On March 26, 2026, Ontario’s Finance Minister released the provincial budget under the theme “A Plan to Protect Ontario,” introducing targeted measures designed to improve after-tax cash flow, support capital investment, and stimulate economic activity.
This year, three areas require attention from business owners:
- A reduction in the Ontario small business tax rate
- Confirmation of accelerated capital cost allowance (CCA) measures
- Proposed HST relief on new housing
Ontario Small Business Tax Rate Reduction
What Is Changing
The Ontario government has introduced a 1% reduction in the small business corporate tax rate, effective July 1, 2026. This tax rate change reduces the Ontario small business tax rate from 3.2% to 2.2%, resulting in a combined federal and Ontario rate of 11.2%. If a fiscal year includes July 1, 2026, income will be prorated between the old and new tax rates based on the number of days before and after July 1, 2026.
The reduced rate applies to the first $500,000 of active business income eligible for the small business deduction (SBD). Canadian-controlled private corporations (CCPCs) with less than $50 million in taxable capital employed in Canada are eligible; however, the SBD begins to phase out once taxable capital exceeds $10 million in the prior taxation year.
Maximizing Access to the Small Business Deduction
- Review associated company structures
- Ensure income is not unintentionally pushed above the SBD threshold
- Reassess whether multiple entities are efficiently utilizing the available limit
Impact on Non-Eligible Dividends
The Ontario budget also proposes a change that partially offsets the benefit of the lower small business tax rate at the time dividends are paid out from the corporation. Effective January 1, 2027, Ontario will reduce the small business (non-eligible) dividend tax credit rate from 2.9863% to 1.9863%, resulting in a higher personal tax rate on non-eligible dividends.
While the corporate tax rate is decreasing, the after-tax cost of extracting profits through non-eligible dividends will increase. As a result, compensation strategies should be revisited to ensure the optimal balance between salary and dividends, taking into account both corporate and personal tax changes.
Accelerated Capital Cost Allowance(CCA)
Ontario has confirmed its intention to adopt the accelerated CCA measures introduced in the 2025 federal budget.
While the specific application depends on asset class, the general outcome is:
- Faster tax depreciation on eligible capital assets
- Enhanced first-year deductions, including immediate expensing in certain cases
Why This Matters
Accelerated CCA is one of the most effective tools available to:
- Reduce taxable income in the year of investment
- Improve near-term cash flow
- Support reinvestment into business operations
Planning Opportunities
If you are planning to invest in equipment, technology, or facilities, you should evaluate whether accelerating these purchases could help maximize available deductions under the accelerated CCA rules. It is important to recognize that accelerated CCA provides a timing advantage rather than a permanent tax reduction. Hence, this tax strategy should be aligned with your current and projected profitability, financing requirements, and long-term business objectives. In addition, because these measures are federally driven, proper alignment between Federal and Ontario tax treatment is essential, as any misalignment could result in unintended or unfavourable tax outcomes.
Proposed HST Relief on New Housing
What Is Changing
The 2026 Budget proposes temporarily enhancing Ontario’s existing HST New Housing Rebate and New Residential Rental Property Rebate to effectively remove the 8% provincial portion of HST for qualifying new homes (subject to federal action and implementing legislation). Unlike earlier relief measures, this is not limited to first-time home buyers. It is important to note that this remains a proposed measure and is subject to legislative implementation.
From a planning perspective, transaction timing will be critical. Under the proposal, eligibility requires entering into an agreement of purchase and sale on or after April 1, 2026, up until March 31, 2027. In addition, construction must begin by December 31, 2028, with construction substantially completed by December 31, 2031. A maximum $80,000 rebate is proposed for homes valued up to $1.5 Million. A reduced rebate would be available for homes valued between $1.5 Million and $1.85 Million. Homes valued at over $1.85 Million would still be eligible for a rebate up to $24,000 under the currently existing rules.
How Business Owners Should Respond
These changes reinforce a consistent theme: tax outcomes are driven by proactive planning, not year-end compliance.
To fully benefit, business owners should:
- Review corporate structure and SBD eligibility
- Evaluate upcoming capital expenditures and financing strategies
Work With Bateman MacKay LLP
At Bateman MacKay LLP, we work with business owners to ensure tax changes translate into measurable financial outcomes, not missed opportunities. Our approach focuses on proactive planning, strategic structuring, and aligning tax decisions with long-term business objectives.
If you would like to understand how the 2026 Ontario Budget impacts your business, connect with our team. Please also follow us on LinkedIn and subscribe to our blog to receive regular updates on legislation, compliance changes, and strategic accounting guidance that impacts privately owned businesses across Canada.
