COVER STORY
Ontario Cuts Its Small - Business Tax Rate
The provincial lower rate fell from 3.2% to 2.2% on 1 July 2026. For many CCPCs, the combined federal-Ontario rate is now 11.2% - but straddle yearsrequire a day-count calculation.
A one-point Ontario cut changes 2026 instalments and year- end estimates
Ontario's small-business corporate income tax rate decreased to 2.2% effective 1 July 2026. When the federal 9% small-business rate also applies, qualifying active business income earned after that date bears an 11.2% combined rate.
The change is not automatically 2.2% for every 2026 return. A corporation whose tax year straddles 1 July must prorate the old and new Ontario rates by days in each period. Calendar-year corporations therefore use a blended 2.6959% Ontario rate for 2026.
How the rate change lands
PERIOD | ONTARIO RATE | COMBINED RATE | FROM 1 APR |
|---|---|---|---|
Before 1 July 2026 | 3.2% | 12.2% | $61,000 |
Calendar 2026 blend | 2.6959% | 11.6959% | $58,479 |
Full year at new rate | 2.2% | 11.2% | $56,000 |
Illustration assumes the full $500,000 small-business limit and ignores credits, surtaxes and other adjustments..
Ontario corporate income tax | CRA corporation rates
Ontario Rate Cut: Planning the Transition
Who qualifies for 2.2%
The Ontario lower rate applies to income that also qualifies for Ontario's small-business deduction. For a typical Canadian- controlled private corporation, that means active business income within the available business limit.
A straddle year uses days
For a tax year crossing 1 July 2026, calculate a weighted Ontario rate using the number of days before and after the change.
Old-rate days: 3.2% x eligible days / total days.
New-rate days: 2.2% x eligible days / total days.
Add both amounts to obtain the year's Ontario lower rate.
Business-limit constraints still apply
The rate cut does not expand the $500,000 federal or Ontario
small-business limit. Associated corporations generally share the
limit, so group allocations remain important.
Watch the two different grinds
Ontario's limit is phased out when the associated group's taxable capital employed in Canada rises from $10 million to $50 million.
The federal limit may also be reduced by adjusted
aggregate investment income.Ontario does not parallel the federal passive-income
business-limit reduction..
A corporation can therefore have different federal and Ontario small-business limits. Schedule 5 and associated-corporation allocations should be reviewed together.
Refresh owner-manager planning
Recalculate 2026 current-tax estimates and remaining instalments.
Update tax-provision models for fiscal years crossing 1 July.
Revisit bonus timing and salary-versus-dividend
comparisons.Check refundable tax accounts before distributions.
BOTTOM LINE
The new 2.2% rate is simple only for tax years beginning after 30 June. For every straddle year, get the day count, business limit and instalment update right.
This Week in Ontario Tax
Corporate Tax
CRA sets prescribed interest rates for Q4 2026
For 1 October through 31 December 2026, the CRA prescribed rate for overdue taxes, CPP contributions and EI premiums is 7%, compounded daily.
The CRA uses those records to confirm who may act for a corporation. A mismatch can delay My Business Account access, representative authorizations and corporate tax information.
Update the corporate registry first. Allow 24 to 48 hours where the registry shares director changes with CRA. Officer information must always be sent directly to CRA. Online submissions through Represent a Client are generally processed within two weeks.
Personal Tax
CRA strengthens account fraud protection from 1 October
The CRA says new account-protection measures take effect 1 October 2026 as criminals increasingly use stolen personal information to redirect refunds or benefits.
Treat unexpected CRA-account alerts, changes to direct deposit or contact information, and unfamiliar return activity as urgent. Sign in through an official CRA page - never through a link in an unsolicited message.
Use a unique password, keep multi-factor authentication current, review account details regularly and contact the CRA immediately if information has changed without authorization.
IMPORTANT DEADLINE
2 November 2026 | Quarterly GST/HST return and payment
A quarterly GST/HST registrant with a reporting period ending 30 September normally files and pays one month later. Because 31 October 2026 falls on a Saturday, the deadline moves to Monday, 2 November. File the return even if the period is nil, and allow enough time for electronic payment to be received by the CRA.
CASH-FLOW CHECK | Compare CRA arrears interest with available financing, then review shareholder loans and 2 November GST/HST funding before month-end.
Tax Court Highlight
2520356 ONTARIO CORP. v. THE KING, 2026 TCC 161
A Gutted house was still not substantially renovated
Demolition alone did not turn the sale into a taxable supply for HST purposes.
GUTTED
IS NOT
RENOVATED
HST TEST AT SALE
The issue
The corporation acquired a used residential property, removed much of the interior and sold it before reconstruction was complete. The dispute was whether the work had already produced a 'substantially renovated' home, making the sale
taxable for HST.
The Court's decision
The Tax Court held that the sale remained exempt. The statutory test looks for the removal or replacement of all or substantially all of the building other than the foundation, external walls, interior supporting walls, floors, roof and staircases.
A practical benchmark is 90% or more of the interior area.
The work must amount to renovation - not only demolition.
At the sale date, the required rebuilding had not occurred.
The due-diligence defence failed in the circumstances.
Why the decision matters
HST treatment is tested at the time of sale. A vendor cannot assume that extensive stripping-out work automatically creates a taxable newly renovated home, and a purchaser cannot assume the opposite when taking over an unfinished project.
Document the condition of the property at acquisition and sale.
Measure the affected floor area and retain plans and invoices.
Separate demolition from completed reconstruction in the timeline.
Address HST expressly in the agreement of purchase and sale.
Gutting is not the same as renovating
Action list
Apply the day-weighted Ontario-rate to every tax year crossing 1 July.
Update corporate tax provisions, instalments and owner-manager plans.
Review Q4 prescribed - rate loans and overdue CRA balances.
Check CRA account alerts and direct-deposit information for fraud.
File and pay quartely GST/HST by 2 November where applicable.
Resolve the HST clause before selling a rennovation in progress.