Ontario small business tax rate cut July 2026: what to do

What changed on July 1, 2026

The CRA’s corporation tax rates table shows Ontario’s lower rate at 2.2%, with a footnote that it was reduced from 3.2% effective July 1, 2026. The lower rate applies to income eligible for the federal small business deduction. The same table shows the Ontario higher rate at 11.5% and an Ontario business limit of $500,000.

The federal side is unchanged. For a Canadian-controlled private corporation claiming the small business deduction, the CRA lists a net federal rate of 9%. Combined, the rate on eligible income moves from 12.2% to 11.2% once the new Ontario rate applies in full. Income above the business limit, and income that does not qualify for the deduction, is not affected.

Why your 2026 year is a blend, not 2.2%

When a provincial rate changes during a tax year, the CRA says to base the calculation on the number of days in the year that each rate is in effect. The new rate is therefore weighted by how much of your fiscal year falls on or after July 1, 2026.

A calendar-year corporation has 181 days before July 1 and 184 days from July 1 to December 31. The blended Ontario rate is roughly 2.70%, so the combined rate on eligible income is roughly 11.70% for 2026. A year ending June 30, 2026 is entirely at 3.2%. A year ending September 30, 2026 has 273 days at 3.2% and 92 days at 2.2%. A year that begins on or after July 1, 2026 is entirely at 2.2%.

The first full year at the new rate is therefore the one that starts on or after July 1, 2026. For a calendar-year corporation, that is 2027.

Estimating what the cut is worth

For a quick estimate, multiply your active business income that qualifies for the small business deduction by the difference in the Ontario rate, then by the share of the year after July 1. This is only an illustration with round numbers: a calendar-year corporation with $200,000 of eligible income and no other complications would pay about $5,392 of Ontario tax at the blended rate, against $6,400 at 3.2% for the full year. The difference is about $1,008.

In a full year at the new rate, the same income would save $2,000 compared with 3.2%. Corporate tax is calculated on taxable income after deductions, so your own figure depends on salary, capital cost allowance and everything else in the return. Treat these amounts as a direction, not a forecast.

The saving is real but modest compared with the effect of owner pay, timing and passive investments. It is better as one input than as a reason to restructure.

What the cut does not change

The $500,000 Ontario business limit is unchanged, and so is the way it is shared. Corporations that are associated share a single limit, and the limit can be reduced by passive investment income and, for large corporations, by taxable capital. If you control more than one corporation, the new rate helps only the income that still qualifies.

The rate cut also does not alter the personal tax you pay when money leaves the corporation. Salary and dividends are taxed in your hands under separate rules, and our guide to salary versus dividends covers that decision. A lower corporate rate may leave more after-tax money inside the company, but it does not tell you how much to take out.

Instalments and the balance due

The CRA says corporate instalments are generally monthly. A CCPC may be able to pay quarterly if it has a perfect compliance history and, together with associated corporations, has taxable income of $500,000 or less and taxable capital employed in Canada of $10 million or less in the current or previous year.

Instalment amounts can be based on an estimate of the current year or on a previous-year calculation. The CRA states that if you use a previous-year option and pay the correct amounts on time, it will not charge instalment interest even if you owe a balance at year-end. A calculation built on last year’s tax may therefore overstate this year’s requirement after a rate cut, which can tie up cash. That is a timing issue, not a loss, but it is worth discussing before you set the schedule.

Corporations generally pay the balance two or three months after the end of the tax year, depending on the balance-due day. Our guide on filing versus payment explains why the return and the payment have different dates.

Passive income and associated corporations

A lower rate on active business income can be outweighed by a reduced business limit. The CRA’s T2 guide reduces the limit when adjusted aggregate investment income of the corporation and its associated group passes $50,000, reaching nil at $150,000. If the corporation holds investments, review that figure before assuming the whole $500,000 is available.

Association matters in the same way. If you or a family member control several corporations, one business limit is shared among them. Bring a list of every corporation involved, since the new rate only helps the income that remains eligible.

Practical steps before year-end

Start by confirming your fiscal year-end and counting the days on each side of July 1, 2026. Next, ask your accountant to project eligible income for the year, including whether it will approach the business limit. Then compare your instalment method with that projection.

Keep your records tidy: the financial statements, a list of associated corporations, and a summary of any investment holdings. Your accountant will work out the exact day-weighted figures when the return is prepared, so the estimate above is only for planning.

If your year-end falls near July 1, a change to the year-end date has tax effects well beyond this rate, so discuss it with an accountant before acting.

What to ask your accountant

Useful questions include these. What is my blended Ontario rate for the current year? Will my income qualify for the small business deduction in full? Is my instalment calculation still sensible after the change? How would passive income or an associated corporation affect the limit?

For the broader picture of rates, limits and proration, see our guide to Ontario corporate tax rates for 2026 and our corporate tax and tax advisory services. Rates can change again, so confirm the figures for your own year on the CRA site.