to close. Nova Scotia requires a certificate before you accept a dollar. Close the round first and the credit is simply gone — there is no retroactive fix, and your investors will find out at tax time.

Friends and family: the round with the highest legal failure rate

Almost every Canadian startup takes money from people it knows, and almost none of them treat it as a securities transaction. It is one. Selling shares requires a prospectus unless an exemption applies, and the three that matter here are the private issuer exemption, the family, friends and business associates exemption, and the accredited investor exemption — each with its own boundaries about who counts and what you must record.

Two things go wrong. The first is that founders assume "friends and family" is a legal category with soft edges; it is a defined term, and a friendly acquaintance from a networking event is not inside it. The second is documentation: the exemption you relied on has to be provable years later, usually at the worst possible moment, when a purchaser's counsel is running diligence and asking who owns the company and under what authority every share was issued.

We have written separately on raising money from accredited investors and on what actually makes someone an accredited investor. Read one of them before you take a cheque from your uncle.

One drafting note that is newly relevant: Manitoba expanded its investor credit on 15 April 2026 to cover SAFEs and to allow limited partnerships as eligible investors. If you are raising on a SAFE — and most seed-stage Canadian companies now are — check whether your province's credit reaches the instrument you are actually using, because several do not.

Federal money that is not a tax credit

• NRC IRAP — contributions toward technical projects for incorporated Canadian SMEs with 500 or fewer employees. NRC does not publish a maximum; its own program evaluation describes regular awards in the $50,000 to $1 million range.
• Innovative Solutions Canada — the cleanest non-dilutive money for genuinely pre-revenue deep tech. Phase 1 up to $150,000 for proof of concept, Phase 2 up to $1,000,000 for prototype. Grants, not repayable.
• Canada Small Business Financing Program — up to $1.15 million: $1,000,000 in term loans, of which no more than $500,000 for anything other than real property and no more than $150,000 for intangibles and working capital combined, plus a separate $150,000 line of credit. A loan guarantee, so you still repay it.
• Futurpreneur — up to $75,000 ($25,000 matched two-to-one by BDC), collateral-free, ages 18 to 39, with two years of mentorship.
• Regional development agencies — FedDev Ontario's Business Scale-up and Productivity stream normally runs $125,000 to $10 million, repayable but interest-free, at up to half of eligible costs.
• BDC start-up financing — up to $150,000, but note the eligibility: 12 months in business and generating revenue. It is not a pre-revenue product, whatever the name suggests.

Two timing notes as at September 2026: CanExport SMEs closed its intake on 31 August 2026 and a further intake has not been posted; and Ontario's Regional Opportunities Investment Tax Credit expires on 1 January 2027, with expenditures incurred on or before 31 December 2026 still eligible.

The order to do this in

Claim before you sell. Every dollar of refundable credit is a dollar you do not have to raise, and the credits are worth the same whether or not you have investors.

Register before you raise. If you are in a province with an investor credit, get the company approved before the closing, not after. This is the single most expensive administrative mistake in Canadian seed rounds.

Decide the geography question honestly. Where your engineers sit is a real business decision with real consequences for hiring, culture and travel — and it is also, quietly, a decision about whether your R&D is worth 8% or 30% and whether your angels get 45% back or nothing. Make it deliberately. Do not make it by accident, which is what happens when a founder incorporates where they happen to live and never revisits it.

And write it down. Every one of these programs is examinable years later, and the difference between a claim that survives and one that does not is usually contemporaneous records — time sheets, technical uncertainty documented as you went, board resolutions authorising the share issuance, and a clean answer to the question of which exemption you relied on and why.

This is the first of a series on funding a Canadian startup. The rest of it goes deeper into the friends and family round, what is actually market in a Canadian angel term sheet, and what a SAFE does to your cap table. In the meantime, if you are about to take money from anyone, the two documents that decide how this ends are your shareholder agreement and the exemption you relied on — and only one of them can be fixed afterwards.