Ontario 2026 Budget: Key Tax Changes and Planning Opportunities for Business Owners

April 3, 2026  ·  Tax Planning

Ontario's 2026 Budget introduces a mix of tax relief and policy changes aimed at supporting economic stability while navigating ongoing global uncertainty. For business owners and individuals, the changes present both opportunities and planning considerations, particularly around tax planning, capital investment, and compensation strategies.

Economic Outlook Remains Cautious

The province is forecasting modest economic growth of approximately 1% in 2026, alongside continued deficits through 2027. A return to surplus is now expected in 2028, reflecting ongoing fiscal pressures and a measured approach to economic recovery.

Lower Taxes for Small Businesses

A key highlight of the Ontario 2026 Budget is the reduction in the small business corporate income tax rate from 3.2% to 2.2%, effective July 1, 2026. This provides meaningful tax savings and improves after-tax cash flow for many owner-managed businesses.

Corporate Tax Rates (Effective July 1, 2026)

In addition, Ontario is aligning with federal measures to allow accelerated capital cost allowance (CCA) and immediate expensing for certain assets.

Manufacturing and processing assets, clean technology and environmental assets, and R&D-related assets may be eligible for a full (100%) deduction in the year of acquisition. Other assets may qualify for enhanced first-year CCA of up to three times the normal rate.

Changing Dynamics for Business Owners

While corporate taxes are decreasing, personal taxation on non-eligible dividends will increase beginning in 2027. This reduces the overall tax efficiency of paying dividends from private corporations.

Top Combined Personal Tax Rates

As a result, business owners should consider reviewing their compensation strategies, including the balance between salary and dividends, to ensure continued tax efficiency.

Housing Incentives – A Limited-Time Opportunity

The budget introduces a temporary enhancement to the HST rebate for new homes, potentially eliminating a significant portion of the tax for qualifying purchases between April 1, 2026 and March 31, 2027.

However, this relief is time-limited, and existing rebate programs may be eliminated after 2027. This creates a planning opportunity for individuals considering the purchase or development of new residential property.

Additional Measures

The budget also includes:

• An increase in the Ontario Trillium Benefit lump-sum payment threshold

Key Planning Takeaways

• Consider accelerating capital investments to benefit from immediate expensing
• Review owner-manager compensation strategies ahead of 2027 dividend tax changes
• Evaluate timing of real estate purchases to maximize temporary HST relief
• Take advantage of lower small business tax rates to reinvest in operations