Ontario cuts small‑biz tax rate
Ontario's 2026 budget permanently lowered the small business corporate tax rate from 3.2% to 2.2%, a change the province says will spur productivity and make incorporation cheaper for side hustles and consulting. The move alters the math for whether to incorporate a freelance or contract tech business. (occ.ca)
The budget sets the small‑business tax change to take effect July 1, 2026, and specifies that taxation years that straddle that date will have the new rate prorated across the year. (mnp.ca) Provincial documents and business groups estimate the cut will reach roughly 375,000 Ontario small businesses, with a qualifying CCPC able to receive up to about $5,000 of provincial tax relief in a year. (cfib-fcei.ca) The federal small business deduction taxes eligible active business income at a federal rate of 9% on the business limit (generally $500,000 of active income for eligible CCPCs). (canada.ca) When combined with Ontario’s new lower provincial small‑business rate, eligible active income will face a combined corporate tax burden of roughly 11.2%, about one percentage point lower than the prior combined small‑business rate. (canada.ca) Because the provincial cut effectively reduces tax by about 1% of eligible income, the maximum annual provincial saving on the typical $500,000 small‑business limit equals roughly $5,000, shifting the after‑tax cash available for reinvestment, salary top‑ups or dividends. (gncc.ca)
