The Honourable Peter Bethlenfalvy, Ontario’s Minister of Finance, released the 2026 Ontario Budget: A Plan to Protect Ontario. Below is a summary of the main new key tax measures announced.
Measures Relating to Businesses
Cut to the small business corporate income tax (CIT) rate
Ontario proposes to cut the small business CIT rate from 3.2% to 2.2%, effective July 1, 2026. Taxation years that straddle the effective date would apply proration rules.
Who may be impacted?
Small Canadian-controlled private corporations (CCPCs) with Ontario active business income that qualifies for the small business rate (subject to the small business limit and associated phase-out rules).
Why it matters (in practical terms)
A lower corporate rate can improve after-tax cash flow for reinvestment, hiring, and working capital. For owner-managed businesses, the overall benefit is typically evaluated alongside personal tax on dividends or salary, depending on how owners extract earnings.
Effective date
Proposed to apply starting July 1, 2026 (prorated for straddle taxation years).
Reduction in the Ontario non-eligible dividend tax credit rate
To maintain Ontario’s tax “integration” following the small business CIT rate cut, Ontario proposes to reduce the small business (non-eligible) dividend tax credit rate from 2.9863% to 1.9863%, effective January 1, 2027.
Who may be impacted?
Individuals receiving non-eligible dividends (generally dividends paid from income taxed at the small business corporate rate), including many owner-managers of private corporations.
Why it matters (in practical terms)
A lower dividend tax credit generally increases personal tax payable on non-eligible dividends. In many cases, this partially offsets (at the personal level) the benefit of the lower small business corporate rate. The net outcome will depend on the individual’s income level and the mix of compensation.
Effective date
Proposed to apply to dividends received on or after January 1, 2027.
Measures Relating to Personal Income Taxes
Ontario Trillium Benefit (OTB) lump-sum payment threshold
Ontario proposes to increase the Ontario Trillium Benefit (OTB) lump-sum payment threshold from $360 to $500, starting with the 2026–27 benefit year (July 1, 2026 to June 30, 2027). This is a payment-timing change only and would not affect the total OTB amount a recipient receives.
Who may be impacted?
Low- to moderate-income Ontario residents who are eligible for the OTB, particularly recipients whose OTB entitlement for the benefit year is $500 or less.
Why it matters (in practical terms)
More recipients would receive their full OTB upfront (in the first month of the benefit year) instead of receiving monthly payments throughout the year. This may help with cash flow for households that rely on the OTB to offset energy costs and sales and property taxes; however, recipients who prefer monthly budgeting may want to plan for the shift to a single payment.
Effective date
Proposed to apply starting with the 2026–27 benefit year (payments beginning July 2026).
Measures Relating to Housing and HST
Enhanced HST relief on new homes and expanded HST relief for first-time home buyers (new homes)
Ontario proposes a one-year enhancement of the existing Ontario HST New Housing Rebate and New Residential Rental Property Rebate to temporarily remove the full 8% Ontario portion of HST for eligible purchasers of qualifying new homes valued up to $1 million. The enhancement would provide up to $80,000 in provincial relief.
- Maximum provincial relief up to $80,000 for homes at or under $1 million; the maximum would be maintained up to $1.5 million and then reduced for higher-valued homes.
- Not limited to first-time buyers (i.e., broader than the separate first-time home buyer rebate).
- Proposed availability window: April 1, 2026 to March 31, 2027 (subject to required federal regulatory changes).
- Illustrative timing conditions include purchase agreement date, construction start deadlines, and substantial completion deadlines.
Important structural note
The budget also proposes to end eligibility for Ontario’s existing provincial HST New Housing Rebate and New Residential Rental Property Rebate after the enhancement period. Transitional details are expected in the 2026 Ontario Economic Outlook and Fiscal Review.
Expanding HST relief for first-time home buyers (new homes)
Ontario also continues to work with the federal government to align Ontario’s first-time home buyer HST relief with the federal GST/HST First-Time Home Buyers’ Rebate. The budget notes federal draft legislation was amended so the federal rebate takes effect as of March 20, 2025, and Ontario’s alignment would follow that timing (subject to federal regulations bringing Ontario’s rebate into force).
What’s new vs. what’s changing?
The one-year enhancement is a temporary expansion of existing provincial HST rebate mechanisms. The first-time buyer measure is best viewed as a continuation/adjustment of a previously announced policy, updated to match federal timing changes.
Measures Relating to Beer, Wine, and Spirits Taxes
Simplification and reduction of beer, wine, and spirits taxes
Ontario proposes to consolidate a set of “legacy” alcohol taxes into simplified single rates and to provide additional tax cuts on beer, wine, and spirits sold through producer stores. The changes are intended to simplify administration and align with the province’s broader alcohol marketplace modernization.
Key proposed changes (high level)
- Beer: consolidate basic, volumetric, and environmental beer taxes into a single per-litre rate (with different rates for manufacturer vs. microbrewer, and draft vs. non-draft).
- Wine: consolidate wine taxes into a single rate structure, including different treatment for Ontario vs. non-Ontario wine sold in on-site winery retail stores and separate treatment for certain off-site winery sales.
- Spirits: simplify categories in on-site distillery stores into ABV-based groupings with single rates by alcohol content.
Effective date / transition
Proposed to take effect April 1, 2026, aligned with a new LCBO wholesale mark-up pricing structure. Ontario also proposes transitional filing timing for April–July 2026, with returns due August 20, 2026 without interest or penalties (subject to meeting the transition conditions).
Other Targeted Measures
Expiry of the ROITC
Ontario proposes that the Regional Opportunities Investment Tax Credit (ROITC) will expire on January 1, 2027. Expenditures incurred on or before December 31, 2026 would remain eligible under transitional rules.
Why it matters (in practical terms)
Businesses planning eligible investments in designated regions may wish to review timelines. As with most credits, timing and eligibility criteria can be technical—particularly for large, multi-phase projects.
Insurance premium tax flexibility for funded benefit plans
Ontario’s Insurance Premium Tax (often referred to as CT‑IP) can apply differently depending on whether a benefit plan is funded or unfunded. Ontario proposes to amend the Corporations Tax Act so that all funded benefit plans could elect to be treated as unfunded, effective April 1, 2026. In practical terms, this shifts CT‑IP timing so the tax would generally be payable when benefits are paid, rather than when taxable contributions are made.
Who may be impacted?
Employers and plan administrators that maintain funded employee benefit plans subject to Ontario CT‑IP, particularly where the current timing of CT‑IP on contributions creates cash flow or administrative friction.
Why it matters (in practical terms)
This is a flexibility measure rather than a rate change. The election may improve cash flow timing and simplify administration for some plans, but the best choice depends on plan design, claims patterns, and the organization’s tax posture.
Effective date
Proposed to apply starting April 1, 2026.
Disclaimer
This document is provided by Crowe BGK LLP for general information purposes only and does not constitute legal, accounting, or tax advice. You should consult a qualified advisor regarding your specific situation before taking any action.