Ontario corporate tax 2026: 26.5% general, 11.2% SBD rate from July 1

The 2026 combined rates

Each combined rate is the federal net rate plus the Ontario rate on the same income. The table assumes all taxable income is earned in Ontario.

Ontario's general rate has been 11.5% since July 1, 2011, and its lower rate dropped from 3.2% to 2.2% on July 1, 2026 ontario.ca. The federal rates haven't changed for 2026.

How each line is built

Federal tax starts at 38% of taxable income. The 10% federal abatement takes it to 28%, and the 13% general rate reduction brings general rate income to 15% canada.ca. A CCPC claiming the small business deduction gets a 19% deduction instead, for a net 9% (ITA 125(1.1)) laws-lois.justice.gc.ca.

Manufacturing and processing profits get a federal deduction equal to the general rate reduction percentage under ITA 125.1, so they land at the same 15%. For a CCPC, the M&P base excludes the income already sheltered by the small business deduction laws-lois.justice.gc.ca. Ontario's M&P credit is what makes the difference: it takes the Ontario rate from 11.5% to 10% for eligible manufacturing, processing, farming, fishing, mining and logging profits ontario.ca.

Investment income is where the federal number jumps. The general rate reduction doesn't apply to a CCPC's aggregate investment income, because ITA 123.4 strips it out of full rate taxable income laws-lois.justice.gc.ca. ITA 123.3 then adds a refundable tax of 10 2/3% laws-lois.justice.gc.ca. That's 38% less 10% plus 10.67%, or 38.67% federal. Ontario has no separate investment income rate, so its 11.5% basic rate applies canada.ca.

The July 1, 2026 small business cut and the blended 2026 rate

The 2026 Ontario Budget cut the small business rate from 3.2% to 2.2% effective July 1, 2026, and said the cut would be prorated for taxation years that straddle that date budget.ontario.ca. Bill 97 enacted it: it sets the Ontario small business deduction rate at 9.3% for days in a taxation year after June 30, 2026, and it has received Royal Assent as S.O. 2026, c. 2 ola.org.

The proration runs by days. Ontario basic tax is 11.5%, and the deduction is 8.3% before July 1 and 9.3% after, which leaves 3.2% and 2.2%. Here is what that gives for common year ends.

As of October 2026, the CRA's own rate table still lists Ontario's lower rate at 3.2% canada.ca, and its Ontario page only says a decrease has been announced canada.ca. Use the day split above when you check your client's Schedule 5 and Schedule 500 worksheet.

Worked example: $600,000 of active business income

Take a CCPC with a December 31, 2026 year end, $600,000 of active business income earned entirely in Ontario, no associated corporations, taxable capital under $10 million and adjusted aggregate investment income of $50,000 or less in 2025. The first $500,000 gets the small business deduction and the other $100,000 is general rate income.

Total tax is $84,979.45, an effective rate of 14.16%. The Ontario deduction works out as $41,500 × 181 ÷ 365 = $20,579.45 plus $46,500 × 184 ÷ 365 = $23,441.10.

For comparison, the same $600,000 costs $87,500 at full year 2025 rates and $82,500 once the 2.2% rate covers a whole year. The $100,000 above the limit pays 26.5% in every scenario, so the cut is worth exactly $5,000 a year at the full limit.

Who qualifies for the limit, and how associated corporations share it, is covered in small business deduction 2026.

Ontario's $500,000 limit ignores the passive income grind

Ontario's small business deduction applies to the first $500,000 of active business income, and Ontario does not follow the federal measure that phases out that limit for corporations earning between $50,000 and $150,000 of passive investment income ontario.ca.

Federally, ITA 125(5.1)(b) cuts the business limit by $5 for every $1 of adjusted aggregate investment income over $50,000, counting the corporation and its associated corporations for taxation years that ended in the preceding calendar year laws-lois.justice.gc.ca. So the same CCPC as above with $100,000 of AAII in 2025 has a federal limit of $500,000 less 5 × $50,000, or $250,000, while its Ontario limit stays at $500,000.

Ontario tax doesn't move, so the grind costs this client $15,000, all of it federal. How AAII is measured and how to plan around it is in the passive income SBD grind.

Ontario does follow the taxable capital phase out: the limit shrinks between $10 million and $50 million of taxable capital employed in Canada for the CCPC and its associated group, for taxation years starting on or after April 7, 2022. If your client assigns part of its federal business limit to another corporation, its Ontario limit drops by the same amount ontario.ca.

Investment income: 50.17% up front, 19.5% after the refund

Of the 50.17% a CCPC pays on investment income, 30 2/3 points go into its refundable dividend tax on hand (RDTOH) under ITA 129(4). The corporation gets them back as a dividend refund of 38 1/3% of taxable dividends it pays, other than eligible dividends, up to the RDTOH balance laws-lois.justice.gc.ca.

On $10,000 of interest income, the corporation pays $5,016.67 (federal $3,866.67, Ontario $1,150). Once it pays enough taxable dividends, $3,066.67 comes back, leaving $1,950 of permanent corporate tax, which is 19.5%. The Ontario 11.5% is never refunded.

Taxable capital gains count as aggregate investment income too. Dividends the corporation deducts in computing taxable income are left out, so they don't carry the 50.17% rate.