Ontario Provincial Budget Tax Updates 2026

April 3, 2026
11:16 am

Overview

On March 26, 2026, Ontario’s Finance Minister, Peter Bethlenfalvy, tabled the province’s 2026 Budget, A Plan to Protect Ontario.

This summary highlights some of the key changes that will influence the Ontario tax environment in the coming years.

Personal Income Tax Measures

Increase of non-eligible tax rate effective January 1, 2027

No changes to Ontario personal income tax rates were announced for 2026. However, the Budget proposes to reduce the dividend tax credit rate for non-eligible dividends from 2.9863% to 1.9863%, effective January 1, 2027.

This measure is intended to maintain tax integration following the reduction in the Ontario small business corporate income tax rate (see “Corporate Income Tax Measures”), which will decrease from 3.2% to 2.2% effective July 1, 2026.

The Ontario personal income tax rates for the 2026 taxation year, based on taxable income, are as follows:

Taxable income	Rates
$53,891 or less	5.05%
Over $53,891 up to $107,785	9.15%
Over $107,785 up to $150,000	11.16%
Over $150,000 up to $220,000	12.16%
Over $220,000	13.16%

The combined federal and Ontario personal income tax rates for the top marginal bracket in 2026 are set out below, by type of income:

Income type	2026	2027
Interest/regular income	53.53%	53.53%
Capital gains	26.76%	26.76%
Eligible dividends	39.34%	39.34%
Non eligible dividends	47.74%	48.89%

Corporate Income Tax Measures

Effective July 1, 2026, Ontario will reduce the small business corporate income tax rate from 3.2% to 2.2%. Corporations with taxation years that straddle July 1, 2026, will have the rate reduction applied on a prorated basis.

The corporate income tax rates for corporations carrying on business in Ontario in 2026 are as follows:

	Provincial rate	Combined Federal and Provincial rate[1]
Small-business tax rate[2]	3.20% / 2.20%	12.20% / 11.20%
M&P corporate tax rate	10.00%	25.00%
General corporate tax rate	11.50%	26.50%

Elimination of the Regional Opportunities Investment Tax Credit (ROITC)

The ROITC will be eliminated effective January 1, 2027. Expenditures incurred on or before December 31, 2026, will remain eligible under the current rules.

Amendment to the Insurance Premium Tax Flexibility for Benefit Plans

The government proposes to amend the Corporations Tax Act to allow all funded benefit plans to elect to be treated as unfunded benefit plans, effective April 1, 2026. Under this change, plan holders could choose to defer Insurance Premium Tax liability until benefits are paid from the plan, rather than when contributions are made.

Indirect Tax Measures

Enhancement of the Harmonized Sales Tax (HST) Relief on New Homes

Ontario proposes to temporarily enhance the existing Ontario HST New Housing Rebate and New Residential Rental Property Rebate to fully remove the 8 per cent provincial portion of the HST paid for qualifying new homes valued up to $1 million.

Currently, the two provincial rebates provide a 75% rebate of the provincial portion of the HST, up to a maximum of $24,000. These rebates are not limited to individuals who would qualify for the proposed provincial rebate for first-time home buyers.

After the enhancement the maximum rebate would be $80,000 for a new home valued up to $1 million, with that amount being maintained for new homes valued up to $1.5 million. The maximum amount of the rebate would follow a linear reduction for higher-valued homes. For new homes valued at or above $1.85 million, a rebate of $24,000 would continue to be available as under the current rules.

The new home must be used as a primary place of residence to qualify for the New Housing Rebate or as a residential rental property for the New Residential Rental Property Rebate. Eligible individuals who would qualify for the proposed rebate for first-time home buyers, and who make a purchase during this enhancement period, would be able to receive the same rebate amount as under this proposed enhancement.

The Ontario government will work closely with the federal government to ensure timely implementation of the enhancement.

Elimination of the Harmonized Sales Tax New Housing Rebate and New Residential Rental Property Rebate

Ontario proposes to remove the eligibility of the provincial HST New Housing Rebate and New Residential Rental Property Rebate after the end of the proposed enhancement period for those same rebates. Further details on transitional provisions detailing the elimination of the rebates will be provided in the 2026 Ontario Economic Outlook and Fiscal Review.

Eligibility for Ontario’s proposed HST rebate for first-time home buyers and the Ontario HST Purpose-Built Rental Housing Rebate would not be affected and would continue to follow the criteria set by the federal government for eligible properties

Expansion of the Harmonized Sales Tax Relief for First-Time Home Buyers on New Homes

Following the federal government’s decision to amend the legislation to advance the effective date of the federal Goods and Services Tax / Harmonized Sales Tax (GST/HST) First-Time Home Buyers’ Rebate to March 20, 2025, federal regulations are required to bring the provincial rebate into force.

As a result, both the Ontario and federal rebate would be available if the agreement of purchase and sale for the home is entered into with the builder on or after March 20, 2025, and before 2031. All other rebate parameters, as announced by Ontario on October 28, 2025, would remain unchanged.

Simplification and Reduction of Alcohol Taxes

Ontario proposes to simplify alcohol taxation by consolidating existing beer, wine and spirits taxes into simplified single rates to reduce complexity and provide further tax cuts on sales of beer, wine and spirits products sold in producer stores. The changes will be in effect April 1, 2026, to align with the implementation of the new LCBO wholesale mark-up pricing structure.

To facilitate the transition, filing and reporting requirements from April to July 2026 will be deferred, with no interest or penalties, provided the April to July 2026 returns are filed by the July return due date of August 20, 2026.

Further details on the simplified and reduced alcohol tax rates are provided in the 2026 Ontario Budget Annex – Details of Tax Measures and Other Legislative Initiatives.

Other tax measures

Increase of the Ontario Trillium Benefit (OTB) Lump-Sum Payment Threshold

Under the current rules, the OTB, a tax-free payment intended to assist low- to moderate-income Ontario residents with energy costs, sales tax, and property taxes, provides that individuals whose total annual entitlement is at or below the $360 lump-sum payment threshold receive their benefit as a single payment at the beginning of the benefit year, rather than in monthly payments throughout the year.

The Budget proposes to increase this threshold from $360 to $500, effective for the 2026-27 benefit year (July 1, 2026, to June 30, 2027). This change would allow a greater number of recipients to receive their benefit as a lump-sum payment at the start of the benefit year, without affecting the total amount of benefits received.

For more information, visit the 2026 Ontario Budget.

[1] Federal corporate income tax rates on qualifying zero-emission technology manufacturing profits are temporarily reduced by 50%, lowering the general rate to 7.5% (from 15%) and the Canadian-Controlled Private Corporation (CCPC) rate to 4.5% (from 9%), for taxation years from 2022 through 2031. These reduced rates will then be gradually phased out for taxation years beginning in 2032 through 2034.

[2] Applies to the first $500,000 of active business income of CCPCs, subject to associated corporation rules and taxable capital phase-out.

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