Ontario just made something official that the defence and aerospace industry has been waiting for.
On May 28, 2026, the Government of Ontario unveiled the framework for its first-ever Ontario Defence Industrial Strategy (ODIS), proposing a 10-year strategy intended to grow the province's defence industry and position Ontario companies and workers as pillars of Canada's defence landscape.
The announcement, made at CANSEC in Ottawa, marked the opening move in a multi-year industrial transformation that creates a new layer of strategic opportunity for Ontario businesses doing genuine R&D work that directly complements existing federal funding programs.
Here's what the ODIS framework says, why it matters, and how your innovation funding strategy should respond.
Why Ontario Is Moving Now
The timing is deliberate: Canada's federal Defence Industrial Strategy (DIS) launched in February 2026 with $6.6 billion in committed funding and created a national framework, but left room for provinces to define their own role within it.
Ontario moved quickly, and the economic opportunity is hard to ignore.
As part of the federal DIS, annual core defence spending in Canada alone could reach $150 billion by 2035. Simultaneously, annual global defence spending could reach $6.6 trillion in the same period.
While Ontario is home to more than 300 defence firms employing over 13,000 workers and generating more than $5 billion in annual revenue, that footprint is well below the province's full potential share of a rapidly growing market.
There's also a workforce dimension, as defence industry jobs typically pay 60 percent more than those across the manufacturing sector. For an Ontario government navigating trade disruption from U.S. tariffs, a defence sector pivot offers both near-term employment stability and long-term industrial competitiveness.
The Four Pillars of the ODIS Framework
The Ontario Defence Industrial Strategy is rooted in four pillars:
- Strengthen Ontario's industrial base.The goal here is to ensure Ontario'sdefence and dual-use firms are ready to capture value from increased federal and allied spending. This means helping existing manufacturers (many of whom have never pursued a defence contract) understand how their capabilities map to defence sector requirements, and supporting the investments needed to meet them.
- Own tomorrow's frontier.The crux of this mission is to makeOntario the place where future industries and technologies are built, scaled and brought to market, enabling firms to compete in an evolving defence landscape. The ODIS specifically calls out aerospace, autonomous systems, quantum, AI, and space as priority technology areas, indicating a deliberate alignment with the federal DIS priority sectors.
- Expand export reach.This initiative aims to position Ontario as a supplier of choice to the federal government and allies fordefence and dual-use technology and equipment. Canada's participation in the EU's Security Action for Europe (SAFE) initiative (part of NATO's Readiness 2030 framework) means Ontario companies can now bid on large-scale European defence projects supported by up to $244 billion in allied loans; a market access expansion most Ontario businesses haven't fully registered yet.
- Build an integrated supply chain.This marks a push for local and global businesses to capitalize on Ontario's strength in critical minerals and advanced manufacturing to build a resilient, vertically integrateddefence supply chain. Ontario's critical minerals sector, which has long been a strategic asset for batteries and clean tech, is explicitly positioned as a dual-use input for defence manufacturing.
These four pillars will be supported by targeted workforce development measures. The framework will also serve as the foundation for consultations with municipalities, academia and industry stakeholders over the coming weeks and months, with feedback used to inform the strategy's development.
What This Means in Practice: The Economic Targets
The Ontario government has put numbers to its ambitions. By 2035, these opportunities could help create 43,000 good-paying jobs, contribute $6 billion to the provincial economy and generate over $400 million in annual provincial tax revenue.
Ontario's defence sector represents 35 percent of national defence activity by employment, which the province will seek to proportionately grow this workforce through the creation of 43,000 jobs across the economy.
One important note: The ODIS is currently a framework document, not a fully funded program suite. Specific incentives, grant windows, and investment instruments will be announced as the strategy moves from consultation to implementation later in 2026. Businesses should be watching for those announcements, and positioning now.
The R&D Funding Stack for Ontario Defence Businesses
Here's where the ODIS connects directly to your bottom line.
Ontario's defence strategy creates a strategic context for innovation investment, but the existing federal and provincial R&D tax credit system is where the immediate financial return lives. And for Ontario-based businesses, that stack is among the most generous in the country.
Federal SR&ED — the foundation
The federal SR&ED program remains the largest piece of the puzzle. Following the 2026 enhancements, eligible CCPCs can now access up to $2.1 million in annual refundable credits on the first $6 million in qualifying expenditures and capital equipment used directly in R&D is eligible again, for starters For the full breakdown, see our earlier post on how SR&ED and the federal DIS work together.
Ontario Innovation Tax Credit (OITC) — the provincial top-up
The OITC is an 8% refundable provincial tax credit on eligible SR&ED expenditures, available to Ontario-based CCPCs with taxable capital under $50 million. Ontario CCPCs can recover up to 43% of eligible R&D costs by combining the 35% federal SR&ED credit with the 8% provincial OITC. For most Ontario defence and aerospace companies doing significant R&D work, claiming both is standard practice (and should be).
Ontario Research and Development Tax Credit (ORDTC) — for profitable companies
The ORDTC provides up to 3.5% of eligible Ontario SR&ED expenditures as a non-refundable provincial credit, stacking on top of both the federal SR&ED Investment Tax Credit and the OITC. This credit requires a profitable corporation to realize its value, but for mature defence contractors with taxable income, it adds meaningful incremental recovery on R&D costs.
Ontario Business Research Institute Tax Credit (OBRITC)
For companies conducting R&D in partnership with eligible Ontario research institutes, a 20% refundable credit is available on qualifying contract research expenditures. Defence and aerospace companies partnering with universities or NRC facilities for technology development should specifically assess OBRITC eligibility.
Federal DIS programs — the prospective layer
RDII, DI Assist, and the BDC Defence Platform sit alongside these tax credits rather than replacing them. DIS programs typically fund prospective activities (prototyping, supply chain integration, commercialization) while SR&ED and the Ontario credits recover a portion of R&D costs already incurred. The programs are designed to be used together.
Ontario Isn't Alone: A National Provincial Picture
While Ontario's ODIS is the most formal provincial defence strategy to date, the broader picture across Canada is encouraging for businesses in multiple regions.
Quebec has been among the most active. Canada Economic Development for Quebec Regions delivered nearly $33.7 million in DIS-related contributions across 28 projects spanning aerospace manufacturing (Héroux-Devtek), quantum computing (Anyon Systems), and AI for aeronautics (Beslogic), among others. Quebec's RDII envelope of $64.9 million over three years, administered through CED, is specifically targeting aerospace and dual-use technology SMEs. Quebec companies can also stack CDAE-IA (the province's AI e-business tax credit) on top of SR&ED for qualifying AI-integrated R&D work.
Alberta is mobilizing too. PrairiesCan announced a combined federal investment of more than $9.3 million through the RDII for Alberta businesses, funding drone platforms, high-frequency power amplifiers, defence electronics manufacturing capacity, and military-grade cable systems. The province has separately invested $21 million to boost Alberta's defence sector, with a particular focus on helping energy and construction sector manufacturers translate their existing advanced manufacturing capabilities into defence contracts.
The pattern is consistent across the provinces, where the federal DIS is acting as a catalyst, and provincial governments are layering their own industrial strategies and regional funding programs on top. For businesses operating in any of these regions, the combination of federal programs, provincial R&D credits, and regional DIS funding creates a more complete (and more generous) funding stack than at any point in recent memory.
Who Should Be Paying Attention in Ontario
The ODIS is broader than its defence-first framing might suggest. The dual-use technology emphasis is deliberate, as Ontario companies building capabilities for commercial markets (AI, autonomous systems, cybersecurity, advanced manufacturing, quantum) may already qualify without an existing defence contract or client.
If your company is doing any of the following, ODIS and the underlying federal DIS are worth a serious look:
- Developing or manufacturing aerospace components or platforms
- Building autonomous systems, drones, or robotic platforms
- Working on AI applications with potential security or surveillance applications
- Producing advanced sensors, communications hardware, or electronic systems
- Operating in precision manufacturing with defence-grade quality systems
- Developing quantum technologies or high-assurance digital infrastructure
- Supplying critical minerals or processed materials into manufacturing supply chains
And for any of these activities, the immediate question isn't just whether ODIS applies, but whether your R&D expenditures are already generating SR&ED credits, whether your Ontario provincial credits are being fully claimed alongside them, and whether DIS programs like RDII or DI Assist should be part of your 2026 funding strategy.
The Bottom Line
Ontario's ODIS is a framework today. The specific programs and funding instruments that flow from it will be announced as consultations conclude later this year, but the strategic signal is clear, and the existing federal and provincial funding stack is already in place.
For Ontario defence and aerospace businesses, the smartest move right now is two things simultaneously: Staying close to ODIS developments as the strategy is finalized, and making sure the SR&ED and Ontario provincial credits you're already entitled to are being fully claimed.
Boast has helped more than 2,000 companies across Canada and the U.S. recover over $900 million in R&D tax credits. We work directly with aerospace, advanced manufacturing, and dual-use technology companies to ensure every qualifying activity is captured, properly documented, and defensible, all backed by our 100% audit defense commitment.
If you're an Ontario business navigating the intersection of the ODIS, the federal DIS, and your R&D tax strategy, we'd like to talk. Reach out to a Boast specialist to map your current R&D spend against the full federal and provincial funding stack.
