Accounting & Tax Services for Startups & Technology Companies in Canada

Canadian startup tax planning starts at incorporation

Most Canadian technology startups are missing meaningful tax planning opportunities because the early-stage decisions were made quickly to get to market. Share structure, founder vesting, stock option plans, R&D tracking for SR&ED, and IRAP grant administration all need to be set up correctly from day one or the cost to fix them later can be substantial. The good news: Canada offers some of the most generous startup tax incentives in the world — specifically the SR&ED tax credit and the IRAP grant program.

SR&ED — the most valuable Canadian startup tax credit

The federal Scientific Research and Experimental Development (SR&ED) tax credit refunds up to 35% of qualifying R&D expenditures for Canadian-controlled private corporations (CCPCs), up to an annual expenditure limit. Above the limit, and for non-CCPCs, the credit rate is 15% but is non-refundable. Most provinces add their own SR&ED top-up credits (Quebec is the most generous, with refundable provincial credits stacking on top of the federal credit). Eligible expenditures include developer salaries (the salary base, not just hours worked), contractor fees for SR&ED-eligible work, materials consumed or transformed, and overhead (now via the prescribed proxy method).

SR&ED claims require thorough documentation of the technological uncertainty, the systematic investigation, and the technological advancement attempted. CRA increasingly scrutinizes claims with deeper technical review, so claim documentation has to be solid. We prepare SR&ED claims with documentation that meets CRA's technical narrative requirements.

Stock options and the cooperative employee/founder problem

Canadian stock option taxation is complex and the rules have changed multiple times. The general rule: an employee stock option triggers a taxable benefit equal to the value of the underlying shares minus the exercise price at the time of exercise. For employees of CCPCs receiving options on the corporation's shares, the benefit may be deferred until the shares are sold. A 50% deduction may apply, mirroring capital gains treatment. The 2021 amendments imposed a $200,000 annual vesting limit for the 50% deduction on options granted by non-CCPCs (excluding most public companies and most foreign-controlled corporations), with options above the limit fully taxable as ordinary income. We design stock option plans that work for the company and the employees.

IRAP grants

The National Research Council's Industrial Research Assistance Program (IRAP) provides grants for technology innovation. Unlike SR&ED (a tax credit claimed after the year ends), IRAP is a pre-approved grant. IRAP grants reduce eligible SR&ED expenditures (you cannot claim SR&ED on the same dollars funded by IRAP), so the interaction must be modeled. IRAP grants are also taxable as income to the recipient corporation.

Founder share structure

The right founder share structure depends on the number of founders, vesting expectations, future investment plans, and tax planning goals. Common errors include: not vesting founder shares (creating risk if a founder leaves), giving all founders the same single class of common shares (limiting flexibility for future financing), and not setting up an employee stock option pool from the start. We coordinate with corporate counsel on the share structure and tax considerations.

What we deliver for startups

• Incorporation with startup-appropriate share structure
• SR&ED tax credit claims with full documentation
• IRAP grant administration coordination
• Stock option plan implementation
• Cap table management coordination
• Founder T1 personal tax (including stock option benefits)
• T2 corporate return
• Monthly bookkeeping with startup-appropriate chart of accounts (R&D tracking by project, etc.)
• GST/HST registration and returns (typically refunds in early years given heavy input costs)
• Payroll setup including stock-option payroll considerations
• Lender and investor financial reporting
• Burn rate and runway analysis

What Canadian businesses commonly miss about this service

Across the hundreds of Canadian businesses we work with, the same handful of issues come up repeatedly. Many small business owners delay engaging professional accounting until a crisis: a CRA review letter, an unfiled GST/HST return demand, a denied bank loan because financial statements aren't ready, or a Notice of Reassessment that arrived weeks ago. By the time we are first contacted, the cost to fix the problem is often several times what proper ongoing accounting would have cost from the start. Proactive engagement is dramatically cheaper than reactive cleanup.

The Canadian tax landscape also changes constantly. Recent changes that affect most Canadian taxpayers include the 2023 anti-flipping rule (residential real estate sold within 365 days is automatically business income, not capital gain); the Underused Housing Tax (UHT-2900 annual filing requirement for many corporations, partnerships, and trusts holding residential property even when no tax is owing — with $5,000 to $10,000 per-property failure-to-file penalties); the Quebec QST joint registration changes since 2021; the post-2018 Tax on Split Income (TOSI) rules that effectively eliminated casual income splitting through family dividends; the post-2021 $200,000 stock option vesting limit on the 50% deduction for options granted by non-CCPCs; the CSRS 4200 Compilation Engagement standard replacing the older Notice to Reader engagement; and ongoing CRA increased scrutiny on pre-construction assignments, short-term rental businesses, and cash businesses.

How BOMCAS Canada delivers this service

Every engagement begins with a written, fixed-fee engagement letter signed before any work is performed. The engagement letter describes exactly what is in scope, what deliverables you will receive, when those deliverables are due, what your monthly or project fee is, and what (if anything) is outside scope. This eliminates the hourly-billing surprise that most accounting clients fear. The only time we use hourly billing is for genuinely unpredictable items such as CRA audit response or complex one-off projects — and even then we agree to a maximum cap before starting.

Once the engagement letter is signed, you e-sign the CRA authorization (RC59 for businesses or AUT-01 for individuals), and we onboard you to the encrypted client portal with multi-factor authentication. All document exchange flows through the portal — no emailing of sensitive financial documents. Meetings happen by video conference or phone at times that work for you, including outside normal business hours when needed.

Our Canadian tax compliance philosophy

BOMCAS Canada is structured around four operating principles:

1. Tell the truth. If a tax position is aggressive, we say so. If a deduction will not survive a CRA review, we say so. If the engagement is going to cost more than originally quoted because the scope changed, we say so before doing the work.
2. Bill what we said we would bill. No surprise invoices. No scope-creep billing. If something legitimately changes scope, we discuss it and re-quote before doing the additional work.
3. Answer the phone. One-business-day response standard on client communications during normal business hours. No voicemail backlogs.
4. Specialize. Canadian tax and accounting is too complex to be a generalist. We do not do US-only tax, UK tax, or any other foreign jurisdiction in isolation. We are Canadian. Our cross-border work is always anchored by deep Canadian compliance.

What ongoing engagement with BOMCAS Canada looks like

For most clients, the ongoing relationship is structured around predictable monthly deliverables. For an incorporated small business client, that typically includes: monthly cloud bookkeeping with full bank and credit card reconciliation; quarterly or annual GST/HST returns prepared and filed; monthly payroll for owner-managers and any employees, with CRA source deduction remittances; year-end Compilation Engagement (CSRS 4200) financial statements; T2 corporate income tax return; owner-manager T1 personal tax return (and spouse where applicable); annual salary-vs-dividend optimization with written recommendation; unlimited email and phone support during business hours; one quarterly check-in call to review numbers and discuss the business; and CRA correspondence handling for routine review letters.

For a personal tax client, the ongoing engagement includes: annual T1 preparation; any required Quebec TP-1 (for Quebec residents); CRA pre-assessment and post-assessment review response when CRA requests additional documentation; Notice of Assessment reconciliation; and proactive tax planning conversations during the year about RRSP, TFSA, and FHSA contributions, major life events (marriage, kids, retirement, real estate), and any planned business or investment changes.

Frequently asked questions about engaging BOMCAS Canada

Why Canadian businesses choose specialized accounting over generalist accounting

The Canadian tax and accounting landscape has become significantly more complex over the past decade. The 2018 TOSI rules, the 2021 changes to stock option taxation, the 2022 mandatory reporting changes for trusts, the 2023 anti-flipping rule, the Underused Housing Tax, the changes to the small business deduction phase-out for passive investment income, the new CSRS 4200 Compilation Engagement standard, the continued expansion of digital sales tax rules, and the ongoing post-COVID CRA focus on cash businesses and unreported income have all required accountants to specialize more deeply. A generalist firm trying to cover personal tax, corporate tax, US tax, real estate, trusts, cross-border, and every industry vertical inevitably falls behind on the depth of expertise that any one client needs.

BOMCAS Canada is structured deliberately to maintain depth: we are Canadian-only by design; we work in industries where we have genuine specialized experience; we maintain ongoing professional education in Canadian tax law; we use Canadian-experienced staff at every level; and we coordinate with specialized partners (US-licensed cross-border, legal counsel for corporate restructuring, audit-engagement licensed practitioners) where required rather than trying to handle everything in-house.

Talk to a Canadian accountant who knows your industry

Call 780-667-5250 or submit the contact form. We respond within one business day.

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