Tax Planning Strategies for Ontario Businesses in 2026
Reviewed by Bader A. Chowdry, CPA, CA, LPA on
The tax planning strategies for Ontario businesses that matter most in 2026 start with one enacted change: Ontario’s small business rate fell from 3.2% to 2.2% on July 1, 2026, under Bill 97, which has received Royal Assent. For a Mississauga or GTA owner-manager, that rate, the SR&ED credits and the CRA payment calendar shape the year-end decisions.
This guide was rewritten in October 2026. Every rate and deadline below was read on a CRA, Ontario or Legislative Assembly page and is linked where it appears, so you can check it yourself before your year-end meeting.
Ontario’s small business rate is now 2.2%
The CRA’s corporation tax rates page lists Ontario’s lower rate at 2.2%, reduced from 3.2% effective July 1, 2026, with a higher rate of 11.5% and a business limit of $500,000. The lower rate applies to active business income of a Canadian-controlled private corporation (CCPC) up to that business limit.
The change is law. Bill 97, the Plan to Protect Ontario Act (Budget Measures), 2026, has received Royal Assent as S.O. 2026, c. 2. Schedule 15 of that Act, which has received Royal Assent, amends subsection 31(4) of the Taxation Act, 2007 to set Ontario’s small business deduction rate at 9.3% for the part of a taxation year falling after June 30, 2026. That deduction, taken off the 11.5% general rate, is what produces the 2.2% rate.
On the federal side, the same CRA page states that a CCPC claiming the small business deduction pays a net federal rate of 9%, against a general net rate of 15%. Combined, the federal and Ontario small business rate on active business income up to $500,000 is now 11.2% (9% plus 2.2%) for days after June 30, 2026.
For more on the mechanics of the cut, see our earlier explainer on the 2.2% rate.
A year that straddles July 1 is prorated by days
Most corporations with a December 31 year-end will see both rates in their 2026 T2. The CRA instructs that when a provincial rate changes during the tax year, the year’s tax is split according to how many days each rate applied. That is the CRA’s published method for dual tax rates; tax software normally applies it, but the reviewer should still confirm the day count.
A planning point follows from the proration. Income that falls in the part of the year after June 30, 2026 is taxed in Ontario at the lower rate. For a corporation whose year-end is not December 31, the share of days after the change differs, so the effective Ontario rate for the year differs too. Model it on your actual year-end rather than on a calendar-year shortcut.
The business limit itself did not move. Ontario’s business limit is still $500,000, matching the federal limit in subsection 125(2) of the Income Tax Act, which is in force and also makes associated CCPCs share a single limit. A group with several companies needs to agree how the limit is allocated before the returns are prepared.
SR&ED: the federal and Ontario credits stack
Scientific research and experimental development (SR&ED) is a central credit for businesses that do technical development work. According to the CRA’s SR&ED program overview, the federal investment tax credit is earned at a basic rate of 15%, some corporations may claim the enhanced rate of 35%, and some businesses may also earn a refundable credit. Which rate a corporation gets depends on its status and its expenditure limit, so the federal rate is a calculation, not a lookup.
Ontario adds two credits on top. The Ontario Innovation Tax Credit (OITC) is a refundable credit of 8% for taxation years that began after May 31, 2016, based on an expenditure limit of $3 million. The Ontario Research and Development Tax Credit (ORDTC) is a non-refundable credit of 3.5% for taxation years that began after May 31, 2016, and it can only be used against Ontario corporate income tax.
The distinction between refundable and non-refundable matters for planning. A refundable OITC can produce cash for a corporation with little or no Ontario tax payable; the ORDTC only helps a corporation that has Ontario tax to absorb it. A start-up in its loss years and a profitable software company will value the same SR&ED project differently.
The SR&ED deadline is 18 months, and it is hard
The CRA’s SR&ED filing requirements policy sets the reporting deadline for a corporation at generally 18 months after the end of the tax year. Form T661 and the related schedules must be filed by then. If they are filed late, the CRA treats the filing requirements as unmet and allows no investment tax credit on those expenditures.
For a December 31, 2026 year-end, the 18-month deadline lands on June 30, 2028. That sounds distant, but the documentation that supports the claim (the technological uncertainty, the hypotheses, the time records) is easiest to build while the work is happening. Waiting until the T2 is prepared usually means rebuilding a year of evidence from memory.
Instalments: monthly unless you qualify for quarterly
A corporation that owes instalments generally pays them monthly. The CRA’s instalment due dates page says the payments are due by the last day of each month of the tax year.
A small CCPC may pay quarterly instead if it meets every condition on that page: it is a CCPC; it has a perfect compliance history for the past 12 months (GST/HST, payroll withholding, CPP and EI remitted on time, and returns filed on time); and, together with associated corporations, its taxable income is $500,000 or less and its taxable capital employed in Canada is $10 million or less for the current or previous year. For a calendar tax year the quarterly payments fall on March 31, June 30, September 30 and December 31.
Instalment interest is charged when payments are late or short, and a penalty applies only when the instalment interest for the year exceeds $1,000. The practical lesson is that a single late payroll remittance can cost a corporation its quarterly status for a year.
When the balance of tax is due
The balance of corporate tax is generally due two months after the year-end, according to the CRA’s balance-due day page. A CCPC gets three months if it was a CCPC throughout the year, claimed the small business deduction for the current or previous year, and its taxable income for the previous year (or the associated group’s combined taxable income) did not exceed the business limit.
For a December 31, 2026 year-end that qualifies, the balance is due on March 31, 2027. The balance-due day is a payment date, not the filing date of the T2: interest runs from the balance-due day even if the return is filed later. Read the T2 filing checklist in our T2 guide for the filing side.
Salary or dividends: the 2026 inputs
The salary-dividend mix is a core year-end decision for owner-managers, and the inputs changed in 2026. On salary, the CRA’s CPP rates page sets the 2026 maximum pensionable earnings at $74,600, the basic exemption at $3,500, the contribution rate at 5.95% each for employee and employer, and the maximum employee contribution at $4,230.45. A shareholder-employee paid at the maximum therefore funds $8,460.90 of base CPP through the corporation and personally combined.
On dividends, Bill 97, which has received Royal Assent, also amends section 19.1 of the Taxation Act, 2007, the provision that sets the Ontario dividend tax credit. Under that enacted change, Ontario’s dividend tax credit page lists the rate for other Canadian dividends (the non-eligible dividends a CCPC pays from income taxed at the small business rate) at 2.9863% for 2020 to 2026 and 1.9863% for 2027. A non-eligible dividend paid in 2027 therefore carries a smaller Ontario credit than one paid in 2026.
Integration is the reason these two changes have to be read together. A lower corporate rate leaves more after-tax income in the company, while a lower dividend credit raises the personal tax when it comes out. The right mix depends on the owner’s other income, RRSP room, CPP goals and whether the cash is needed personally at all.
What an LPA adds: a decision rule and a failure mode
Restating the rates is the easy part. The value in year-end planning is applying them to one corporation’s facts, with the judgment of someone who signs review and audit reports under the Public Accounting Act, 2004.
Decision rule. Before December 31, check two things for every corporation in the group: whether the associated group’s taxable income is heading above $500,000 (which affects both the business limit and quarterly instalment status), and whether any SR&ED year is approaching its 18-month deadline. Both are measurable today, and both are expensive to discover after the fact.
Failure mode. A recurring failure is treating the SR&ED claim as a T2 add-on. If the T661 is not filed within 18 months of the year-end, the CRA allows no credit on those expenditures, no matter how strong the science was. A second one: associated corporations that each assume they have the full $500,000 business limit.
Illustrative example. Assume a CCPC with a full taxation year in which all active business income falls after June 30, 2026, with $500,000 of active business income and no associated corporations. Ontario tax on that income at the old 3.2% rate would have been $16,000; at 2.2% it is $11,000, a difference of $5,000. If the same corporation spends $100,000 on qualifying SR&ED in Ontario, the 8% OITC on that amount is $8,000, before any federal credit. These are illustrative figures, not a forecast for any business.
A year-end checklist for Ontario owner-managers
- Confirm the Ontario rate proration for your actual year-end, and that your software applied the 2.2% rate only to days after June 30, 2026.
- Agree the allocation of the $500,000 business limit across associated corporations.
- Check quarterly instalment eligibility, including the 12-month compliance history for payroll remittances and GST/HST.
- List every open SR&ED year and its 18-month reporting deadline.
- Decide the salary-dividend mix with the 2026 CPP limits and the 2027 dividend credit in view.
- Diarize the balance-due day (two or three months after year-end) separately from the T2 filing date.
Every item on that list depends on facts this article does not know: your structure, your associates, your year-end and your plans for the cash. The next step is to put your own numbers against these rules before December 31.
Important — informational only, not advice. Do not use this article to make any decision.
This article is published by Insight Accounting CPA Professional Corporation for general educational purposes only. It is not tax, legal, accounting, financial, or investment advice, and nothing in this article should be relied upon — by anyone, for any purpose — to make a business, tax, financial, accounting, legal, or investment decision.
Tax law, CRA administrative positions, court interpretations, and Ontario provincial rules change frequently, sometimes retroactively, and the content of this article may be incomplete, simplified, out of date, or wrong by the time you read it. The right answer for your specific situation depends on facts this article does not know — your structure, history, jurisdiction, filings, contracts, and goals.
Before acting, engage your own Chartered Professional Accountant or qualified advisor who has reviewed your specific circumstances in writing. Insight Accounting CPA Professional Corporation, the author, and any contributors expressly disclaim all liability — direct, indirect, or consequential — for any action taken or not taken on the basis of this content.
Insight Accounting CPA Professional Corporation is led by Bader A. Chowdry, CPA, CA, LPA — licensed by CPA Ontario under the Public Accounting Act, 2004. To engage us for situation-specific advice, book a free 30-minute discovery call.
