2025 Ontario budget tax highlights

On May 15, 2025, Ontario’s finance minister delivered the province’s 2025 budget. The budget projects a significant deficit of $14.6‑billion for the 2025‑26 fiscal year, with deficits of $7.8‑billion expected in 2025‑27. This reflects the economic challenges posed by U.S. tariffs and delays the province’s return to fiscal. Although the budget does not include any new changes to the personal and corporate income tax rates, there were several tax‑related measures affecting both individuals and businesses. Below is a detailed summary of the key tax highlights from the budget.

Personal tax measures

No personal income tax rate changes were announced in this year’s budget. The current personal combined income tax rates for 2025 are outlined below:

¹ The capital gains rate is based on the legislated 50 per cent inclusion rate.

Ontario Fertility Treatment Tax Credit

Beginning in 2025, Ontario has introduced a new refundable tax credit to support families with fertility‑related medical expenses. The Ontario Fertility Treatment Tax Credit will provide 25 per cent of eligible expenses up to $20,000 annually, for a maximum credit of $5,000 per year. The credit may be claimed when filing personal income tax returns, even if no tax is owed, and can be used in addition to existing federal and provincial medical expense credits. Eligible expenses include a wide range of fertility treatments and related costs incurred in Canada that are not reimbursed by insurance.

Corporate tax measures

No corporate income tax rate changes were announced in this year’s budget. The current corporate income tax rates for 2025 are outlined below:

Ontario tax payment deferral

The budget allows qualifying businesses to defer payments on select provincially administered taxes for amounts owed from April 1 to Oct. 1, 2025 without incurring interest or penalties. Businesses must still file their tax returns on time during this period. This temporary measure is designed to provide financial relief and support to businesses facing economic uncertainty, particularly those affected by recent tariffs.

Ontario Made Manufacturing Investment Tax Credit (OMMITC)

To encourage investment in the province’s manufacturing sector, the 2025 budget introduced significant enhancements and expansions to the Ontario Made Manufacturing Investment Tax Credit (OMMITC). The credit rate is temporarily increased from 10 to 15 per cent for eligible capital investments up to $20 million per taxation year, with this enhanced rate applying to investments made between May 15 and Dec. 31, 2029. Eligible investments include expenditures on machinery, equipment and capital investments in buildings used in manufacturing or processing that become available for use during this exact period.

The program is also expanded to allow non‑Canadian controlled private corporations (non‑CCPCs) with permanent establishments in Ontario to claim a new 15 per cent non‑refundable credit for qualifying capital investments made in the same period (May 15 to Dec. 31, 2029). Qualifying corporations, including both CCPCs and non‑CCPCs, can claim the credit on eligible expenditures for certain capital property ⁠–⁠ such as those in Class 1, Class 53 or Class 43(a) (after 2025) ⁠–⁠ subject to a shared $20 million annual limit among associated corporations. Any unused non‑refundable credits may be carried forward for up to 10 years.

The budget also outlined that a recapture provision will apply if the eligible capital property is sold, converted to non‑manufacturing use or removed from Ontario within five years of acquisition.

Ontario Shortline Railway Investment Tax Credit

The budget introduces the new Ontario Shortline Railway Investment Tax Credit, a 50 per cent refundable corporation income tax credit designed to support qualifying shortline railways with capital and labour costs related to track maintenance and rehabilitation. This temporary credit is available for eligible expenditures incurred between May 15 and Dec. 31, 2029 and is capped at $8,500 per track mile annually. Eligible corporations must be licensed under Ontario’s Shortline Railways Act or federally as Class II and III railways, excluding urban transit and industrial railways. Qualifying investments include expenditures on railway track, trestles, bridges, tunnels and labour related to track maintenance.

Indirect tax changes

Gasoline tax and fuel rates

The budget extends the current reduced tax rates on gasoline and fuel ⁠–⁠ set at 9 cents per litre ⁠–⁠ indefinitely, beyond the previously scheduled expiry date of June 30, 2025.

Tax on propane for use in licensed road vehicles

Effective July 1, 2025, the tax on propane used in licensed road vehicles will be eliminated. Ontario will offer further guidance on this change, which is expected to benefit vehicle owners who rely on propane as a fuel source.

Alcohol taxes, mark-ups and fees

The budget introduces several significant changes to alcohol taxes and mark‑ups, effective Aug. 1, 2025. These changes are designed to support Ontario’s beverage alcohol sector, provide relief to consumers and modernize the province’s approach to fuel and alcohol taxation.

• Spirits ⁠–⁠ The basic tax rate on spirits will be reduced from 61.5 to 30.75 per cent.
• Beer ⁠–⁠ Tax rates for beer produced by Ontario microbrewers will be halved, with draft beer taxed at 17.98 cents per litre (decreased from 35.96 cents) and non‑draft beer taxed at 19.88 cents per litre (down from 39.75 cents).
• Microbrewer status ⁠–⁠ New rules will allow microbrewers to contract production with non‑microbrewers while keeping their microbrewer status, subject to certain conditions, effective on royal assent. In addition, the qualification threshold for microbrewer status will be updated to a maximum of 49,000 hectolitres of worldwide production, effective March 2, 2026.
• Small beer manufacturers’ tax credit ⁠–⁠ The credit will be enhanced to reflect the new beer tax rates and updated rules, supporting eligible small brewers.
• Liquor Control Board of Ontario (LCBO) ⁠–⁠ The LCBO basic mark-up rate to cider will be reduced to 32 per cent. The basic mark-up rates applied to certain wine‑based and spirit‑based ready‑to‑drink beverages with an alcohol content of 7.1 per cent or less, will be reduced to 48 per cent.
• Alcohol refreshment beverages ⁠–⁠ A new taxable category will be introduced for “alcohol refreshment beverages” (such as coolers and hard seltzers) with an alcohol content up to 7.1 per cent. Details will be completed following public consultation.

Administrative and other changes

Property assessment information

The 2025 budget introduces significant changes to property assessment information access. Starting in 2026, the Municipal Property Assessment Corporation (MPAC) will begin delivering assessment notices electronically, moving away from paper‑only mail delivery. The budget also creates regulatory authority to expand how municipalities can use MPAC’s property assessment information. Additionally, Ontario is evaluating potential tools to help municipalities better manage their assessment base, including the development of centralized online access to assessment roll information, ending the current requirement for on‑site viewing at municipal offices.

Municipal tax

The budget removes Toronto’s authority to levy a personal vehicle tax, ensuring consistent municipal tax powers across the province. Also, starting in 2026, municipalities may reduce property tax rates by up to 35 per cent for eligible affordable rental housing units to encourage more affordable housing development.

Next steps

Contact your Baker Tilly advisor to learn more about how we can help you navigate the complexities of the Canadian tax system.

Information is current to May 21, 2025. The information contained in this release is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act upon such information without appropriate professional advice after a thorough examination of the particular situation.