Tax Highlights from the 2025 Ontario Budget

Minister of Finance Peter Bethlenfalvy tabled the 2025/26 Ontario provincial budget on May 15, 2025.

In 2024/25, Ontario is projecting a deficit of $6.0 billion. Over the medium term, the government is projecting deficits of $14.6 billion in 2025/26 and $7.8 billion in 2026/27 before returning to a surplus of $0.2 billion in 2027/28. Real gross domestic product (GDP) growth is projected to rise to 0.8% in 2025, then increase by 1% in 2026 and by 1.9% in both 2027 and 2028.

On the income tax front, there are no proposed changes to personal or corporate income tax rates. However, the budget did announce several tax measures, including:

• An increase in the refundable Ontario Made Investment Tax Credit (OMITC) rate from 10% to 15%
• Expanded OMITC eligibility to include Class 43(a) machinery and equipment
• A new 15% non-refundable version of the OMITC for eligible capital investments
• A new fertility treatment tax credit
• A shortline railway investment tax credit
• A permanent extension to the gas and fuel tax reduction rate to 9%
• The elimination of tax on propane for licensed road vehicles
• Various alcohol-related tax cuts (detailed below)

The following pages summarize proposals announced in the budget. Please note that these measures remain proposals until passed into law by the provincial government.

PERSONAL TAX MATTERS

Personal Income Tax Rates and Tax Brackets

There are no changes to personal income tax rates in the budget. Tax brackets and other amounts have been indexed by 2.8% to account for inflation, except for the $150,000 and $220,000 brackets, which are not indexed for inflation. The table below outlines the Ontario tax rates and brackets for 2025.

The table below outlines the 2025 combined federal and provincial highest marginal tax rates for various types of income.

The Ontario Fertility Treatment Tax Credit

The government is proposing a new refundable Personal Income Tax credit to help Ontario families with eligible medical expenses related to fertility treatment, starting with the 2025 taxation year. The Ontario Fertility Treatment Tax Credit would provide Ontario families with support of 25% on eligible expenses up to $20,000, for a maximum tax credit of $5,000 per year.

The proposed credit would be based on eligible medical expenses claimed under the existing Medical Expense Tax Credit (METC) related to fertility treatment and preservation, as well as to surrogacy. It could be claimed in addition to the non-refundable federal and Ontario METCs for the same eligible expenses.

Eligible fertility expenses would be those paid by the individual or the individual’s spouse or common-law partner for the purpose of conceiving a child, starting in 2025. To be eligible for the credit, expenses must not have been reimbursed, or must not be reimbursable (e.g., through insurance). Eligible expenses would also include certain medical expenses paid to, or on behalf of, a surrogate mother for the purpose of the tax filer becoming a parent.

CORPORATE TAX MATTERS

Corporate Income Tax Rates

There are no proposed changes to corporate income tax rates. The table below outlines the Ontario tax rates and the small business limit for 2025.

The table below outlines the 2025 combined federal and provincial corporate income tax rates for various types of income earned by a Canadian Controlled Private Corporation (CCPC).

Interest and Penalty Relief on Certain Ontario Taxes

From April 1, 2025 to October 1, 2025, all Ontario businesses that pay taxes under 10 of Ontario’s business-focused tax programs may defer payments for taxes owed without incurring interest and penalties. Tax returns must still be filed on time during this period.

The Ontario Made Manufacturing Investment Tax Credit

The Ontario Made Manufacturing Investment Tax Credit (OMMITC) is a 10% refundable corporate income tax credit available to Canadian-controlled private corporations (CCPCs) that make eligible investments in Ontario. Eligible investments include expenditures for constructing, renovating, or acquiring buildings used for manufacturing or processing, as well as machinery and equipment used in the manufacturing or processing of goods in Ontario.

Eligible expenditures are for capital property included in Class 1 or Class 53 for capital cost allowance (CCA) purposes. After 2025, eligible investments would also include expenditures for machinery and equipment in Class 43(a) for CCA purposes, used in the manufacturing or processing of goods for sale or lease.

Ontario is proposing to temporarily increase the OMMITC rate for qualifying corporations to 15%, up from the current 10%.

The enhanced credit would be available for eligible expenditures up to a limit of $20 million in a taxation year, with respect to specific capital investments. Machinery and equipment used in manufacturing or processing would need to be acquired and become available for use in a qualifying corporation’s taxation year and within the period beginning on May 15, 2025, and ending before January 1, 2030. Capital investments in buildings used in manufacturing or processing would need to become available for use in a qualifying corporation’s taxation year, and within the same period.

A Non-Refundable Version of the Ontario Made Manufacturing Investment Tax Credit

The proposed OMMITC expansion would introduce a new 15% non-refundable corporate income tax credit for capital investments in buildings, machinery, and equipment used in manufacturing or processing in Ontario by certain non-CCPCs that have a permanent establishment in Ontario. For the purposes of this credit, a permanent establishment means a fixed place of business, including an office, factory, or workshop. Eligible investments would be expenditures for certain capital property included in Class 1 or Class 53 (or Class 43(a) after 2025) for CCA purposes.

The credit would include a carryforward provision to allow any unused non-refundable credits to be applied against taxes payable in up to 10 subsequent taxation years. The credit would be available for eligible investments up to a limit of $20 million in a taxation year and would be pro-rated for a short taxation year. An associated group of corporations would be subject to the $20 million limit.

The government is also proposing amendments to the OMMITC to enhance its integrity and effectiveness. A provision to recapture support would apply where eligible capital property for which the credit was claimed, is sold, converted to a non- manufacturing or processing use, or removed from Ontario within five years. The repayment amount would be the lesser of:

• The total value of the credit; or
• The credit amount relative to the value of the property at the relevant time.

The Ontario Shortline Railway Investment Tax Credit

The Ontario Shortline Railway Investment Tax Credit is a new temporary 50% refundable corporate income tax credit for capital and labour expenditures for railway-related maintenance. The credit would be limited to $8,500 per track mile in Ontario and would be available for eligible expenditures made on or after May 15, 2025, and before January 1, 2030.

OTHER INITIATIVES

Extending Gas Tax and Fuel Tax Rate Cuts

The Ontario government temporarily cut the gasoline tax rate by 5.7 cents per litre and the fuel tax (diesel) rate by 5.3 cents per litre on July 1, 2022. The gasoline and fuel tax rates are currently 9 cents per litre. These tax reductions are set to end on June 30, 2025, when the tax rates would return to 14.7 cents per litre for gasoline and 14.3 cents per litre for fuel.

The government is introducing legislation to amend the Gasoline Tax Act and the Fuel Tax Act to permanently maintain the provincial tax rates on gasoline and fuel at 9 cents per litre. This change would take effect on July 1, 2025.

Eliminating the Tax on Propane for Use in Licensed Road Vehicles

The government is introducing legislation to amend the Gasoline Tax Act and the Fuel Tax Act, and is proposing regulatory amendments to eliminate the tax on propane used in licensed road vehicles, effective July 1, 2025.

Cutting the Spirits Basic Tax Rate

Spirits taxes apply to spirits made by Ontario spirit manufacturers (distillers) and sold from a distillery retail store in Ontario. Spirits taxes include the spirits basic tax, the volume tax, and the environmental tax on non-refillable containers in which the spirits are sold, as applicable.

The government is introducing legislation that would, if enacted, amend the Liquor Tax Act, 1996 to reduce the spirits basic tax from 61.5% to 30.75%, effective August 1, 2025.

Cutting the Basic Tax and Liquor Control Board of Ontario Mark-Up Rates for Beer Made by Microbrewers

The government is introducing legislation that would amend the Liquor Tax Act, 1996 to further reduce the beer basic tax rates applicable to beer made by Ontario microbrewers. The rates would be reduced from 35.96 cents per litre to 17.98 cents per litre for draft beer, and from 39.75 cents per litre to 19.88 cents per litre for non-draft beer, effective August 1, 2025.

Enhancing the Small Beer Manufacturers’ Tax Credit

The Taxation Act, 2007 provides a refundable corporate tax credit for small beer manufacturers (SBMTC). Beer manufacturers with permanent establishments in Ontario may qualify in respect of eligible sales of draft and non-draft beer sold to purchasers in Ontario, if they meet certain criteria, including limits on production.

Amendments would be made to reflect the proposed new beer basic tax rates for microbrewers, providing enhanced relief to qualifying corporations in respect of eligible sales occurring on or after August 1, 2025. In addition, amendments would be made to align with the proposals for the new five-year-average rule and new contracting rules. See the sections “Cutting the Basic Tax and Liquor Control Board of Ontario Mark-Up Rates for Beer Made by Microbrewers” and “Increasing Flexibility and Certainty for Microbrewers” for information on the related Liquor Tax Act, 1996 proposals.

Cutting the Liquor Control Board of Ontario Mark-Up Rate for Cider

The basic mark-up rate applied by the Liquor Control Board of Ontario to cider would be reduced from 60.6 per cent to 32.0 per cent, effective August 1, 2025.

Cutting the Liquor Control Board of Ontario Mark-Up Rates for Spirit- and Wine-Based Ready-to-Drink Beverages

The basic mark-up rates applied by the Liquor Control Board of Ontario to certain wine-based and spirit-based ready-to-drink beverages (RTDs) would be reduced, effective August 1, 2025. The mark-up rates applicable to wine-based RTDs that do not have an alcohol-by-volume (ABV) content greater than 7.1% would be reduced from 60.6% and 64.6% to 48%. The mark-up rates applicable to spirit-based RTDs that do not have an ABV content greater than 7.1% would be reduced from 68.5% and 96.7% to 48%.

Supporting Affordable Rental Housing

As announced in the 2024 Ontario Economic Outlook and Fiscal Review, one early priority arising from the review is to provide municipalities with the ability to reduce municipal property tax rates on affordable rental housing.

Starting in 2026, municipalities will have the option to reduce the municipal property tax rate for eligible affordable rental housing units by up to 35%. Eligible properties may be either existing or newly built and must meet the definition of affordable rental units in the Development Charges Act, 1997.

Allowing for Lower Taxes on New Purpose-Built Rentals

As announced in 2023, the Ontario government worked with the federal government to remove the full 8% provincial portion of the Harmonized Sales Tax (HST) on qualifying new purpose-built rental housing. Federal and provincial measures, taken together, continue to remove the full 13% HST on qualifying new purpose-built rental housing to get more rental homes built across the province.

Creating More Pension Options for Workers

The government implemented a legislative and regulatory framework for target benefits on January 1, 2025, following consultations with the sector. Target benefit pension plans provide workers with a lifetime stream of income in retirement at a predictable cost for employers. Members of these plans can move from employer to employer while continuing to participate in the same pension plan.

As pension plans begin operating under the target benefit framework, the government will monitor the new regime to ensure it is working as intended and meeting the needs of all plan members.

In addition, the government is consulting with the pension sector on a possible new pension option called a Variable Life Benefit (VLB). A VLB would be paid from pooled registered pension plans, defined contribution pension plans, and those pension plans that provide for additional voluntary contributions. A VLB would offer retirees a new alternative by providing a monthly benefit for life, with payments adjusted based on the investment performance of the fund and mortality experience of the fund’s members.

Technical Amendments

Budget 2025 proposes legislative amendments to:

• The Employer Health Tax Act to authorize notices of assessment to be sent by regular mail and electronically.
• The Employer Health Tax Act to repeal spent provisions to provide clarity.
• The National Capital Children’s Oncology Care Inc. Act to update the property description in the Act to ensure the continuation of the property tax exemption for the expanded building of the Ronald McDonald House Charities Ottawa.
• The Ontario Cannabis Retail Corporation Act, 2017 to ensure ministerial oversight over bylaws of the Ontario Cannabis Store.
• The Ontario Cannabis Retail Corporation Act, 2017 to provide the Minister with authority to direct payments of the Ontario Cannabis Store net profits into the Consolidated Revenue Fund.
• The Financial Administration Act to add bond forwards to the list of authorized financial instruments under the Minister of Finance’s investment powers.
• The Historical Parks Act to establish a Designated Purpose Account to support historical parks operations and to enable regulations to modify and clarify the rules applicable to historical parks.
• The Highway Traffic Act to require municipalities to make Automated Speed Enforcement and Red-Light Camera locations more transparent and to focus traffic cameras on road safety objectives.
• A proposed new Act to provide for the designation of former members of the Executive Council as Honorary Members of the Executive Council.

WE CAN HELP

Your financial advisor can help you assess the impact of these proposals on your personal finances or business affairs and show you ways to take advantage of their benefits or ease their impact.

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