If your business is incorporated in Durham Region, your tax rate is about to go down. On 1 July 2026, Ontario cuts the small business corporate income tax rate from 3.2% to 2.2%. It is not a headline-grabbing number, but for an owner-managed company it is real money every year, and the timing creates one quirk worth understanding before your year-end.
Rates and rules below were confirmed against ontario.ca and the Canada Revenue Agency on 13 June 2026.
Key takeaways
- Ontario's small business corporate income tax rate drops from 3.2% to 2.2% on 1 July 2026, a 1 percentage point tax reduction.
- Combined with the unchanged 9% federal rate, the small business rate on your first $500,000 of active income falls from 12.2% to 11.2%.
- A Durham CCPC earning $200,000 saves about $2,000 a year once the cut is fully in effect.
- A 31 December year-end gets a blended rate for 2026 (Ontario about 2.7%, combined about 11.7%), then the full cut from 2027.
- Ontario's general corporate income tax rate, on active income above the $500,000 small business limit, stays at 11.5%.
What changes: Ontario's small business tax rate in 2026
Ontario taxes the first $500,000 of a small corporation's active business income at a lower tax rate than the rest. That lower rate sat at 3.2% from 2020 through 2025. Effective 1 July 2026, Ontario reduces it to 2.2%. The reduced rate was set out in the 2026 Ontario budget as tax relief for small corporations, and it is the first change to this rate in six years.
Your corporation pays two governments: the federal government and the province of Ontario. So the number that matters is the combined federal and Ontario small business rate. The federal small business rate is 9%, and it is not changing. Stack the two together and here is the picture.
| Rate | Until 30 June 2026 | From 1 July 2026 |
|---|---|---|
| Federal | 9.0% | 9.0% |
| Ontario | 3.2% | 2.2% |
| Combined | 12.2% | 11.2% |
Those are the combined small business corporate income tax rates for 2026. A full percentage point comes off the combined rate. On income that qualifies for the small business deduction, every dollar now costs you 11.2 cents in corporate tax instead of 12.2.
Who gets the small business deduction
This is the small business deduction (SBD), and it does not apply to every corporation. The lower rate applies only to Canadian-controlled private corporations (CCPCs), and only to the first $500,000 of active business income earned in the year, the small business limit. Income above that, and most passive investment income, is taxed at Ontario's general corporate income tax rate, which is 11.5%, on that taxable income.
Two limits worth knowing if your company has grown:
- The SBD starts to phase out once a CCPC (with any associated companies) has between $10 million and $50 million of taxable capital employed in Canada, and disappears entirely at $50 million.
- Ontario does not copy the federal rule that grinds down the $500,000 limit for corporations earning a lot of passive investment income, so on the provincial side that grind does not apply.
For the typical owner-managed company in Whitby or Oshawa, neither limit is in play. You are a CCPC, your active income is under $500,000, and you get the full benefit of the cut.
What the lower rate saves your business, in real dollars
Take a Whitby corporation with $200,000 of active business income, all under the small business limit. Once the cut is fully in effect, the math is simple: one percentage point off $200,000 is $2,000 a year, every year, with no change to how you run the business.
Worked example
- $500,000 of small business income: saves up to $5,000 a year.
- $200,000 of active income: saves about $2,000 a year.
- $80,000 of active income: saves about $800 a year.
The saving scales with income up to the $500,000 ceiling. It is 1% of whatever active business income you shelter under the small business deduction.
That is not life-changing on its own. The point is that it compounds with every other planning decision, and it costs you nothing to capture. It is also the kind of change that quietly slips past owners who do not have someone watching their file between filings, the same way many Durham owners miss deductions they were entitled to all along.
Your 2026 combined rate: the blended-year wrinkle
Here is the part that confuses people. The cut lands on 1 July, in the middle of the calendar year. If your corporation has a 31 December year-end (most do), your 2026 tax year straddles the change. The rate is prorated for taxation years that straddle 1 July: you pay the old rate for the days before 1 July and the new rate for the days after, based on the number of days in your tax year that each rate is in effect.
For a calendar 2026 year, that works out to a blended Ontario rate of roughly 2.7%, so a combined rate near 11.7% for the year. On our $200,000 example, the transition year saves you about $1,000, then the full $2,000 a year kicks in from 2027 onward once your whole year sits at the new rate.
If your corporation has an off-calendar year-end, the split is different. A year-end later in 2026 captures more days at the new rate. This is worth a quick look with your accountant rather than a guess, because the proration is done to the day.
What to do before and after 1 July
This is a corporate change. It does not move your personal income tax rates, but it does shift the math of how you pay yourself. For most owners, the honest answer is: nothing dramatic. A 1% rate change is not a reason to distort how you run your company. But there are a few sensible moves.
- Do not rush or delay real decisions for it. Pulling income forward or pushing it back to chase one point rarely beats just running the business well. Timing games can also collide with other rules.
- Fold it into your compensation mix. The corporate rate is one input into the salary versus dividend decision, alongside how dividends are taxed in your hands through the dividend tax credit. A lower corporate rate slightly changes the arithmetic of leaving money in the company versus paying it out. It is a tuning adjustment, not a reversal.
- Check your instalments. If you pay corporate tax by instalments, your 2026 and 2027 amounts should reflect the lower rate so you are not overpaying through the year.
- If you are still a sole proprietor, a lower small business rate is one more point on the incorporation scorecard, though rarely the deciding one. The decision still turns on your income, your needs, and how much you leave in the company.
None of this requires you to become a tax expert. It requires someone to apply it to your specific numbers. That is the whole value of a year-round relationship with a corporate tax accountant rather than a once-a-year filer: the changes get caught and built into your plan while they still matter.
Talk to a Durham Region CPA about your numbers
We work with incorporated owner-managers across Oshawa, Whitby, Ajax, Pickering, Clarington, Bowmanville and Uxbridge, and we build rate changes like this into your year-end and instalment planning so nothing slips. We are also the Whitby firm at the top of our own Durham CPA comparison. If you want a clear read on what the 1 July cut means for your corporation, book a free 30 minute consultation and we will run your numbers.
This article is for general information only and does not replace professional tax advice. Rates, limits and rules were confirmed against ontario.ca and the Canada Revenue Agency as of 13 June 2026 and can change. Your corporation's situation, year-end and income mix all affect the outcome. Always confirm with a qualified CPA before making tax decisions.
