Ontario’s small business corporate income tax rate decreased from 3.2% to 2.2% on July 1, 2026. For eligible incorporated businesses, the reduction can mean more money available for hiring, equipment and everyday operating costs.
The lower provincial rate applies to eligible active business income within Ontario’s $500,000 annual business limit, subject to eligibility and limit reductions. Ontario corporate income tax
What Is the New Small Business Tax Rate in Ontario?
For corporations qualifying for both the federal and Ontario small business deductions, the combined rate is now 11.2%:
| Tax component | Previous rate | Rate effective July 1, 2026 |
|---|---|---|
| Federal small business corporate tax | 9% | 9% |
| Ontario small business corporate tax | 3.2% | 2.2% |
| Combined rate | 12.2% | 11.2% |
The federal small business rate remains unchanged. The reduction comes from Ontario’s provincial portion. Corporations whose tax years span July 1 must prorate the provincial rate based on days before and after the change. CRA corporation tax rates
How Much Could Your Business Save?
The one-percentage-point reduction produces the following illustrative savings when the new rate applies for a full tax year:
| Eligible taxable business income | Annual Ontario tax savings |
|---|---|
| $100,000 | $1,000 |
| $250,000 | $2,500 |
| $500,000 | $5,000 |
These calculations assume the income fully qualifies for Ontario’s lower rate and the corporation has enough available business limit. Actual savings depend on the corporation’s circumstances and tax-year dates.
Who Qualifies for the Ontario Small Business Tax Cut?
The Ontario small business deduction generally applies to corporations that were Canadian-controlled private corporations throughout the tax year and have qualifying Ontario business income.
Larger corporate groups face restrictions. Ontario’s business limit phases out when prior-year taxable capital employed in Canada exceeds $10 million and disappears at $50 million. Associated corporations must be considered when assessing eligibility.
Ontario also treats passive income differently from the federal system: its business limit is not subject to the federal passive-income reduction. A corporation’s federal and provincial eligibility can therefore differ. CRA Ontario small business deduction
What Should Business Owners Do Next?
Before preparing your next corporate return:
- Confirm how much income qualifies for the lower Ontario rate.
- Check whether your fiscal year requires a prorated calculation.
- Review the effect of associated corporations on your available business limit.
- Update cash-flow forecasts to reflect your expected savings.
For eligible Ontario corporations, the tax cut offers a practical opportunity to retain more after-tax business income. Reviewing the calculation with your accountant can help you budget accurately and claim the appropriate deduction.
