On March 26, 2026, the Ontario Government tabled its 2026 provincial budget. While the budget covers several significant initiatives, there are a few key highlights we have summarized for what you need to know and, importantly, what actions may be worth considering before key deadlines arrive.
1. Small Business Corporate Tax Rate Reduction
Ontario is permanently reducing its small business corporate income tax (CIT) rate from 3.2% to 2.2%, with an effective date of July 1, 2026. This brings the combined federal and Ontario small business corporate tax rate down to 11.2%. For taxation years that straddle July 1, 2026, the reduced rate will be prorated.
This is welcome news for small business owners, as it is designed to improve cash flow and support reinvestment and growth.
There is an offsetting change to be aware of on the personal side. To correspond with the lower corporate rate, the non-eligible dividend tax credit will be reduced from 2.9863% to 1.9863%, effective January 1, 2027. This means the top personal tax rate on ineligible dividends for Ontario residents will increase from 47.74% to 48.89% starting in 2027.
From an integrated tax perspective (looking at the combined corporate and personal tax on income earned through a corporation), the numbers shift as follows:
- Active income subject to the small business rate: The integrated rate increases from 54.12% to 54.61%, representing a modest increase in the cost of earning active income through a corporation versus personally (from approximately 0.59% to 1.08%).
- Investment income: The integrated rate increases from 57.93% to 58.86%.
- Capital gains: The integrated rate increased from 28.98% to 29.43%.
Planning opportunity: Because the reduction to the dividend tax credit does not take effect until January 1, 2027, there may be an advantage in accelerating the payment of ineligible dividends before the end of the 2026 calendar year. If this is relevant to your situation, we encourage you to speak with your RLB advisor sooner rather than later to evaluate your options.
2. Expiration of the Regional Opportunities Investment Tax Credit (ROITC)
The Ontario government has announced that the Regional Opportunities Investment Tax Credit (ROITC) will expire on January 1, 2027. The government has cited improved employment outcomes in previously eligible regions as its rationale for this phase out.
Capital expenditures incurred on or before December 31, 2026 will remain eligible for the credit. If you have been considering capital investments in a designated region, it may be worth reviewing whether those plans can be advanced to ensure eligibility before the credit ceases to exist.
It is important to note that this change applies only to the ROITC. The Ontario Made Manufacturing Investment Tax Credit (OMMITC) is unaffected – no changes to that program were announced in this budget.
If you are unsure whether your planned investments qualify, or would like help assessing your timeline, the RLB tax team is happy to assist.
3. Enhanced HST Rebates for New Housing
Ontario is introducing temporary enhancements to the existing HST New Housing Rebate and New Residential Rental Property Rebate. These measures are intended to improve affordability and stimulate new housing supply, with the enhancements proposed to run from April 1, 2026 to March 31, 2027.
Here is how the enhanced rebate structure works:
- The full 8% provincial portion of HST will be rebated for qualifying new homes valued up to $1 million, equal to a rebate of up to $80,000.
- The provincial government is working with the federal government to mirror this incentive for the 5% federal portion, which would bring the combined rebate up to $130,000 for eligible homes. Note that the federal component is pending agreement and not yet confirmed.
- The $130,000 rebate is maintained for homes valued up to $1.5 million.
- For homes valued between $1.5 million and $1.85 million, the rebate is reduced on a straight-line basis from $130,000 to $24,000.
- Homes valued above $1.85 million are eligible for the $24,000 rebate only.
These changes are particularly relevant for homebuilders, developers, and purchasers of new construction properties. If you are involved in a new housing project or considering a purchase, it is worth understanding how these rebates may apply to your specific situation.
Questions? Let’s Talk.
Tax legislation changes quickly, and the implications can vary depending on your circumstances. The RLB tax team is here to help you understand how these updates may affect you and to identify any planning opportunities before key deadlines pass. Reach out to your RLB advisor today to start the conversation.
