Ontario Cuts Small Business Taxes in 2026

Summary#

• This bill cuts Ontario’s small business corporate income tax and raises the income cap that gets the lower rate. It applies starting January 1, 2026.

• The goal is to leave more money in the hands of small, private companies so they can invest and hire.

• Key changes:

  • Increases the small business deduction rate from 8.3% to 9.9%, which lowers the small business tax rate from about 3.2% to about 1.6% on eligible income.
  • Raises the small business income limit from $500,000 to $600,000.
  • Updates a related surtax formula so it matches the new $600,000 limit.
  • Uses a blended rate for fiscal years that span 2025 and 2026 (you get the old rate for days before Jan. 1, 2026, and the new rate after).

What it means for you#

• Small, privately owned corporations in Ontario

  • Pay a lower provincial corporate tax rate (about 1.6%) on up to $600,000 of active business income earned in Ontario, starting in 2026.
  • If your fiscal year crosses Jan. 1, 2026, your 2026 return will apply a mix of old and new rates based on the number of days before and after that date.
  • The higher $600,000 limit means more of your income qualifies for the lower rate.
  • If you are very large for “small business” rules (for example, high taxable capital), existing phase-outs and rules still apply; this bill mainly changes the rate and the core limit.
  • No change to federal taxes—this is a provincial cut only.

• Sole proprietors and partnerships (not incorporated)

  • No direct change. These rules apply to corporations.

• Consumers and workers

  • Some businesses may use savings to hold prices, invest, or hire. Effects will vary by company.

• Accountants and tax preparers

  • Update 2026 filings to apply the new rate and $600,000 limit. Watch for proration in year-ends that straddle the start date.

Expenses#

No publicly available information.

• The bill would reduce Ontario’s corporate income tax revenue by lowering the small business rate and expanding the income eligible for it.
• Cities and the federal government are not directly affected by this provincial change.

Proponents' View#

• Helps small businesses manage rising costs and keep staff by letting them keep more of every dollar they earn.
• Encourages investment in equipment, technology, and growth by cutting the tax rate roughly in half on the first slice of income.
• Expanding the limit to $600,000 matches today’s business realities and inflation.
• A simple, broad-based tax cut is easier to use than grant programs with applications and red tape.

Opponents' View#

• Cuts provincial revenue and could pressure funding for health care, education, and other services.
• Benefits go mainly to profitable corporations; firms with little or no profit see little help.
• Tax cuts do not guarantee more hiring or investment; some savings may go to owners rather than growth.
• May encourage firms to structure or split companies to stay under the $600,000 limit, adding complexity and enforcement needs.