Ontario Budget 2026 – What It May Mean for You

Ontario released Budget 2026 (“A Plan to Protect Ontario”) on March 26, 2026. The province is projecting a $13.8 billion deficit for 2026–27, following a projected $12.3 billion deficit for 2025–26, with a stated plan to return to a small surplus by 2028–29.

In context, the 2026–27 deficit is a notable increase from what was projected in the 2025 budget, reflecting a shift toward higher spending and targeted tax relief while Ontario continues to navigate economic uncertainty. The government is leaning more heavily on targeted tax measures, housing incentives, and business-related relief, while continuing to invest in infrastructure and other priorities. The budget does not introduce broad personal income tax changes.

Below are the measures we expect will be most relevant for many Ontario households and business owners, along with key planning considerations.

Key Budget 2026 Items

1) Small business corporate tax cut and dividend integration

Ontario proposes to reduce the small business corporate income tax rate from 3.2% to 2.2%, effective July 1, 2026. 

This rate applies to eligible active business income up to the small business limit (typically the first $500,000 of income). The reduction is expected to be prorated for taxation years that straddle July 1, 2026.

This could save up to $5,000 per year in provincial tax for qualifying businesses. To maintain tax integration on active business income, the Ontario dividend tax credit for non-eligible dividends will be reduced in 2027, resulting in a roughly 1.15% increase in personal tax on these dividends.

Ontario also proposes to reduce the Ontario small business dividend tax credit rate from 2.99% to 1.99%, effective January 1, 2027, to align the personal dividend credit with the lower small business corporate tax rate.

Note that this reflects the Ontario dividend tax credit component only. Your total personal tax result depends on your income level and other credits.

Planning considerations

Retained earnings withdrawn as non-eligible dividends in 2027 and beyond are expected to be taxed at slightly higher rates (approximately $1,000 more tax per $100,000 of dividend income).

Attention should be paid to the timing of dividend payouts to optimize after-tax personal cash flow. 

2) HST relief on new homes (April 2026 – March 2027)

Ontario proposes a temporary enhancement to the Ontario HST New Housing Rebate and the Ontario HST New Residential Rental Property Rebate. The intent is to fully remove the 8% provincial portion of HST on qualifying new homes up to $1,000,000, for a maximum provincial rebate of $80,000.

That $80,000 maximum would be maintained for new homes valued up to $1,500,000. The rebate would then be reduced on a linear basis for higher-valued homes. For new homes valued at $1,850,000 and above, a fixed rebate of $24,000 would continue to be available.

The enhanced rebates are proposed to be available from April 1, 2026, to March 31, 2027. Eligibility is tied to the date the purchase and sale agreement is entered into with a builder.

For purchasers using the home as a primary place of residence, construction must begin on or before December 31, 2028, and the home must be substantially completed on or before December 31, 2031. 

Ontario also proposes that eligibility for the Ontario HST New Housing Rebate and Ontario HST New Residential Rental Property Rebate would end after the enhancement period expires. Transitional provisions are expected to be provided in a future fiscal update. 

Planning considerations

• These measures are timing-driven. Eligibility depends on contract dates and construction milestones.
• If you are considering buying a qualifying new home, you may wish to consider signing purchase agreements before March 31, 2027, to potentially benefit from the HST rebate.
• If you are considering investing in a qualifying rental property, confirm eligibility and plan to have construction underway by December 2028.

3) No broad personal income tax changes

Notably, the budget contains no changes to personal income tax rates or tax brackets. Unlike some other provinces, Ontario has not proposed to raise personal tax rates or introduce new surtaxes in 2026.

By comparison, B.C.’s 2026 budget proposal raised its lowest tax bracket rate and froze tax-bracket indexation for 2027–2030 to boost revenues, effectively creating a tax increase over time. Alberta’s 2026 budget likewise avoids broad tax hikes but is projecting multi-year deficits with no set balance date.

For Ontario residents, this means top marginal tax rates on personal income and capital gains remain unchanged. The top combined provincial and federal tax rate remains approximately 53.53% for salary and interest income (and approximately 27% for capital gains) in 2026.

Planning considerations

• We will continue using current Ontario marginal tax assumptions in planning models, while monitoring the potential for future changes as deficits persist.
• Sustained deficits increase the likelihood of future tax increases.

 4) No wealth taxes 

Ontario’s 2026 budget does not introduce any form of wealth tax, meaning a new annual levy on an individual’s net worth or accumulated assets. We note this as there is frequent speculation around the topic, though there is currently little evidence that one is being considered.

A wealth tax is fundamentally different from both income tax and capital gains tax. Rather than taxing earnings in a given year or the profit realized when an asset is sold, a wealth tax is applied to an individual’s total net wealth, calculated as the market value of assets less liabilities. In simple terms, income and capital gains taxes apply to what you earn; a wealth tax applies to what you own.

No Canadian province or the federal government currently imposes a broad-based annual wealth tax. Internationally, only a small number of countries maintain recurring wealth taxes, including Norway, Spain, and Switzerland. Others, such as France and Sweden, have moved away from them, citing implementation challenges and concerns around capital flight. The OECD has also noted the administrative complexity and relatively low revenue generated by these regimes.

Ontario’s decision not to introduce a wealth tax preserves the current tax framework for affluent residents and supports the province’s competitiveness in attracting and retaining high-net-worth individuals, entrepreneurs, and investment capital.

Planning Considerations

• While no wealth tax is currently on the table in Ontario, proposals to tax large fortunes continue to surface at the federal level.
• We will continue to work with you and your tax advisors to ensure your wealth preservation, estate, and succession planning strategies remain flexible and positioned to adapt, where possible, if new measures are introduced.

 5) Accelerated deductions for business investment

The budget aligns Ontario with forthcoming federal rules allowing businesses to immediately write off 100% of certain capital investments (machinery, equipment, research and development, and digital assets) in the first year.

Businesses may be able to defer taxes by front-loading depreciation on new asset purchases, improving near-term cash flow. Over the next four years, this measure is expected to deliver over $3.5 billion in Ontario tax relief for businesses that invest in growth.

Planning Considerations

• If you are planning significant capital expenditures, work with your tax advisors to determine the impact this change will have on after-tax cash flows.
• Keep in mind, this is largely a timing benefit. It accelerates tax deductions rather than increasing the total amount deductible.
• Investment decisions should still align with business needs, though tax savings may influence timing.

 Our Role

Tax planning has always been integral to our planning process. We will continue to monitor how Ontario’s Budget 2026 measures are implemented and what they may mean for your specific circumstances as details are clarified through legislation and administration.

Where appropriate, we will coordinate with your accounting and legal advisors to ensure decisions are aligned and planning opportunities are not missed.

If you have questions about how the budget may impact you, your advisory team is available to provide guidance.