The 2026 Ontario Budget was delivered by Ontario's Finance Minister on March 26, 2026. The changes to highlight include the reduction of the Ontario small business income tax rate, the increase of non-eligible dividend tax rate for individuals. There will also be changes to the immediate expensing and accelerated capital cost allowance ("CCA") claims for certain depreciable assets.
Finally, the 2026 Ontario Budget provided updates on the temporary enhanced HST relief on new homes and for first-time home buyers purchasing new homes.
Below is an overview of the key tax changes.
Corporate Income Tax Rate
The 2026 Ontario Budget will decrease the small business income tax rate charged by the Province of Ontario from 3.2% to 2.2% effective July 1, 2026. The tax rate of 2.2% will be introduced on a prorated basis starting on July 1, 2026.
As a reminder, the small business income tax rate applies to the first $500,000 of taxable income from an active business of a Canadian-controlled private corporation, subject to certain limitations.
Any taxable income more than the small business deduction limit will be subject to the general corporate tax rates that remain unchanged from prior years.
Non-Eligible Dividend Tax Rate Increase
Effective January 1, 2027, the 2026 Ontario Budget will see an increase to the non-eligible dividend tax rate by reducing the non-eligible dividend tax credit in Ontario from 2.99% to 1.99%.
For individuals in the highest marginal personal income tax bracket, the tax rate on non-eligible dividends will increase from 47.74% to 48.89% starting in 2027.
Immediate Expensing and Accelerated CCA
The 2026 Ontario Budget aligns with the federal government, allowing businesses to claim accelerated CCA and immediate expensing for certain depreciable assets. Eligible asset categories are summarized below.
Capital assets eligible for immediate expensing:
- Manufacturing and processing (M&P), machinery and equipment, M&P buildings, greenhouse buildings, certain clean technology assets and zero-emission vehicles
- Productivity-enhanced assets
- Capital expenditures for research and development
Capital assets eligible for accelerated CCA:
- Liquefied natural gas equipment and related buildings
- Purpose-built rental housing will see an accelerated CCA rate increase to 10% from 4%
- Most other depreciable assets could be eligible for the enhanced first-year CCA claims of up to three times the regular amount, which is consistent with the Reaccelerated Investment Incentive (RII) introduced by the federal government
Enhanced HST Relief on New Homes on a Temporary Basis
The 2026 Ontario Budget confirmed that certain qualifying new homes will be eligible for the temporary enhanced Ontario HST New Housing Rebate and New Residential Rental Property Rebate that will remove the 8% provincial portion of the HST paid. It is expected that these enhanced rebates will be available for purchase agreements entered into from April 1, 2026, to March 31, 2027.
In accordance with enhanced rebates, the 8% rebate will be allowed for new homes with a value not exceeding $1,000,000, effectively offsetting the entire provincial portion of the HST payable on the property. For new homes valued between $1,000,000 and $1,500,000, the maximum rebate is $80,000. For homes with a value between $1,500,000 and $1,850,000, the rebate will be reduced in a linear manner (from $80,000 to $24,000). For new homes valued above $1,850,000, the existing maximum rebate of $24,000 applies.
The purchaser must acquire the home for use as a primary place of residence that could qualify for the New Housing Rebate or as a new residential rental property that could qualify for the New Residential Rental Property Rebate. The enhanced rebates apply to all eligible buyers, not solely first-time home buyers. To rely on the enhanced HST rebate, individuals or corporations should maintain adequate records to support their eligibility.
The current New Housing Rebate and New Residential Rental Property Rebate are proposed to be eliminated on March 31, 2027.
Aligning Federal and Provincial HST Relief for First-Time Home Buyers on New Homes
The 2026 Ontario Budget plans to align the proposed provincial HST rebate for first-time home buyers with the federal HST rebate for first-time home buyers, allowing both the Ontario and the federal rebates to be available if the purchase and sale agreement for the home is finalized on or after March 20, 2025, and before 2031.
GG Observations
With the increasing number of updates affecting many different taxpayers, it is important to be prepared for these changes and to plan accordingly. Your GG advisors can help assess the impact of the ever-changing tax legislation and come up with planning opportunities to continue staying ahead. Contact us for more details.