The Ontario government plans to roll out changes to give small businesses in the province a financial leg up. The recently tabled 2026 Budget aims to bolster economic protections for Ontarians, including a $1.1 billion cut to the corporate income tax (CIT) rate for small Canadian-controlled private corporations[1].
The budget would cut the current small business CIT rate by nearly one third, bringing it down from 3.2 percent to 2.2 percent. Comparatively, the general CIT rate is 11.5 percent.[2]
98 percent of the businesses that employ Ontario residents qualify as small businesses. This newly lowered small business CIT rate could result in savings of up to $5,000 annually for more than 350,000 companies, which together employ over 2.5 million workers.[3]
An April 2, 2026 press release from the Government of Ontario Newsroom underscores the stakes for small businesses, stating that the budget’s protections “will help small business owners manage rising costs and economic uncertainty in the midst of U.S. tariffs and allow them to reinvest the savings back into their business.”[4]
This cut aligns with an over 15 year-long trend of CIT rate reductions for small businesses, tracing back to 2010 when the rate fell from 5.5 percent to 4.5 percent. This was followed by a reduction to 3.5 percent in 2018, and a further reduction to 3.2 percent in January of 2020.[5] This newest proposed cut to 2.2 percent would come into effect July 1, 2026.[6] The reduction would also be “prorated for taxation years straddling July 1, 2026.”[7]
The 2026 budget CIT rate – comparison over the years:
Image source: PEO Canada
In addition to lowering the CIT rate, the province also raised the upper limit (starting in 2023) from $15 million to $50 million for how much taxable capital a business can have before they become ineligible for the reduced rate.[8]
Businesses that qualify for the CIT small business deduction (SBD) will see the lowered rate apply to the first $500,000 of active business income. Businesses with taxable capital under $10 million will qualify for the full SBD, while businesses with taxable capital between $10 million and $50 million will see the rate gradually phased out. Businesses with taxable capital over $50 million do not qualify. This process mirrors the federal SBD phase-out process.[9]
This change also builds upon existing economic policies meant to aid small businesses, including the EHT exemption for businesses with an annual Ontario payroll amount under $1 million.
Chart 1.2 from the 2026 Budget provides an overarching look at savings for Ontarian businesses.
The impact of the 2026 budget on small businesses – at a glance:
Image source: 2026 Ontario Budget | Chapter 1B | Economy
The Ontario government has released the full text as well as a summary of highlights for the 2026 Budget.
[1] Ontario Cutting Small Business Tax by $1.1 Billion | Ontario Newsroom
[2] Corporate Income Tax | Corporations Tax | ontario.ca
[3] Ontario Cutting Small Business Tax by $1.1 Billion | Ontario Newsroom
[4] Ontario Cutting Small Business Tax by $1.1 Billion | Ontario Newsroom
[5] Corporate Income Tax | Corporations Tax | ontario.ca
[6] 2026 Ontario Budget | Chapter 1B | Economy
[7] 2026 Ontario Budget | Annex
[8] Corporate Income Tax | Corporations Tax | ontario.ca
[9] Corporate Income Tax | Corporations Tax | ontario.ca