The Ontario government released its 2026 budget on March 26, 2026, titled “A Plan to Protect Ontario”. The budget was delivered by Finance Minister Peter Bethlenfalvy amid ongoing U.S. tariff uncertainty and global economic pressures. Ontario projects a deficit of $12.3 billion in 2025-26, $13.8 billion in 2026-27, and $6.1 billion in 2027-28, with a path to balance by 2028-29.
The budget introduces a multi-year Tax Action Plan aimed at making Ontario more competitive, including a significant cut to the small business corporate income tax rate, enhanced HST relief on new homes, and simplified alcohol taxes.
Here are the key tax related highlights for individuals and businesses.
Key Tax Highlights
- Small business corporate income tax rate cut by over 30%. Ontario is proposing to reduce the small business CIT rate from 3.2% to 2.2%, effective July 1, 2026. The reduction would be prorated for taxation years straddling that date. This applies to the first $500,000 of active business income earned by eligible CCPCs. The combined federal and Ontario small business rate would drop from 12.2% to 11.2%. To align with this change, Ontario’s non-eligible dividend tax credit rate would be reduced from 2.9863% to 1.9863%, effective January 1, 2027.
- No changes to personal income tax rates or the general corporate rate. Ontario’s personal income tax rates and surtax rates remain unchanged. The province indexed its 2026 tax brackets by 1.9% for inflation. Ontario’s general corporate income tax rate remains at 11.5%.
- Enhanced HST rebate on new homes , up to $80,000 in relief. The government is temporarily expanding the Ontario HST New Housing Rebate and New Residential Rental Property Rebate to fully remove the 8% provincial portion of the HST on qualifying new homes valued up to $1 million. The maximum rebate would be $80,000, maintained for homes valued up to $1.5 million, with a linear reduction for higher-valued homes. For homes at or above $1.85 million, the existing $24,000 rebate continues. The enhanced rebate would apply from April 1, 2026 to March 31, 2027, subject to federal regulatory changes. After the enhancement period ends, the existing provincial HST New Housing Rebate and New Residential Rental Property Rebate are proposed to be eliminated.
- HST rebate for first-time home buyers expanded. Ontario is working with the federal government to align the provincial first-time home buyer HST rebate with the federal rebate’s effective date of March 20, 2025. This means eligible first-time buyers who entered into an agreement of purchase and sale on or after March 20, 2025 would qualify for the provincial rebate, removing the 8% provincial HST on new homes valued at or up to $1 million.
- Accelerated capital cost writeoffs , $3.5 billion in tax relief over four years. The government plans to lower the cost of capital investments by renewing and enhancing accelerated depreciation measures for equipment and other assets. This is subject to the passage of federal legislation. This would allow Ontario businesses to deduct the cost of qualifying capital investments more quickly, improving cash flow and encouraging investment in the province.
- Gasoline and fuel tax rate reductions made permanent. The temporary cuts to gas and fuel tax rates, first introduced in July 2022, have been made permanent. The government estimates these reductions have saved individuals and families $2.1 billion since they were first introduced.
- Regional Opportunities Investment Tax Credit (ROITC) expiring. The ROITC, which supported business investment in regions with lagging employment growth, is proposed to expire effective January 1, 2027. Expenditures incurred on or before December 31, 2026 would continue to be eligible.
- Alcohol taxes simplified and reduced. The government is consolidating legacy beer, wine and spirits taxes into simplified single rates. For beer, the proposed single rate would be $1.18 per litre for non-draft and $0.90 per litre for draft (lower rates for microbrewers). Wine taxes on Ontario wines sold in on-site winery stores would be reduced to 0%. Spirits categories would be restructured by alcohol content. These changes are effective April 1, 2026, with a filing deferral to July 2026 to allow for system updates.
- Ontario Trillium Benefit lump-sum threshold increased. The lump-sum payment threshold for the Ontario Trillium Benefit (OTB) is proposed to increase from $360 to $500, starting with the 2026-27 benefit year (July 1, 2026). Recipients entitled to $500 or less would receive their full benefit upfront as a single payment.
- Insurance Premium Tax flexibility for benefit plans. Funded benefit plans would be allowed to elect to be treated as unfunded plans, effective April 1, 2026. This would defer the insurance premium tax liability to when benefits are paid out, rather than when contributions are made.
- Non-Resident Speculation Tax exemption for First Nation individuals. Amendments to the Land Transfer Tax Act would exclude First Nation individuals registered under the federal Indian Act from the Non-Resident Speculation Tax (NRST).
Fiscal Context
The budget includes over $210 billion in planned infrastructure investments over 10 years, including $63 billion for transit, $31 billion for highways, and $64 billion for health infrastructure. The province has announced nearly $30 billion in relief and support for workers and businesses since April 2025 in response to U.S. tariffs, including the Protect Ontario Financing Program and a $4 billion investment fund focused on high-growth sectors like AI, defence, advanced manufacturing, and life sciences.
Ontario’s net debt-to-GDP ratio is projected at 36.8% in 2025-26, below the target of 40%. The province aims to balance the budget by 2028-29.
What This Means for Ontario Small Businesses
The small business CIT rate cut is the most direct tax benefit for our clients. If your CCPC earns the full $500,000 in eligible active business income, the rate cut from 3.2% to 2.2% saves $5,000 per year in Ontario corporate tax. That is money that can be reinvested in the business, used to top up owner compensation, or directed toward building corporate investment reserves.
The non-eligible dividend tax credit adjustment effective January 2027 is a corresponding change, it reduces the personal credit on non-eligible dividends to maintain integration with the lower corporate rate. If you pay yourself non-eligible dividends, the combined tax (corporate plus personal) should be roughly similar to what you would pay on the same income as salary. The overall tax savings to the corporation are real; the dividend credit adjustment ensures the system stays balanced.
For clients considering purchasing new residential property or investing in purpose-built rentals, the enhanced HST rebate of up to $80,000 on new homes is significant, but it is temporary (April 1, 2026 to March 31, 2027) and requires federal cooperation to implement. Notably, after the enhancement period ends, the existing provincial HST housing rebates are proposed to be eliminated entirely. This is a detail worth watching closely.
Businesses investing in equipment and other depreciable assets should pay attention to the proposed accelerated writeoff measures, which would provide $3.5 billion in tax relief over four years, though these are contingent on federal legislation being passed.
How Cassar CPA Can Help
Budget announcements are proposals until they are enacted. At Cassar CPA, we track legislative developments throughout the year and advise our clients on how to plan around them. If you have questions about how the 2026 Ontario budget affects your business or personal tax situation, our team is here to help.