Ontario Budget 2026 Tax Changes: A Business Owner's Guide

» Quick Answer: What Changed in Ontario Budget 2026

» Why the 2026 Ontario Budget Matters to You

Every provincial budget produces a wave of news stories, but only a handful of the changes ever land on your tax return. The 2026 Ontario Budget is different. It bundles three measures with real dollar impact for anyone who runs a business, owns a corporation, or is about to close on a new home in the next year.

The changes arrive in stages, not all at once. One is already in force. One is running on a countdown. One waits until January 2027. Each is tied to a specific date, and each decision you make between now and March 31, 2027 sits inside one of those windows.

This guide walks through what changed, who it affects, and what to do next. For related coverage of federal and provincial tax updates, see the ClearWealth Insights blog.

» Quick Start: Pick Your Path

Skim the path that fits and take the short list of actions before reading the rest of the article.

» What Actually Changed on March 26, 2026

Ontario Finance Minister Peter Bethlenfalvy tabled the 2026 Budget, titled A Plan to Protect Ontario, on March 26, 2026. The budget measures were introduced the same day as Bill 97, the Plan to Protect Ontario Act (Budget Measures), 2026. Bill 97 received Royal Assent on April 24, 2026, which means the measures below are enacted law with their respective effective dates.

Three tax measures stand out for business owners. The first is a one-percentage-point cut to the Ontario small business corporate income tax rate. The second is a temporary enhancement of the HST New Housing Rebate and New Residential Rental Property Rebate. The third is a rebalancing of the Ontario non-eligible dividend tax credit to keep personal and corporate taxation aligned after the corporate rate cut.

Ontario also confirmed accelerated capital cost allowance measures aligned with federal proposals, giving businesses faster write-offs on eligible depreciable property. For more on the Ontario small business tax rate change, see our detailed guide.

» Small Business Rate Cut: What 2.2% Means for Your CCPC

A Canadian-controlled private corporation, or CCPC, is a private corporation that is generally controlled by Canadian residents. The small business deduction, or SBD, is the tax rule that lets a CCPC pay a lower rate on its first $500,000 of active business income each year. The federal portion is 9%. The Ontario portion is what changed.

For fiscal years that begin on or after July 1, 2026, the 2.2% Ontario rate applies to the full year of small-business-eligible income. For fiscal years that straddle July 1, 2026, the rate is prorated: the days before July 1 use the old 3.2% rate, and the days from July 1 onward use the new 2.2% rate. Your accountant will apply this on your T2 automatically, but you can preview the math in our Ontario corporate tax proration guide.

Two things can shrink the benefit. Active business income above $500,000 is taxed at the general Ontario rate of 11.5%. Taxable capital above $10 million grinds down the small business deduction, and the SBD is fully eliminated at $50 million.

» Comparison: How the Cut Affects Sole Proprietors vs. Incorporated Businesses

The rate cut only helps you if your business is incorporated. A sole proprietor reports business income directly on their personal T1 return, where Ontario personal tax brackets apply. Incorporation places income inside the corporation, where the SBD lower rate applies before any personal tax on withdrawals.

The table below compares how $250,000 of active business income is taxed at the corporate level under three scenarios. Personal tax on any dividends drawn from the corporation is separate and depends on the owner's personal bracket.

Figures are illustrative and assume all $250,000 qualifies for the SBD. For a broader picture of how corporate tax works across the country, see our overview of Canada's corporate tax rates.

» HST New Home Rebate: Eligibility and the March 31, 2027 Deadline

The HST New Housing Rebate has always let buyers of new or substantially renovated homes recover part of the 13% HST paid on the purchase. Ontario's enhancement temporarily boosts the provincial 8% portion of that rebate. During the enhancement window, an eligible buyer may recover up to $80,000 of provincial HST on a home valued at $1 million, and the same $80,000 maximum is generally maintained for homes valued between $1 million and $1.5 million.

Eligibility follows the federal criteria under Section 254 of the Excise Tax Act. The date of your agreement of purchase and sale, occupancy, and intended use all matter. The rebate typically applies to a new home used as your primary place of residence. For rental properties, the New Residential Rental Property Rebate is enhanced on a parallel track.

The window is time-boxed. The provincial portion of the New Housing Rebate ends entirely after March 31, 2027. For a plain-language walk-through of the mechanics, see our guide to the Ontario HST top-up on new homes.

» Dividend Planning: The January 1, 2027 Credit Reduction

Owner-managers who pay themselves in non-eligible dividends should mark January 1, 2027 on the calendar. On that date, Ontario's non-eligible dividend tax credit rate drops from 2.9863% to 1.9863%.

Non-eligible dividends are the dividends a CCPC pays out of income that was taxed at the small business rate. The dividend tax credit reduces the personal tax you owe on those dividends. Ontario is lowering the credit to preserve tax integration, which is the principle that combined corporate-plus-personal tax should reach roughly the same total whether income is earned personally or through a corporation.

In practical terms, dividends declared and paid before December 31, 2026 use the current credit rate. Dividends declared on or after January 1, 2027 use the lower credit. For a typical owner-manager, this can add roughly $200 to $500 of personal tax on every $10,000 in non-eligible dividends drawn in 2027 versus 2026. For a full explanation of the mechanics, see our guide to the Ontario non-eligible dividend tax credit change.

» Step-by-Step Roadmap for the Rest of 2026

1. 1
   Step 1Confirm your corporation still meets the CCPC and SBD criteria, including the $10 million taxable capital threshold.
2. 2
   Step 2Map your current fiscal year against July 1, 2026. If it straddles the date, expect a prorated Ontario rate on your next T2.
3. 3
   Step 3Revisit accelerated capital cost allowance opportunities before your year-end to bring forward eligible depreciation.
4. 4
   Step 4Rebalance your salary-versus-dividend split for 2027, factoring in the January 1, 2027 non-eligible dividend credit change.
5. 5
   Step 5Time any new-home agreement of purchase and sale to fall inside the April 1, 2026 to March 31, 2027 enhancement window if possible.
6. 6
   Step 6Update the corporate tax rate in your bookkeeping and payroll software so monthly installments reflect the new 2.2% rate for straddled years.

Nothing here changes your T2 corporate tax return deadline. For a refresher on filing dates, see our guide to the T2 corporate tax return deadline.

» Common Mistakes Ontario Business Owners Make Around Budget Changes

• →Assuming the small business rate cut applies retroactively to the whole fiscal year instead of being prorated around July 1, 2026.
• →Forgetting that the enhanced HST rebate is time-boxed and the provincial portion of the rebate ends entirely after March 31, 2027.
• →Continuing an unchanged salary-versus-dividend split into 2027 without accounting for the reduced non-eligible dividend tax credit.
• →Overlooking the $500,000 SBD threshold and the taxable-capital grind, so the 2.2% rate is assumed on income that actually falls into the general 11.5% rate.
• →Waiting to update bookkeeping software payroll and corporate tax settings until year-end, then discovering monthly installments were calculated at the old rate.
• →Overlooking that only Ontario changed the small business rate, so multi-province corporations still allocate income based on where their permanent establishments are located.

» Frequently Asked Questions

Sources & References

1. Ontario Ministry of Finance. 2026 Ontario Budget: A Plan to Protect Ontario. March 26, 2026. budget.ontario.ca/2026/
2. Legislative Assembly of Ontario. Bill 97, Plan to Protect Ontario Act (Budget Measures), 2026. Royal Assent April 24, 2026. ola.org / Bill 97
3. Canada Revenue Agency. Corporation tax rates. canada.ca / corporation tax rates
4. Canada Revenue Agency. Small business deduction. canada.ca / small business deduction
5. Canada Revenue Agency. GST/HST New Housing Rebate (RC4028). canada.ca / RC4028
6. Government of Canada. Excise Tax Act, Section 254. justice.gc.ca / Excise Tax Act
7. Ontario Ministry of Finance. Ontario dividend tax credit. ontario.ca / dividend tax credit