Title:
Ontario Proposes a Major Corporate Tax Reduction for Small Businesses

Excerpt:
Ontario’s 2026 Budget proposes reducing the province’s small-business corporate income tax rate from 3.2% to 2.2%.

Article:

The Ontario government has proposed a significant reduction to the province’s small-business corporate income tax rate as part of its 2026 Budget.

Under the proposal, Ontario’s reduced corporate income tax rate for qualifying Canadian-controlled private corporations would decrease from 3.2% to 2.2%, effective July 1, 2026.

The reduced rate generally applies to up to $500,000 of eligible active business income. Access to the small-business rate begins to phase out when a corporation, or an associated group of corporations, has more than $10 million in taxable capital employed in Canada and is eliminated at $50 million.

For corporations with taxation years that include July 1, 2026, the reduced rate would be prorated. The province estimates that more than 375,000 Ontario small businesses could benefit and that an eligible business may receive up to $5,000 in additional annual tax relief.

Ontario has also proposed reducing the provincial tax credit rate for non-eligible dividends from 2.9863% to 1.9863%, effective January 1, 2027, to align it with the lower corporate tax rate.

Business owners should note that these measures were introduced as proposals in the 2026 Ontario Budget. Their application may depend on the passage of legislation and the circumstances of each corporation.

Businesses considering incorporation, restructuring or changes to shareholder compensation should seek professional legal and tax advice before making a decision.

Category: Business Law
Suggested publish date: March 26, 2026
Source: Ontario Ministry of Finance — 2026 Ontario Budget