Ontario Corporate Tax Rate for Small Businesses (2025–2026)

When you run an incorporated small business in Ontario, your corporate tax rate should inform more than just your tax filing. It shapes how you pay yourself, how you reinvest, and how you plan for growth.

The Ontario corporate tax rate for most eligible CCPCs is 12.2% on the first $500,000 of active business income: 3.2% provincial and 9% federal. Above that threshold, the general combined rate of 26.5% applies.

And if you haven't heard yet: as of July 1, 2026, Ontario is permanently cutting the small business tax rate from 3.2% to 2.2%, bringing the combined rate down to 11.2% and saving eligible businesses up to $5,000 per year.

Knowing your rate is the starting point — let's look at how to calculate your business taxes in Ontario.

Ontario Corporate Tax Rates at a Glance (2025)

Not all corporate income is taxed the same way in Ontario. The rate your corporation pays depends on two things: the type of income it earns, and whether it qualifies as a CCPC eligible for the Small Business Deduction.

Rates reflect the current tax year. The July 2026 rate change is covered below.

A Canadian-Controlled Private Corporation (CCPC) is a private corporation incorporated in Canada and controlled by Canadian residents. Most incorporated small businesses in Ontario qualify. The Small Business Deduction (SBD), under Section 125 of the Income Tax Act, is what reduces the federal rate from 15% to 9% on eligible active business income.

To put the numbers in context: a consulting firm in Toronto with $400,000 in active business income pays approximately $48,800 in combined corporate tax at the 12.2% rate. That same income taxed at the general rate of 26.5% would cost $106,000. The SBD isn't a minor adjustment — it's the difference that makes incorporation worth it for most small businesses.

Does Your Corporation Qualify for the Reduced Rate?

Not every incorporated business automatically pays 12.2%. The reduced rate only applies if your corporation meets all four of the following conditions under the Income Tax Act.

1. Your corporation must be a Canadian-Controlled Private Corporation (CCPC) — meaning it is incorporated in Canada and controlled by Canadian residents
2. Your active business income must not exceed $500,000 per year (the federal business limit)
3. Your corporation's taxable capital employed in Canada must not exceed $10 million — the deduction begins to phase out at that point and is fully eliminated at $50 million
4. Your corporation's passive investment income in the prior tax year must not exceed $50,000 — above that threshold, the federal Small Business Deduction starts to phase out, and is eliminated when passive income reaches $150,000

Miss any one of these, and the general combined rate of 26.5% kicks in on the income that doesn't qualify.

One important Ontario advantage worth knowing: the federal government reduces your Small Business Deduction when passive investment income exceeds $50,000 — but Ontario does not apply that same restriction to the provincial small business limit. So even if your federal SBD is reduced, your Ontario provincial rate stays intact. In practice, that means your Ontario provincial rate is protected even when your federal deduction isn't.

Ontario Small Business Tax Rate Update: July 2026 Budget

On March 26, 2026, the Ontario government tabled its provincial budget with a direct impact on your bottom line: a permanent reduction of the provincial small business corporate tax rate from 3.2% to 2.2%, effective July 1, 2026.

For a CCPC at the $500,000 business limit, that's up to $5,000 in annual tax savings once the new rate is fully in effect. More than 375,000 Ontario businesses are expected to benefit.

One detail that catches many business owners off guard: because the change takes effect on July 1 and not January 1, corporations whose fiscal year straddles that date pay a blended rate across two periods. For a December 31 fiscal year end, the first half of 2026 runs at 3.2% and the second at 2.2% — working out to an effective provincial rate of approximately 2.7% for the full calendar year.

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What About Passive Investment Income?

Running an active business isn't the only way a corporation generates income. Many Ontario business owners also hold investments inside their corporation — rental properties, GICs, stocks. These represent different sources of corporate income, and they're taxed very differently from active business income.

In Ontario, passive investment income earned by a CCPC is taxed at a combined rate of approximately 50.17%. That's not a typo. The rate is deliberately high: the tax system is designed to discourage using a corporation as a personal investment vehicle at the expense of the public treasury.

The saving grace is the Refundable Dividend Tax On Hand (RDTOH) mechanism. A significant portion of that 50.17% is refundable to the corporation when it pays taxable dividends to its shareholders — effectively evening out the tax burden over time.

One Ontario-specific point worth repeating: while the federal Small Business Deduction is reduced when passive income exceeds $50,000 in a given year, Ontario does not apply that same restriction provincially. Your Ontario rate stays at 3.2% — and soon 2.2% — regardless of how much passive income your corporation earns.

Ontario vs. Other Provinces: How Do the Rates Compare?

If you're deciding where to incorporate, or simply wondering how Ontario stacks up, corporate tax rates vary more than most business owners realize.

After their respective 2026 budget announcements, both Ontario and Quebec are moving to an 11.2% combined small business rate — putting them on par with British Columbia. Alberta remains the most competitive on the general rate at 11%, which matters once your active income exceeds $500,000.

The corporate tax rate matters — but it's rarely the only factor when choosing where to incorporate. Labour markets, access to clients, and provincial business costs often outweigh a one or two percentage point difference in tax rate.

If you operate in multiple provinces, we've covered the Quebec corporate tax rate and the BC corporate tax rate in detail.

Filing Your Corporate Tax Return in Ontario

Since 2009, Ontario's corporate income tax has been administered by the Canada Revenue Agency. That means you file a single T2 Corporation Income Tax Return with the CRA — there is no separate provincial return to file for Ontario.

Key deadlines to keep in mind, as set by the CRA:

• Filing deadline: 6 months after your fiscal year end
• Payment deadline: 2 months after your fiscal year end (3 months for eligible CCPCs that meet certain conditions)
• Instalment payments: Required quarterly if your corporation owes more than $3,000 in corporate tax for the year

Missing these deadlines triggers interest and penalties from the CRA — and they add up faster than most business owners expect.

Beyond your rate, Ontario small business tax credits and deductions can significantly reduce what you actually owe.

Frequently Asked Questions — Ontario Corporate Tax Rate

What is the corporate tax rate in Ontario for small businesses?

An eligible CCPC pays a combined rate of 12.2% on the first $500,000 of active business income — 3.2% provincial and 9% federal. Above that threshold, the general combined rate of 26.5% applies. As of July 1, 2026, the combined small business rate drops to 11.2% following the Ontario Budget 2026 rate cut.

What is the combined federal and Ontario corporate tax rate?

Two rates apply depending on your corporation's situation. Eligible CCPCs pay 12.2% on active income up to $500,000. Income above that threshold, or income earned by corporations that don't qualify for the Small Business Deduction, is taxed at 26.5%. After July 1, 2026, the small business combined rate decreases to 11.2%.

How much is corporate tax in Ontario for a CCPC?

An eligible CCPC pays 12.2% combined on its first $500,000 of active business income per year. Passive investment income — interest, rental income, capital gains — is taxed at approximately 50.17% combined, though a significant portion is refundable through the RDTOH mechanism when dividends are paid out.

Does Ontario apply the passive income rule to the provincial small business limit?

No. Ontario does not reduce the provincial small business limit based on passive investment income. Only the federal Small Business Deduction is affected when a CCPC earns more than $50,000 in passive income in a given year. Your Ontario provincial rate stays at 3.2% — soon 2.2% — regardless.

What changed in the 2026 Ontario budget for small business taxes?

The Ontario Budget 2026 permanently reduces the provincial small business rate from 3.2% to 2.2%, effective July 1, 2026. The combined rate for eligible CCPCs drops from 12.2% to 11.2% — up to $5,000 in annual savings for businesses at the $500,000 income threshold. Corporations whose fiscal year straddles July 1 must apply a blended rate.

When does a corporation lose access to the Small Business Deduction in Ontario?

A corporation loses access to the federal SBD when active business income exceeds $500,000, taxable capital exceeds $10 million (fully eliminated at $50M), or passive investment income exceeded $50,000 in the prior year. For the provincial deduction in Ontario, only the first two conditions apply — Ontario does not reduce the provincial SBD based on passive income.

Filing Your Ontario T2 Doesn't Have to Be Complicated

Ontario's corporate tax system has more moving parts than most business owners expect — rates that vary by income type, eligibility conditions, mid-year budget changes. But once you understand how the numbers work, the path forward is straightforward.

The next step is making sure your T2 is filed accurately and on time, with every applicable deduction reviewed. That's where T2inc.ca comes in. Our CPAs and tax specialists handle your T2 Corporation Income Tax Return online — no hourly rates, no back-and-forth, no surprises.

This content is for informational purposes only and does not constitute tax or legal advice. Every corporation's situation is unique — we recommend consulting a qualified CPA before making any tax-related decisions. Tax rates and rules are based on information available as of May 2026.