Key tax updates from Ontario’s 2026 budget

Ontario’s 2026 Budget, released March 26, 2026, proposes a mix of rate changes, housing-related HST rebate measures, and administrative/technical amendments. While several items are intended to provide targeted relief, several proposals will require additional detail through implementing legislation and, for certain HST-related measures, federal regulatory action. The updates below summarize key proposed measures and effective dates to support near-term planning. 

Personal income tax measures 

No personal income tax rate changes were proposed as part of the budget. The current combined top marginal rates for personal tax in 2026 are as follows: 

*This rate is expected to be 48.89% in 2027 after the implementation of the dividend tax credit change outlined below. 

• Ontario Trillium Benefit (OTB) lump-sum threshold increase: Ontario proposes to increase the threshold for receiving the OTB as a single payment at the start of the benefit year to $500 (from $360), starting with the 2026–27 benefit year (July 1, 2026 to June 30, 2027). This change does not affect total entitlement but is expected to result in more recipients receiving the benefit as a single up-front payment. 

Business tax measures 

• Small business corporate income tax rate: The budget proposes to reduce the small business corporate income tax rate to 2.2% (from 3.2%), effective July 1, 2026. The reduction would be prorated for taxation years that straddle that date. 

As a result of this proposed rate change, the effective corporate tax rates for 2026 would be as follows: 

• Non-eligible dividend tax credit: To align with the proposed small business rate reduction, the budget proposes to reduce the small business (non-eligible) dividend tax credit rate to 1.9863% (from 2.9863%), effective January 1, 2027. 

• Accelerated deductions for capital investments (parallel to federal measures): Ontario proposes to allow faster income tax deductions for a broad range of depreciable assets, generally mirroring changes announced by the federal government. Ontario indicates these changes would take effect following the finalization of federal legislation. Measures would include immediate 100% deductions for certain manufacturing and processing assets, productivity-enhancing assets, certain clean technology assets and zero-emission vehicles, as well as enhanced first-year deductions for other assets. 

• Regional Opportunities Investment Tax Credit (ROITC): Ontario proposes the ROITC expire effective January 1, 2027. Eligible expenditures incurred on or before December 31, 2026, would remain eligible during the transition. 

Housing-related HST measures 

• Temporary enhancement to the Ontario HST New Housing Rebate / New Residential Rental Property Rebate: Ontario proposes to temporarily enhance this measure for one year (agreements signed between April 1, 2026, and March 31, 2027). The budget describes this as fully rebating the 8% provincial portion of the HST for qualifying new homes valued up to $1 million (maximum rebate $80,000), with the $80,000 maximum maintained up to $1.5 million and a reduced rebate for higher-valued homes. Ontario also indicates it is working with the federal government so that eligible buyers could receive up to $130,000 in combined HST relief (effectively the full 13% HST). 

This change will require amendment and alignment in the Excise Tax Act, which will require the federal government to formally endorse these changes. 

• First-time home buyer HST relief on new homes (effective date alignment): Ontario proposes to align the effective date of its previously announced provincial rebate for first-time buyers with the federal government’s earlier effective date of March 20, 2025. This would extend eligibility to agreements of purchase and sale entered into on or after March 20, 2025, and before 2031. Further details are expected. 

Indirect and other tax measures 

• Simplifying and reducing beer, wine and spirits taxes: Ontario proposes to consolidate certain legacy alcohol taxes into simplified single rates and provide tax reductions on sales of beer, wine and spirits sold in producer stores. Changes are proposed to be effective April 1, 2026. Filing and reporting for April–July 2026 would be deferred to July 2026 and due August 20, 2026, without interest or penalties if filed by that date. 

• Insurance Premium Tax flexibility for funded benefit plans: Ontario proposes to allow funded benefit plans to elect to be treated as unfunded benefit plans for Corporations Tax–Insurance Premium Tax purposes, such that Insurance Premium Tax liability would arise as benefits are paid rather than when contributions are made. The proposed effective date is April 1, 2026. 

Other proposed technical amendments 

The budget includes technical amendments to various statutes administered by the Minister of Finance intended to improve administration, enforcement, and clarity.  

Proposals include:  

• administrative alignment with federal rules, including proof of mailing, service and electronic delivery, and reassessment time-limit calculations;  

• amendments to the Pension Benefits Act are proposed to clarify the application of the conversion framework from a single-employer pension plan to a jointly sponsored pension plan that was introduced last fall; 

• clarification of the Ontario Computer Animation and Special Effects Tax Credit; and  

• amendments to the Land Transfer Tax Act to exclude First Nation individuals registered under the federal Indian Act from the Non-Resident Speculation Tax. 

What this means for you 

 As these proposals are implemented, planning and staying current with the changes will be important. Further guidance and transitional rules are anticipated for a number of measures, including certain housing-related HST proposals. Your Baker Tilly advisor can help you assess potential impacts and identify any planning considerations.