Quick Answer
- If you pay non-eligible dividends from your Ontario corporation on or after January 1, 2027, your Ontario dividend tax credit falls from 2.9863% to 1.9863%.
- The federal non-eligible dividend tax credit does not change, so only the Ontario portion shrinks.
- For a top-bracket Ontario shareholder, the combined federal and Ontario personal tax rate on non-eligible dividends rises from 47.74% in 2026 to roughly 48.89% in 2027.
- That is about $1,150 more personal tax on every $100,000 of non-eligible dividends.
- The change is proposed under Ontario’s 2026 Budget (Bill 97) and pairs with the small business corporate rate dropping from 3.2% to 2.2% on July 1, 2026.
Why Ontario Business Owners Are Suddenly Asking About Dividends
If you own an Ontario corporation and pay yourself in dividends, the 2026 Ontario Budget just changed a number under your tax bill. Starting January 1, 2027, the province’s small business (non-eligible) dividend tax credit is proposed to fall from 2.9863% to 1.9863%. In dollar terms, it is not invisible.
The change comes paired with better news on the corporate side. Ontario’s small business tax rate drops from 3.2% to 2.2% on July 1, 2026, prorated for straddled fiscal years. See prorating Ontario’s 2026 corporate tax rate — the two measures are designed to offset under integration.
The question every incorporated professional in Ontario should be asking is straightforward. Should I move a dividend into 2026 before the credit drops, and what does my compensation plan look like after that? Here is what the change actually does, with the dollars in front of you.
Quick Start: Pick Your Path
Not directly affected. Continue with normal RRSP and TFSA planning; this article is useful background only.
Sole proprietors report on their T1, not through a corporation, so the change does not apply. Weighing incorporation? See self-employed vs. incorporated in Canada.
This is your article. Non-eligible dividends received before December 31, 2026, generally qualify for the higher 2.9863% credit; those received on or after January 1, 2027, receive the lower 1.9863% credit.
What Actually Changed in the 2026 Ontario Budget
The 2026 Ontario Budget, tabled in March 2026 and introduced as Bill 97, proposes two paired changes affecting CCPC owner-managers.
The first is a small business corporate rate reduction. Ontario’s small business tax rate is proposed to drop from 3.2% to 2.2%, effective July 1, 2026. For companies whose fiscal year straddles that date, the rate is prorated across the two periods. Combined with the federal small business rate of 9%, that brings the total small business tax rate on the first $500,000 of active business income to roughly 11.2% from January 1, 2027 onward. For a deeper look at how these rates stack, see our guide to Canada’s corporate tax rates explained.
The second change is the personal-side offset. Ontario proposes to reduce the non-eligible dividend tax credit from 2.9863% to 1.9863%, effective January 1, 2027. The intent is “integration” — the principle that a dollar earned inside a company and paid out as a dividend should attract roughly the same total tax as a dollar of salary. When the corporate rate drops, less tax has been paid inside the company, so more personal tax typically applies when that income leaves as a dividend.
Eligible vs. Non-Eligible Dividends: Which One This Change Hits
A non-eligible dividend is paid from income taxed at the small business rate inside a CCPC. It carries a lower federal gross-up of 15% and a lower credit. If your T5 slip shows amounts in boxes 10 and 11 rather than the eligible-dividend boxes 24 and 25, this change is likely relevant.
2026 vs. 2027: A Side-by-Side Cost Comparison
The table below compares the two calendar years at Ontario’s top personal marginal bracket. The federal side does not change; only the Ontario dividend tax credit and the resulting combined rate shift.
| Measure | 2026 | 2027 (proposed) |
|---|---|---|
| Federal non-eligible dividend gross-up | 15% | 15% |
| Federal non-eligible dividend tax credit | 9.0301% | 9.0301% |
| Ontario non-eligible dividend tax credit | 2.9863% | 1.9863% |
| Top combined federal + Ontario rate on non-eligible dividends | 47.74% | 48.89% |
| Personal tax on a $100,000 non-eligible dividend at top bracket | approx $47,740 | approx $48,890 |
Two takeaways. The change is not catastrophic, but it is not zero either. Owner-managers distributing $200,000 or $300,000 a year in non-eligible dividends may see a few thousand dollars in additional personal tax annually. Whether that shifts your strategy also depends on how much cash sits inside the company, which our guide to retained earnings and payout strategy walks through.
Your Year-End Roadmap: What to Do Before December 31, 2026
The window to act at the higher 2.9863% credit closes at the end of 2026. Here is the practical sequence for owner-managers weighing their next dividend.
- 01Review your projected 2026 corporate earnings.Confirm how much of your CCPC’s income falls within the $500,000 small business deduction limit. Only that portion typically pays out as a non-eligible dividend.
- 02Confirm your CCPC and SBD eligibility.Your corporation generally needs to be a Canadian-Controlled Private Corporation, earn active business income, and stay under $10 million in taxable capital. See our essential tax-saving strategies for small business.
- 03Model both years side-by-side.Ask your accountant to compare taking a given dividend in 2026 versus splitting it between 2026 and 2027. Focus on after-tax dollars in your hand, not the headline rate.
- 04Decide whether to accelerate.If you have surplus corporate cash, are already in a high tax bracket, and were planning dividends in 2027 anyway, accelerating into 2026 may reduce total personal tax. If you have RRSP room or CPP goals, salary may still win.
- 05Update your paperwork.Any 2026 dividend must be declared by corporate resolution, actually paid or credited, and reported on a T5 slip filed by the end of February 2027.
- 06Revisit in early 2027.A quick check-in before T1 filing confirms the 2026 dividend captured the higher credit and the 2027 plan reflects the new rate.
How This Shifts the Salary-vs-Dividend Decision
The lower dividend tax credit nudges the salary-versus-dividend break-even slightly toward salary for many CCPC owners. It does not overturn it. The right mix still depends on your personal circumstances.
Salary counts as earned income. It generates RRSP room, requires CPP contributions that build retirement benefits, and is deductible to the corporation, so the company pays less corporate tax on the equivalent amount.
Dividends do not generate RRSP room and do not require CPP contributions. They are paid from after-tax corporate income and taxed personally through the gross-up-and-credit system. The 2027 change makes that credit slightly less generous in Ontario.
For a professional already maxing RRSP room through salary and needing predictable cash flow, dividends often still win. For an owner-manager with variable income or passive investment concerns, a heavier salary mix may fit better. Our resource on choosing between incorporation and sole proprietorship covers the broader structural decision.
Common Mistakes Ontario Owner-Managers Are Already Making
Six patterns are already showing up in year-end planning conversations. Watch for these:
- →Assuming the credit cut applies to eligible dividends too. It does not — eligible dividends and the eligible dividend tax credit are unchanged.
- →Treating the corporate rate cut as pure savings and forgetting the dividend cost. Under integration, the net effect for many owner-managers is close to neutral over a full year.
- →Rushing a large 2026 dividend without checking corporate cash flow. The company must have funds to actually pay it; over-distribution can create insolvency concerns.
- →Forgetting the T5 filing deadline. Any 2026 dividend must be reported on a T5 slip filed by the end of February 2027.
- →Ignoring interaction with other CRA rules. Dividend timing can affect Tax on Split Income (TOSI); our note on CRA rules on dividend suspensions for corporations covers a related example.
- →Assuming Bill 97 is final. The rate change remains a proposal until Royal Assent — treat it as expected but not settled.
Frequently Asked Questions
Will my dividend tax credit really go down if I pay dividends in 2027?
Should I pay myself a bigger dividend in 2026 before the credit drops?
Does this change affect eligible dividends from public companies too?
How much more tax will I pay on $100,000 of non-eligible dividends in 2027?
Is the small business corporate rate cut worth more than the dividend tax credit cut costs me?
Do I still need to change my salary vs dividend mix for 2027?
What happens if I declare a 2026 dividend but only pay it in 2027?
Is this change already law, or could it still get cancelled?
Ready to plan around the 2027 dividend tax credit change?
ClearWealth models the 2026-vs-2027 comparison with your actual numbers, coordinates dividend paperwork with your bookkeeping and payroll, and files the T5 slips CRA expects.
Book a ConsultationSources & References
- →Ontario Budget 2026, Annex (Tax Measures): https://budget.ontario.ca/2026/annex.html
- →Tax Insights: 2026 Ontario Budget — Tax Highlights, PwC Canada: https://www.pwc.com/ca/en/services/tax/budgets/2026/ontario.html
- →Ontario 2026 Budget Highlights, MNP: https://www.mnp.ca/en/insights/directory/ontario-2026-budget-highlights
- →Highlights of the 2026 Ontario Budget, KPMG Canada: https://kpmg.com/ca/en/insights/2026/03/highlights-of-the-2026-ontario-budget.html
- →2026-2027 Ontario Budget Summary, Crowe BGK: https://www.crowe.com/ca/crowebgk/publications/2026-2027-ontario-budget-summary
- →Canada Revenue Agency — Line 12000 taxable dividends: https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/about-your-tax-return/tax-return/completing-a-tax-return/personal-income/line-12000-taxable-amount-dividends-eligible-other-than-eligible-taxable-canadian-corporations.html
- →Income Tax Act (Canada), sections 82 and 121: https://laws-lois.justice.gc.ca/eng/acts/i-3.3/
