Quick Answer
Ontario's non-eligible dividend tax credit falls from 2.9863% to 1.9863% of the taxable dividend amount, effective January 1, 2027. The change pushes the top combined federal and Ontario tax rate on non-eligible dividends from 47.74% in 2026 to 48.89% in 2027 — roughly 1.15 percentage points higher at the top bracket.
The reduction was announced in the 2026 Ontario Budget on March 26, 2026, and is paired with the small business corporate tax rate cut from 3.2% to 2.2% on July 1, 2026, to preserve tax integration. Owner-managers of Canadian-controlled private corporations should review 2026 year-end dividend planning before December 31, 2026, because dividends paid in 2026 still use the older, more generous credit rate.
Salary-versus-dividend mixes, bonus-down strategies, and holding-company distributions may need to be re-modelled in light of the new 2027 rate.
Why this change matters for Ontario owner-managers right now
If you own a Canadian-controlled private corporation (a CCPC — a private company controlled by Canadian residents) and you pay yourself in dividends, Ontario has just quietly narrowed your planning window. The province announced in its 2026 Budget that the non-eligible dividend tax credit is dropping on January 1, 2027, and dividends paid before that date still use the older, more generous credit.
That gives you roughly one calendar quarter to review your compensation mix and decide whether to accelerate any 2026 dividends, hold your current course, or shift more of your remuneration toward salary. For background on how Ontario's 2026 personal brackets and OAS clawback thresholds sit alongside this change, see our companion piece on 2026 Ontario tax brackets, dividends, and the OAS clawback.
Quick Start: pick your path
The answer to "should I care about this?" depends entirely on how you are paid. Find yourself in one of the three paths below, then read only what applies.
What Ontario actually changed and when
The two moves are deliberately paired. Canada's tax system tries to keep tax integration in balance — the idea that a dollar earned through a corporation and then paid out as a dividend should carry roughly the same combined tax burden as a dollar earned personally. When Ontario cut the small business rate, the province had to give back some of that saving on the personal side, or dividends would become underpaid relative to salary.
The mechanics show up on your personal return. On a non-eligible dividend, the federal system already applies a 15% gross-up and a federal dividend tax credit, and Ontario then applies its own provincial credit as a percentage of the grossed-up dividend. Cutting that Ontario percentage from 2.9863% to 1.9863% means slightly less credit against your Ontario tax, which the province estimates will push the top combined federal and Ontario rate on non-eligible dividends from 47.74% in 2026 to 48.89% in 2027. For the underlying small business rate change and the mid-year proration rules, see our guide to small business tax rates by province in 2026.
Eligible vs non-eligible dividends: quick comparison
Most owner-managers of active small businesses draw non-eligible dividends, because the underlying corporate income is taxed at Ontario's small business rate. Eligible dividends usually come from larger corporations or from a CCPC's General Rate Income Pool (the GRIP — income already taxed at the higher general corporate rate). If you are unsure which category your dividends fall into, your accountant can tell you from the T5 slip and the corporate tax return. For a broader overview, see our explainer on how Canadian corporate tax rates work.
| Feature | Eligible dividend | Non-eligible dividend |
|---|---|---|
| Underlying corporate income | Taxed at general corporate rate | Taxed at small business rate |
| Federal gross-up | 38% | 15% |
| Ontario DTC (2026) | 10.0000% of taxable dividend | 2.9863% of taxable dividend |
| Ontario DTC (2027) | 10.0000% (unchanged) | 1.9863% (reduced) |
| Top combined rate (2027) | 39.34% | 48.89% |
What this costs you in dollars: two owner scenarios
Consider two typical Ontario CCPC owners. Owner A runs a small trades corporation and pays herself $100,000 in non-eligible dividends per year with limited other income. Owner B is an incorporated professional pulling $300,000 in non-eligible dividends and sitting in Ontario's top bracket. Both would pay the same personal tax on that distribution in 2026, but in 2027 the reduced credit means both pay more.
The actual dollars depend on Owner A's other income, deductions, and family credits — mid-bracket owners often see the change diluted by non-refundable credits and lower marginal rates. Owner B, sitting above the $258,482 top-bracket threshold (indexed for 2027), feels the full step-up from 47.74% to 48.89% on every incremental dividend dollar. For a broader look at how small planning shifts add up across a full year, see our roundup of essential tax-saving strategies for Canadian small business owners.
2026 year-end roadmap for CCPC owner-managers
The window is narrow but the workflow is straightforward. Below is the sequence most Ontario owner-managers can follow with their accountant.
- 1Confirm corporate balancesPull an interim balance sheet and confirm retained earnings, the Capital Dividend Account, and GRIP balances. You cannot pay a dividend larger than the corporation supports.
- 2Model 2026 and 2027 side by sideModel your 2026 personal income with and without an accelerated dividend, and then model 2027 under the new credit rate. Compare the total two-year tax cost, not just 2026 in isolation.
- 3Decide the dividend amountPush into 2026 only what does not create top-bracket creep, OAS clawback exposure, or lost non-refundable credits.
- 4Draft and sign the corporate resolutionDraft and sign a corporate resolution declaring the dividend. Date the resolution before December 31, 2026 and record it in the corporate minute book.
- 5Actually pay the dividend before year-endPay the dividend on or before December 31, 2026. A declared but unpaid dividend does not fall under 2026 rules — it falls under whichever year the cash moves. For background on why the underlying corporate cash matters, see our guide to retained earnings for business owners.
- 6Update 2026 and 2027 installmentsUpdate 2026 and 2027 personal installment estimates so you are not surprised by an interest charge in the following spring.
When accelerating dividends is a bad idea
Accelerating non-eligible dividends into 2026 sounds like a free tax saving, but for some owners it can quietly cost more than it saves. The change is a top-bracket story, so if you are already comfortably below the top threshold, pulling a large extra dividend forward may push part of your income into a higher bracket in 2026 — sometimes more than the 1.15-point saving you were chasing.
OAS clawback exposure is a common trap. Any dividend that raises your net income above the annual OAS threshold triggers a 15% clawback on the excess, on top of your regular tax. For seniors and near-retirees receiving Old Age Security, see the current OAS clawback threshold for 2026 before accelerating anything.
Cash flow can also derail the plan. A dividend must be paid, not just declared, so the corporation needs the actual cash on hand before December 31, 2026. And for owners who rely on RRSP room, dividends do not create earned income — so heavily front-loading dividends may reduce your future contribution capacity if you were planning to shift toward salary later.
Common mistakes to avoid
- →Assuming the credit change affects eligible dividends. It does not. Only non-eligible dividends, typically paid from small-business-rate income, are touched.
- →Declaring a dividend in December 2026 but paying it in January 2027. The credit rate is determined by the payment date, not the resolution date, so the dividend falls under the 2027 rules.
- →Treating the change as a corporate-only issue. The corporation actually saves tax through the small business rate cut. The credit reduction lands entirely on the shareholder's personal return.
- →Forgetting the T5 filing deadline. T5 slips for 2026 dividends are due to CRA by the end of February 2027. Missing the deadline can trigger penalties documented in our note on T4 and T5 late-filing penalties.
- →Over-accelerating into the top bracket. Pushing $300,000 forward may cost more than the credit saving if it lifts a normally mid-bracket owner over the $258,482 threshold.
- →Ignoring installments. Extra 2026 income raises your 2026 personal tax bill and can push you into required quarterly installments for 2027.
- →Overlooking holding-company distributions. If your operating company dividends flow through a holdco first, the timing of the second-tier payment also matters and needs to be coordinated.
Frequently asked questions
What is Ontario's non-eligible dividend tax credit dropping to in 2027?
Does the 2027 change affect eligible dividends too, or only non-eligible ones?
Should I pay myself extra dividends before December 31, 2026?
How much more tax will I pay on a $100,000 non-eligible dividend in 2027 versus 2026?
What is the difference between an eligible and a non-eligible dividend in plain English?
If I declare a dividend in December 2026 but pay it in January 2027, which credit rate applies?
Does this change affect my holding company or only my operating company?
Should I switch from dividends to salary because of the 2027 change?
Will the new rate change my 2027 installment payments to CRA?
Do I still get an Ontario dividend tax credit if my income is below the top bracket?
Model your 2026 dividend before December 31
The right move for one owner-manager can be the wrong move for the next — it depends on your bracket, corporate cash position, and current pay mix. ClearWealth works with incorporated professionals and CCPC owners across Toronto and the GTA.
Book a ConsultationSources and references
- Ontario Ministry of Finance — 2026 Ontario Budget (March 26, 2026) — https://www.ontario.ca/page/2026-ontario-budget
- PwC Canada — Tax Insights: 2026 Ontario budget — Tax highlights — https://www.pwc.com/ca/en/services/tax/budgets/2026/ontario.html
- EY Tax News — Canada: Ontario budget 2026 (non-eligible DTC rate reduction) — https://taxnews.ey.com/news/2026-0747-canada-ontario-budget-2026
- KPMG Canada — TaxNewsFlash No. 2026-19, Highlights of the 2026 Ontario Budget — https://assets.kpmg.com/content/dam/kpmgsites/ca/pdf/tnf/2026/03/ca-highlights-of-the-2026-ontario-budget.pdf
- Canada Revenue Agency — Canadian income tax rates for individuals — https://www.canada.ca/en/revenue-agency/services/tax/individuals/frequently-asked-questions-individuals/canadian-income-tax-rates-individuals-current-previous-years.html
- Canada Revenue Agency — T5 Statement of Investment Income (filing) — https://www.canada.ca/en/revenue-agency/services/tax/businesses/topics/payroll/completing-filing-information-returns/t5-statement-investment-income.html
- Ontario Taxation Act, 2007 — s. 19.1 (Ontario dividend tax credit) — https://www.ontario.ca/laws/statute/07t11
