Synopsis: Key 2026 Ontario Budget Measures Affecting Canadian Businesses

Posted on March 30th, 2026 in Commodity Tax (HST), Construction & Real Estate, Domestic Tax, General Business, Healthcare & Other Professionals, Manufacturing & Distribution

Ontario’s 2026 budget, delivered by Finance Minister Peter Bethlenfalvy on March 26, 2026, includes a mix of tax reductions, accelerated investment incentives, and targeted program changes designed to support business growth during a period of economic uncertainty. While the province is projecting a sizeable short-term deficit, the fiscal plan prioritizes competitiveness and capital expansion across key sectors.

Small Business Tax Reduction

The centerpiece for business is a one‑percentage‑point cut to the small business corporate income tax rate, dropping from 3.2% to 2.2%, effective July 1, 2026.

• The reduced rate applies to Canadian-controlled private corporations (CCPCs) and is available for up to $500,000 of active business income.
• Taxpayers with fiscal years straddling the effective date will apply a prorated rate.
• A corresponding reduction to the non‑eligible dividend tax credit takes effect January 1, 2027, reflecting the lower corporate tax burden (from 2.9863% to 1.9863%).

IMPACT FOR BUSINESSES: Lower tax rates improve after‑tax cash flow for small and medium-sized enterprises (SMEs), particularly those reinvesting profits into operations or expansion.

Ontario’s current and proposed future corporate income tax rates can be found in the table below:

		Proposed 2026 Rates		Proposed 2027 Rates
	Current Rate	Ontario	Federal & Ontario Combined	Ontario	Federal & Ontario Combined
Small Business Tax Rate	3.2%	2.7%	11.7%	2.2%	11.2%
General Manufacturing & Processing Tax Rate *	10%	10%	25%	10%	25%
General Corporate Tax Rate **	11.5%	11.5%	26.5%	11.5%	26.5%

* Federal corporate income tax rates for qualifying zero-emission technology manufacturers are reduced to 7.5% (from 15%) for general income and 4.5% (from 9%) for small-business income. This rate reduction is not reflected in the combined rates above.

** An additional federal tax of 1.5% applies to taxable income over CA$100 million for Canadian banks and life insurers.

Accelerated Capital Cost Recovery

Ontario is aligning with federal measures to encourage investment by allowing faster write‑offs for a wide range of assets. Key provisions include:

Immediate 100% Write‑Offs for:

• Manufacturing and processing equipment
• Greenhouse buildings and clean‑technology assets
• Zero‑emission vehicles
• Productivity‑enhancing and R&D‑related capital expenditures

Accelerated Depreciation for:

• Liquefied natural gas equipment and related infrastructure
• Purpose‑built rental housing (rate increased from 4% to 10%)
• Most other depreciable assets (enhanced first‑year deductions up to 3x the normal rate)

IMPACT FOR BUSINESSES: These measures significantly reduce the after‑tax cost of capital projects, making it more attractive to modernize equipment, expand production capacity, or invest in clean technologies.

Phase‑Out of the Regional Opportunities Investment Tax Credit

The credit will be discontinued on January 1, 2027, with expenditures incurred before December 31, 2026, remaining eligible.

IMPACT FOR BUSINESSES: Companies planning projects in designated regions will need to accelerate timelines to benefit before the credit expires.

Insurance Premium Tax Flexibility for Funded Benefit Plans

Beginning April 1, 2026, funded benefit plans may elect to be treated as unfunded for insurance premium tax purposes, shifting tax liability from when contributions are paid into the plan to when benefits are paid out of the plan.

IMPACT FOR BUSINESSES: Employers delay paying the tax, improving short-term cash flow because contributions no longer trigger immediate tax.

Housing‑Related HST Measures (Indirect Business Impacts)

While primarily aimed at homebuyers and developers, these measures also affect construction, real estate, and rental markets:

Rebates for New Homes

• Removal of the Harmonized Sales Tax (HST) on qualifying new homes up to $1 million.
• A higher maximum rebate of $80,000, with phased reductions up to $1.85 million (read full details of this measure in our article entitled, HST Relief for New Home Purchases in Ontario).
• Applies to agreements signed April 1, 2026 – March 31, 2027.

Aligned First‑Time Home Buyer Rebates

Ontario and the federal government will jointly provide up to $130,000 in HST/GST relief for eligible first‑time buyers, representing $2.2 billion in combined tax support.

IMPACT FOR BUSINESSES: Developers, builders, and rental housing investors may see increased demand and improved project viability, particularly in the mid‑market housing segment.

Large‑Scale Infrastructure Investments

The province is advancing the largest capital plan in its history, with more than $210 billion in planned investments over 10 years, including $37 billion in 2026–27.  Significant investments will be made into Ontario’s transportation infrastructure (roads, bridges, transit), healthcare, community (recreation and sport facilities), education, utilities and government building infrastructure.

IMPACT FOR BUSINESSES: This will enable significant opportunities for construction, engineering, and supply‑chain businesses.

Protect Ontario Account Investment Fund

Ontario will invest up to $4 billion to attract pension funds and private capital into strategic economic priorities.

IMPACT FOR BUSINESSES: Potential new financing pathways and partnership opportunities for businesses in sectors such as clean tech, advanced manufacturing, and infrastructure.

Non‑Resident Speculation Tax (NRST) and First Nations Exemption

Ontario continues to apply the 25% Non‑Resident Speculation Tax (NRST) on residential property purchases made by foreign nationals, foreign corporations, and taxable trustees. The tax is intended to curb speculative demand and support housing affordability.

As part of the 2026 Budget, the province is amending the Land Transfer Tax Act to expressly exclude individuals registered under the federal Indian Act from the NRST. This ensures that First Nations individuals are not subject to the tax when acquiring land, aligning the NRST framework with existing Indigenous tax relief policies.

IMPACT FOR BUSINESSES: While the NRST primarily affects non‑resident purchasers of residential property, the exemption for First Nations individuals is important for organizations involved in on‑reserve development, partnerships with Indigenous communities, or real estate transactions that may involve Indigenous purchasers.

Overall Takeaway for Businesses

Ontario’s 2026 budget leans heavily on tax relief and accelerated write‑offs to support business investment and competitiveness. Small businesses benefit immediately from lower income tax rates, while capital‑intensive sectors gain from generous depreciation rules. The phase‑out of regional incentives and targeted housing measures will require strategic planning, especially for developers and businesses operating in previously supported regions.

Read the full government release here: https://budget.ontario.ca/2026/pdf/2026-ontario-budget-en.pdf

Budget highlights can be found here: https://budget.ontario.ca/2026/highlights.html