Tax Highlights from the 2026 Ontario Budget

Minister of Finance Peter Bethlenfalvy tabled the 2026/27 Ontario provincial budget on March 26, 2026.

The budget projects a deficit of $13.8 billion for 2026/27 and $6.1 billion in 2027/28, before planning for a surplus of $600 million in 2028/29, including reserves and contingencies. The forecasted deficit for the nearly completed 2025/26 fiscal year now stands at $12.3 billion, compared to the initial projected deficit of $14.6 billion. Real gross domestic product (GDP) growth is projected to reach 1% in 2026, then increase to 1.7% in 2027 and 1.8% in 2028.

On the income tax front, the budget lowers the small business corporate tax rate by 1%, effective July 1, 2026. The budget also provides relief for home buyers by fully removing the 8% provincial portion of the HST paid for qualifying new homes valued up to $1 million, simplifies and reduces alcohol taxes, and increases the threshold for lump-sum payments under the Ontario Trillium Benefit.

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 for 2026. Tax brackets and other amounts have been indexed by 1.9% to account for inflation, except for the $150,000 and $220,000 brackets, which are not indexed. The table below outlines the Ontario tax rates and brackets for 2026.

The table below outlines the 2026 combined federal and provincial highest marginal tax rates for various types of income.

Dividend Tax Credit

To align with the reduction in Ontario’s small business corporate income tax rate, the province’s small business (non‐eligible) dividend tax credit rate will be reduced from 2.9863% to 1.9863%, effective January 1, 2027.

CORPORATE TAX MATTERS

Corporate Income Tax Rates

Effective July 1, 2026, the budget reduces the small business corporate tax rate from 3.2% to 2.2%. The table below outlines the Ontario tax rates and the small business limit for 2026.

The table below outlines the 2026 combined federal and provincial corporate income tax rates for various types of income earned by a Canadian Controlled Private Corporation (CCPC).

Lowering taxes for small businesses

To continue supporting small businesses in the province, the government is proposing to cut the Ontario small business corporate income tax rate from 3.2% to 2.2%, effective July 1, 2026. The tax rate reduction will be prorated for taxation years straddling July 1, 2026.

Regional Opportunities Investment Tax Credit

The government is proposing that the Regional Opportunities Investment Tax Credit (ROITC) expire on January 1, 2027. To ensure an appropriate transition period, expenditures incurred on or before December 31, 2026 will continue to be eligible for the credit.

OTHER INITIATIVES

Enhancing harmonized sales tax relief on new homes

The government is taking steps to temporarily enhance the existing Ontario Harmonized Sales Tax (HST) New Housing Rebate and New Residential Rental Property Rebate to fully remove the 8% provincial portion of the HST paid for qualifying new homes valued up to $1 million.

The province will work with the federal government to propose that Ontario’s enhanced rebates be available from April 1, 2026 to March 31, 2027. For example, purchasers who acquire a home as their primary place of residence may be eligible if they enter into an agreement of purchase and sale with a builder between April 1, 2026 and March 31, 2027. For purchasers construction of the home must begin on or before December 31, 2028, and the home must be substantially completed on or before December 31, 2031.

The maximum rebate amount following the enhancement will be $80,000 for a new home valued at or under $1 million, with this amount maintained for new homes valued up to $1.5 million. The rebate will be reduced on a linear basis for higher- valued homes. For new homes valued at or above $1.85 million, a rebate of $24,000 will continue to be available 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 qualify for the proposed First-Time Home Buyers’ rebate and purchase a home during the enhancement period will be able to receive the same rebate amount under this proposed enhancement.

Eliminating the HST New Housing Rebate and New Residential Rental Property Rebate

Eligibility for the provincial HST New Housing Rebate and New Residential Rental Property Rebate is proposed to end following the enhancement period. Further details on transitional provisions related to the elimination of these 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 will not be affected and will continue to follow federal eligibility criteria for qualifying properties.

Expanding HST relief for first-time home buyers on new homes

Following the announcement of the GST/HST First-Time Home Buyers’ Rebate, the federal government amended its draft

legislation to have the rebate take effect earlier, on March 20, 2025.

The provincial government will continue to work with the federal government to align the Ontario rebate’s effective period with that of the federal rebate. This would mean that both the Ontario and federal rebates would be available where an agreement of purchase and sale is entered into with a builder on or after March 20, 2025, and before 2031.

All other rebate parameters, as announced by Ontario on October 28, 2025, will remain unchanged.

Ontario Trillium Benefit lump-sum payment threshold

The government is proposing to increase the threshold for a single lump-sum payment of the Ontario Trillium Benefit (OTB) from $360 to $500, beginning with the 2026/27 benefit year (July 1, 2026 to June 30, 2027). This change will result in more OTB recipients receiving their full benefit upfront and will not impact the total benefit amount received.

Simplifying and reducing alcohol taxes

The government is proposing to consolidate legacy taxes into simplified single rates to reduce complexity and provide further tax relief on sales of beer, wine, and spirits products sold in producer stores.

The proposal will combine basic, volumetric, and environmental beer taxes into a single tax rate of $1.18 per litre for non-draft beer and $0.90 per litre for draft beer produced by a beer manufacturer, and $0.46 per litre for non-draft beer and $0.36 per litre for draft beer produced by a microbrewer. The Small Beer Manufacturers’ Tax Credit (SBMTC) will also be adjusted to reflect the proposed beer tax rate changes. This change will increase the maximum benefit for eligible small beer manufacturers and maintain the phase-out at 2 million litres of annual sales.

To simplify wine taxes that apply to wine products sold in on-site and off-site winery retail stores, the government is proposing to combine the basic, volumetric, and environmental wine taxes into a single rate. A rate of 0% will apply to Ontario wines and

wine coolers and 19.1% will apply to non-Ontario wines and wine coolers sold in on-site winery retail stores. A rate of 12% will apply to owner-produced wines and wine coolers sold in off-site winery retail stores.

To align the treatment of spirits sold in on-site distillery stores with that of similar products sold through other channels, the current spirits and spirits coolers categories will be replaced with three categories based on alcohol by volume (ABV): (1) 7.1% or below; (2) greater than 7.1% to 18%; and (3) greater than 18%.

The government is proposing to combine the basic, volumetric, and environmental spirit taxes into a single rate, with rates of 20% for the first category, 25% for the second category, and 30.75% rate for the third category.

The government is proposing changes to beer, wine, and spirits tax rates effective April 1, 2026, to align with the implementation of the new LCBO wholesale mark-up pricing structure. To allow time to update tax administration systems and educate tax filers, the government will defer the requirement for tax filing and reporting from April to July 2026. No interest or penalties will be charged, provided that returns for the April to July period are filed by the July return due date of August 20, 2026.

Providing insurance premium tax flexibility for benefit plans

The government is proposing amendments to the Corporations Tax Act to allow all funded benefit plans to elect to be treated as unfunded benefit plans, effective April 1, 2026. This amendment will allow planholders to make an election that triggers Insurance Premium Tax (CT-IP) liability when benefits are paid out of the plan, rather than when contributions are paid into the plan.

Technical Legislative Amedments

Budget 2026 proposes legislative amendments to:

• The Taxation Act, 2007 to:
  • Clarify the calculation of the Ontario Computer Animation & Special Effects Tax Credit with respect to the minimum labour expenditure threshold;
  • Align Ontario’s income tax administration with federal income tax administration by adopting the federal
• provisions regarding proof of sending certain items by mail, personal service, and electronic delivery; and
  • Adopt federal provisions regarding when certain periods are excluded when computing the time within which an assessment may be made of a taxpayer.
• The Land Transfer Tax Act to exclude First Nation individuals registered under the federal Indian Act from the application of the Non-Resident Speculation Tax (NRST).
• The Pension Benefits Act to clarify the application of the conversion framework from a single employer pension plan to a jointly sponsored pension plan introduced last fall.
• The Financial Administration Act to repeal section 28 and replace it with a modernized directives-based approach to the oversight and management of contingent liabilities.
• The Fiscal Sustainability, Transparency and Accountability Act, 2019 to update the debt burden reduction strategy.
• The Workplace Safety and Insurance Act, 1997 to require the Minister of Labour, Immigration, Training, and Skills Development to establish and maintain an advisory committee to make recommendations for appointments to the Workplace Safety and Insurance Board (WSIB) Board of Directors. The Lieutenant Governor in Council will be required to appoint a majority (50% plus one) of members (excluding Chair and Chief Executive Officer) from the recommended individuals.
• A proposed new Act to repeal the SkyDome Act (Bus Parking), 2002, remove bus parking requirements from 305 Bremner Boulevard, a government-owned property in downtown Toronto, and enable regulations to address other development restrictions.

NEXT STEPS

For tailored tax and legal advice on how these measures affect you or your business, your own tax lawyers and accountants are best positioned to advise on these proposals. Your financial advisor can also 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, align your investments accordingly, and help coordinate the right specialist for your circumstances.