Ontario Dividend Tax Credit Change 2027: What to Know

— Quick Answer

— Why Ontario Owner-Managers Are Rerunning the Numbers Right Now

If you own a corporation in Ontario and pay yourself in dividends, your 2027 tax bill is about to change. The province’s non-eligible dividend tax credit, the offset that keeps you from being double-taxed when your company’s after-tax profits flow to you personally, is being trimmed.

This is one half of a two-part Ontario adjustment. The other half, a cut to the small business corporate tax rate, took effect earlier and generally works in your favour. Together the two changes are designed to keep total tax on business income roughly steady, but the timing does not line up neatly, and how you draw money out of your corporation in 2026 and 2027 matters.

Owner-managers, incorporated professionals, and family-business shareholders are already modelling whether to accelerate a 2026 dividend or shift toward salary next year. This guide walks through what changed, the exact new numbers, and a practical planning path you can act on before December 31, 2026.

— Quick Start: Pick Your Path

For deeper background on Ontario tax planning, browse our more Ontario tax insights library.

— What Actually Changed Under Bill 97

A non-eligible dividend is a dividend paid out of corporate profits that were taxed at the small business rate, generally the first $500,000 of active business income in a Canadian-controlled private corporation, or CCPC. When your company pays that dividend, you gross it up by 15% on your personal return, then claim a federal dividend tax credit and a provincial dividend tax credit to avoid being taxed twice on the same dollars. That combined credit is what integration means in plain English.

The federal 15% gross-up under paragraph 82(1)(b)(i) of the Income Tax Act and the federal non-eligible dividend tax credit are unchanged. So is the treatment of eligible dividends, which are typically paid from income taxed at the general corporate rate. This is a targeted Ontario adjustment, mirroring the Ontario small business tax rate 2026 explained cut from 3.2% to 2.2% effective July 1, 2026.

— Ontario Non-Eligible Dividend Rates: 2026 vs 2027 Side by Side

The table below sets out the headline numbers. If your taxation year straddles July 1, 2026, the corporate rate is prorated, which we walk through in prorating your Ontario corporate tax for a straddle year.

On a $100,000 non-eligible dividend at the top bracket, the personal tax cost rises by about $1,150 in 2027. That is the number to weigh against your corporate rate savings.

— Your 2026 Planning Roadmap: Six Steps Before December 31

1. 1
   Confirm your dividend character.Ask your accountant which pool a dividend would come from: non-eligible (from small-business-rate income) or eligible (from income tracked in your GRIP account). Only non-eligible dividends are affected by the 2027 change.
2. 2
   Forecast your personal marginal rate.If you expect a lower personal bracket in 2027 than 2026, accelerating a dividend into 2026 may not save tax. Run both years side by side.
3. 3
   Check corporate cash and safe income.A dividend needs cash on hand and, in some cases, enough safe income to avoid subsection 55(2) issues. Do not force a dividend the company cannot afford. This is a good moment to review retained earnings and how to draw them tax-efficiently.
4. 4
   Model a 2027 salary and dividend mix.The lower corporate rate on active income and the lower personal DTC together shift the math. A modest reallocation toward salary may recover part of the personal rate increase.
5. 5
   Coordinate with RRSP room and CPP.Salary generates RRSP room and CPP entitlements. Dividends do not. If you are behind on RRSP contributions, extra salary in 2027 can do double duty.
6. 6
   Document the plan with your accountant.A short year-end memo covering the amount, timing, and source pool of any accelerated dividend protects you if the CRA later reviews the transactions.

— Should You Shift More Toward Salary in 2027?

Not automatically. The 2027 DTC cut widens the gap on the personal side but the corporate rate cut narrows it on the corporate side, so integration stays close to neutral for most owner-managers. Where salary starts to look better is in the surrounding benefits.

Salary generates RRSP room at 18% of earned income up to the annual limit, builds CPP entitlement, and can support childcare expense deductions. Dividends do none of those. If you have unused RRSP room or years of low CPP contributions, a modest shift toward salary in 2027 can pay for itself over time.

Dividends still win on payroll simplicity, on the absence of employer and employee CPP contributions on the drawn amount, and, in narrow cases, on income-splitting with adult family shareholders who genuinely participate in the business. TOSI, which we discuss in the common mistakes section, can eliminate that benefit if the family member does not clear the tests.

For a broader comparison of remuneration structures, see our guide on self-employed vs incorporated in Canada for 2026.

— Common Mistakes to Avoid

A rushed year-end dividend can create more problems than it solves. The mistakes below come up most often when owner-managers try to lock in the higher 2026 dividend tax credit.

• →Assuming the cut applies to every dividend. Eligible dividends from public companies or from GRIP-pool income are unaffected.
• →Sprinkling dividends to family members without a TOSI review. Non-eligible dividends paid to a spouse or adult child who does not meet an exception are taxed at the top rate.
• →Ignoring the capital dividend account and refundable dividend tax on hand pools when choosing which type of dividend to pay in 2026.
• →Declaring a dividend the company cannot fund. A dividend without cash or sufficient safe income can trigger CRA scrutiny under subsection 55(2).
• →Looking at the DTC cut in isolation from the corporate rate cut. Integration only makes sense when both sides of the ledger are modelled together.
• →Forgetting to update T5 filings and 2027 personal instalment estimates once the new numbers are locked.
• →Overusing a holding company as a workaround. Read the truth about holding companies and tax savings before restructuring in a hurry.

— Frequently Asked Questions

The questions below are the ones we hear most often from Ontario owner-managers. For broader 2026 tax changes, see small businesses face new tax relief shifts in 2026.

Sources & References

1. Bill 97, Plan to Protect Ontario Act (Budget Measures), 2026 – Legislative Assembly of Ontario
2. 2026 Ontario Budget Annex – Ontario Ministry of Finance
3. Tax Insights: 2026 Ontario budget – PwC Canada
4. Ontario Budget 2026 – Doane Grant Thornton
5. Baker Tilly Canada – Key tax updates from Ontario’s 2026 budget
6. Ontario Non-Eligible Dividend Tax Credit historical rates – TaxTips.ca
7. Income Tax Act, section 82 – Taxable dividends received (Justice Laws Canada)
8. Corporation tax rates – Canada Revenue Agency
9. Ontario dividend tax credit – Form ON428 (Canada Revenue Agency)