Free Reference · 2026 Tax Year · Ontario
2026 Ontario Corporate Tax Rates & Brackets
The definitive reference for Ontario corporate tax rates in 2026. Every rate, bracket, threshold, grind and integration formula in one page. SBD, general, M&P, investment income, RDTOH, dividend tax credits, passive income grind, taxable capital grind. Written by a licensed CPA.
What This Guide Covers
1. Combined Federal + Ontario Corporate Tax Rates 2. Federal and Ontario Rate Breakdown 3. Small Business Deduction (SBD) Rules 4. Passive Income and the SBD Grind 5. Taxable Capital and the SBD Grind 6. Associated Corporation Rules 7. Manufacturing and Processing (M&P) Rate 8. Investment Income Tax Treatment 9. RDTOH: Refundable Dividend Tax on Hand 10. Dividend Tax Integration 11. Corporate vs. Personal Tax Comparison 12. Key Thresholds and Dollar Amounts 13. Frequently Asked Questions1. Combined Federal + Ontario Corporate Tax Rates (2026)
These are the total combined rates for corporations operating in Ontario. The combined rate is the sum of the federal rate and the Ontario provincial rate.
| Income Type | Federal Rate | Ontario Rate | Combined Rate |
|---|---|---|---|
| Active business income (SBD, first $500,000) | 9.0% | 3.2% | 12.2% |
| Active business income (above $500,000, general) | 15.0% | 11.5% | 26.5% |
| Active business income (M&P, above SBD limit) | 15.0% | 10.0% | 25.0% |
| Investment income (interest, foreign dividends, taxable capital gains) | 38.67% | 11.5% | 50.17% |
| Canadian dividends from connected corporations | 0% | 0% | 0% (deducted under s.112) |
| Canadian dividends from non-connected corporations | 38.33% (refundable) | 0% | 38.33% (fully refundable as RDTOH) |
The 12.2% SBD Rate Is the Most Important Number for Ontario Small Businesses. A CCPC earning $500,000 in active business income pays $61,000 in total corporate tax. The same $500,000 earned personally by a sole proprietor costs approximately $196,900 in personal tax. The difference of $135,900 per year is the value of the SBD. Corporate Tax Planning →
2. Federal and Ontario Rate Breakdown
Federal Corporate Tax Rates (2026)
| Component | Rate | How It Works |
|---|---|---|
| Base federal rate | 38.0% | Starting rate before any deductions or reductions. |
| Federal abatement | (10.0%) | Deducted because provinces levy their own corporate tax. Reduces effective federal rate to 28.0%. |
| General rate reduction | (13.0%) | Available for income NOT eligible for the SBD and NOT investment income. Reduces the general federal rate to 15.0%. |
| Small business deduction | (19.0%) | Reduces federal rate from 28.0% to 9.0% on the first $500,000 of active business income for CCPCs. The most valuable single deduction. |
| Additional refundable tax on investment income | 10.67% | Applied to investment income earned by CCPCs. Added to the 38.0% base rate (after abatement = 28.0% + 10.67% = 38.67%). The 10.67% is refundable when dividends are paid (part of RDTOH). |
Ontario Corporate Tax Rates (2026)
| Income Type | Ontario Rate | Notes |
|---|---|---|
| Small business (active, first $500K) | 3.2% | Ontario small business rate. Combined with federal 9.0% = 12.2%. |
| General (active, above $500K) | 11.5% | Ontario general rate. Combined with federal 15.0% = 26.5%. |
| Manufacturing and processing (M&P) | 10.0% | Reduced Ontario rate for qualifying M&P income above SBD limit. Combined with federal 15.0% = 25.0%. Ontario is one of few provinces with a separate M&P rate. |
| Investment income | 11.5% | Ontario general rate applied to investment income. Combined with federal 38.67% = 50.17%. |
3. Small Business Deduction (SBD) Rules
| SBD Requirement | 2026 Rule |
|---|---|
| Who qualifies | Canadian-Controlled Private Corporation (CCPC). Not controlled by public corporations, non-residents or a combination. Must be incorporated in Canada. |
| Business limit | $500,000 of active business income per year. Income above $500,000 is taxed at the general rate (26.5% combined in Ontario). |
| Active business income | Income from a business carried on in Canada. Excludes passive investment income (interest, dividends from non-connected corps, rental income, capital gains). Rental income may qualify if the corporation has 6+ full-time employees devoted to the rental business. |
| Associated corporations | Must share the $500,000 business limit. Two corporations controlled by the same person(s) = one $500,000 limit allocated between them via Schedule 23. Cannot create multiple corporations to multiply the SBD. |
| Passive income grind | Aggregate Investment Income (AII) above $50,000 reduces the business limit by $5 for every $1 above $50,000. At $150,000 AII, the SBD is fully eliminated. |
| Taxable capital grind | Taxable capital employed in Canada above $10 million reduces the business limit. At $15 million, the SBD is fully eliminated. Applies to the associated group, not individual corporations. |
SBD Tax Savings at Different Income Levels (Ontario)
| Active Business Income | Tax at SBD Rate (12.2%) | Tax at General Rate (26.5%) | SBD Savings |
|---|---|---|---|
| $100,000 | $12,200 | $26,500 | $14,300 |
| $200,000 | $24,400 | $53,000 | $28,600 |
| $300,000 | $36,600 | $79,500 | $42,900 |
| $400,000 | $48,800 | $106,000 | $57,200 |
| $500,000 | $61,000 | $132,500 | $71,500 |
4. Passive Income and the SBD Grind
Since 2019, aggregate investment income (AII) earned by a CCPC or its associated group above $50,000 reduces the $500,000 SBD business limit. This is the most expensive tax trap for Ontario corporations with investment portfolios.
| Aggregate Investment Income | SBD Business Limit | SBD Reduced By | Additional Annual Tax (Ontario) |
|---|---|---|---|
| $0 to $50,000 | $500,000 | $0 | $0 |
| $60,000 | $450,000 | $50,000 | $7,150 |
| $75,000 | $375,000 | $125,000 | $17,875 |
| $100,000 | $250,000 | $250,000 | $35,750 |
| $125,000 | $125,000 | $375,000 | $53,625 |
| $150,000+ | $0 (eliminated) | $500,000 | $71,500 |
What Counts as Aggregate Investment Income: Interest income, taxable capital gains (50% of capital gains), rental income (if fewer than 6 full-time employees), foreign dividends. What does NOT count: eligible dividends from connected Canadian corporations (these are excluded from AII). This exclusion is why many tax planners recommend Canadian eligible dividend-paying investments inside the corporation rather than interest-bearing or foreign investments.
Strategies to Manage the Passive Income Grind
| Strategy | How It Helps |
|---|---|
| Time capital gain realizations | Sell investments to trigger gains in years where AII stays below $50,000. Defer gains in years where AII would exceed the threshold. |
| Use Canadian eligible dividend-paying equities | Dividends from connected Canadian corporations are excluded from AII. Portfolio dividends from non-connected Canadian corps do count, but may qualify for the dividend refund mechanism. |
| Elect capital dividends from CDA | Paying tax-free capital dividends reduces retained investment balances, which reduces future passive income. |
| Establish a holdco | While the grind applies at the associated group level, the holdco provides creditor protection and estate planning benefits. The holdco does not eliminate the grind but allows better management of investment timing and type. |
| Annual sell-and-rebuy (portfolio rebalancing) | Realize accrued gains in a controlled manner each year rather than letting unrealized gains accumulate. Keeps AII predictable and manageable. Corporate Tax Planning → |
5. Taxable Capital and the SBD Grind
| Taxable Capital Employed in Canada | SBD Business Limit | Impact |
|---|---|---|
| $0 to $10,000,000 | $500,000 (full) | No reduction. Most small businesses are well below this threshold. |
| $10,000,001 to $14,999,999 | Gradually reduced | Reduced by $1 for every $10 of taxable capital above $10 million. Linear reduction over the $5 million range. |
| $15,000,000+ | $0 (eliminated) | No SBD available. All active business income taxed at the general rate (26.5% in Ontario). |
What Is Taxable Capital? Taxable capital includes retained earnings, share capital, surpluses, loans and advances to the corporation, and certain reserves. It is calculated on Schedule 33 and Schedule 34. For most small businesses with fewer than $10 million in total assets, this grind does not apply. It primarily affects larger CCPCs with significant real estate holdings, large investment portfolios or substantial retained earnings accumulated over many years.
6. Associated Corporation Rules
| Association Rule | When Corporations Are Associated |
|---|---|
| Same person controls both | If the same individual (or group of individuals) controls two or more corporations, they are associated. Control means owning more than 50% of the voting shares. |
| Cross-ownership | If Corporation A controls Corporation B, they are associated. If Person X controls Corporation A and Corporation A controls Corporation B, all three entities are in the associated group. |
| Related group control | If a related group (parent-child, siblings, spouses) controls two or more corporations, they may be associated depending on the ownership percentages and the relationship between the individuals. |
| Deemed association | Two corporations that are not directly associated but that have entered into arrangements to avoid association may be deemed associated by CRA under anti-avoidance provisions. |
Impact of Association on the SBD
| Scenario | SBD Allocation |
|---|---|
| 1 corporation (no association) | Full $500,000 SBD. The corporation uses the entire limit. |
| 2 associated corporations | $500,000 shared between both. File Schedule 23 to allocate. Example: $300,000 to Corp A, $200,000 to Corp B. |
| 3 associated corporations | $500,000 shared among all three. Each corporation's allocation filed on Schedule 23. |
| Opco + holdco (common structure) | The opco and holdco are associated (same shareholder controls both). The $500,000 is typically allocated 100% to the opco because the holdco earns investment income (not eligible for SBD). Passive income in the holdco still counts toward the AII grind for the associated group. |
7. Manufacturing and Processing (M&P) Rate
| M&P Component | Rate / Rule |
|---|---|
| Federal M&P rate | 15.0% (same as general rate). The federal M&P deduction no longer provides a rate below the general rate federally. |
| Ontario M&P rate | 10.0% (vs. 11.5% general). Ontario is one of the few provinces that still provides a lower M&P rate. The 1.5% provincial savings applies to M&P income above the SBD limit. |
| Combined M&P rate (Ontario) | 25.0% (15.0% federal + 10.0% Ontario). Compared to 26.5% general rate. Savings of 1.5% on qualifying M&P income above $500,000. |
| What qualifies | Income from manufacturing or processing goods for sale or lease in Canada. Calculated on Schedule 27 using either the labour cost or capital cost formula. Excludes farming, fishing, logging, construction and resource extraction. |
| SBD interaction | M&P income within the $500,000 SBD limit is taxed at 12.2% (the SBD rate is lower than the M&P rate). The M&P rate only provides a benefit on income ABOVE $500,000 where it reduces the rate from 26.5% to 25.0%. |
Example: An Ontario manufacturer with $800,000 in active business income where $600,000 qualifies as M&P: first $500,000 at SBD 12.2% = $61,000. Next $100,000 of M&P income at 25.0% = $25,000. Remaining $200,000 of non-M&P income at 26.5% = $53,000. Total: $139,000. Without M&P rate: $139,000 + $1,500 = $140,500. M&P savings: $1,500. The M&P rate matters most for manufacturers with income significantly above $500,000.
8. Investment Income Tax Treatment
| Investment Income Type | Corporate Tax Rate (Ontario) | RDTOH Generated | Net After-Refund Rate |
|---|---|---|---|
| Interest income | 50.17% | 30.67% of interest income added to RDTOH | 50.17% initially. When dividends paid: RDTOH refund reduces effective rate. Integrated with personal tax via dividend gross-up and credit. |
| Taxable capital gains (50% inclusion) | 50.17% on the taxable half (effective 25.09% on the full gain) | 30.67% of taxable capital gain added to RDTOH | Non-taxable 50% added to CDA (available for tax-free capital dividend). Taxable 50% subject to 50.17% with RDTOH refund on dividend payout. |
| Foreign dividends | 50.17% | 30.67% added to RDTOH (net of foreign tax credit) | Foreign tax credit offsets part of the Canadian tax. RDTOH refund on dividend payout. File T2209 for foreign tax credit. |
| Canadian eligible dividends (from non-connected corps) | 38.33% (Part IV tax) | 38.33% added to Eligible RDTOH (fully refundable) | Effective 0% after refund. The 38.33% Part IV tax is fully refundable when taxable dividends are paid. Integration is nearly perfect. |
| Canadian eligible dividends (from connected corps) | 0% (s.112 deduction) | Proportional refund from connected corp's RDTOH flows through | 0% tax. Received tax-free. This is how opco-to-holdco dividends work. Not included in AII (no passive income grind). |
9. RDTOH: Refundable Dividend Tax on Hand
| RDTOH Component | Details |
|---|---|
| Eligible RDTOH | Accumulates from: Part IV tax on eligible dividends received from non-connected Canadian corporations (38.33%). Refundable when the corporation pays eligible dividends to shareholders. |
| Non-Eligible RDTOH | Accumulates from: refundable portion of Part I tax on investment income (30.67% of aggregate investment income). Refundable when the corporation pays non-eligible dividends to shareholders. |
| Refund rate | $38.33 for every $100 of taxable dividends paid. The refund is triggered by the dividend payment and claimed on the T2. |
| Ordering rule | Non-Eligible RDTOH is refunded first when non-eligible dividends are paid. Eligible RDTOH is refunded only when eligible dividends are paid. The ordering prevents corporations from paying non-eligible dividends to recover Eligible RDTOH. |
| Tracking requirement | RDTOH must be tracked on Schedule 3 (Eligible RDTOH and Non-Eligible RDTOH balances). Failure to track results in missed refunds. We track both RDTOH balances on every corporate tax return. Corporate Tax Filing → |
RDTOH Example: An Ontario CCPC earns $100,000 in interest income. Corporate tax: $50,170 (50.17%). Non-Eligible RDTOH generated: $30,670. The corporation retains $49,830 after tax ($100,000 - $50,170). When the corporation pays $80,000 in non-eligible dividends: RDTOH refund = $80,000 x 38.33% = $30,664. The corporation receives a $30,664 refund from CRA. Net tax on the $100,000 of interest income after RDTOH refund: $19,506 (effective 19.5%). The remaining tax is integrated with the shareholder's personal tax on the dividend received.
10. Dividend Tax Integration: How Corporate + Personal Tax Works Together
| Dividend Type | Gross-Up | Federal DTC | Ontario DTC | Total Personal Tax Rate (top bracket) |
|---|---|---|---|---|
| Eligible dividend (from income taxed at general rate) | 38% | 15.02% of grossed-up amount | 10% of grossed-up amount | 39.34% |
| Non-eligible dividend (from income taxed at SBD rate) | 15% | 9.03% of grossed-up amount | 2.99% of grossed-up amount | 47.74% |
Total Combined Tax: Corporate + Personal (Ontario, Top Bracket)
| Income Path | Corporate Tax | After-Tax Retained | Personal Tax on Dividend | Total Combined Tax |
|---|---|---|---|---|
| $100 active income at SBD (12.2%) paid as non-eligible dividend | $12.20 | $87.80 | $41.91 | $54.11 (54.1%) |
| $100 active income at general (26.5%) paid as eligible dividend | $26.50 | $73.50 | $28.92 | $55.42 (55.4%) |
| $100 earned personally as salary (top bracket) | N/A | N/A | N/A | $53.53 (53.53%) |
Integration Is Not Deferral: The combined corporate + personal tax on SBD income paid as a non-eligible dividend (54.1%) is slightly higher than the personal tax rate on salary (53.53%). This means there is no permanent tax savings from incorporating if you immediately withdraw all corporate income as dividends. The value of the SBD is in the tax DEFERRAL: the 12.2% corporate tax is paid now, and the personal tax on the dividend is deferred until the money is actually withdrawn. The retained $87.80 (per $100) stays in the corporation growing tax-deferred until you need it. This deferral is worth $38,000/year at $200,000 income and $135,900/year at $500,000.
11. Corporate vs. Personal Tax Comparison (Ontario 2026)
| Net Income | Personal Tax (Sole Prop) | Corporate Tax (12.2%) | Tax Deferred Inside Corporation | Annual Deferral Value |
|---|---|---|---|---|
| $60,000 | $11,800 | $7,320 | $52,680 retained in corp | $4,480 |
| $100,000 | $24,400 | $12,200 | $87,800 retained in corp | $12,200 |
| $150,000 | $42,300 | $18,300 | $131,700 retained in corp | $24,000 |
| $200,000 | $62,400 | $24,400 | $175,600 retained in corp | $38,000 |
| $300,000 | $104,600 | $36,600 | $263,400 retained in corp | $68,000 |
| $500,000 | $196,900 | $61,000 | $439,000 retained in corp | $135,900 |
12. Key Thresholds and Dollar Amounts (2026)
| Threshold | Amount | What Happens |
|---|---|---|
| SBD business limit | $500,000 | First $500K of active business income taxed at 12.2%. Above $500K: 26.5% (or 25% M&P). |
| Passive income grind starts | $50,000 AII | SBD reduced by $5 for every $1 above $50,000. |
| Passive income grind eliminates SBD | $150,000 AII | Entire $500,000 SBD eliminated. All active income at 26.5%. |
| Taxable capital grind starts | $10,000,000 | SBD business limit reduced for taxable capital above $10M. |
| Taxable capital grind eliminates SBD | $15,000,000 | Entire SBD eliminated. |
| HST registration threshold | $30,000 revenue | Must register for HST within 29 days of exceeding. |
| LCGE (2026, indexed) | $1,281,866 | Capital gains sheltered per shareholder on QSBC share sale. |
| Class 10.1 vehicle cap | $37,000 | CCA on passenger vehicles calculated on max $37,000. |
| Immediate Expensing limit | $1,500,000 | CCPCs can fully deduct up to $1.5M in eligible property in year of acquisition. |
| CPP first ceiling (2026) | $71,300 | CPP at 5.95% employee + 5.95% employer up to this ceiling. |
| CPP second ceiling (2026) | $81,200 | CPP2 at 4.00% on earnings between $71,300 and $81,200. |
| EI max insurable earnings | $65,700 | EI at 1.64% employee / 2.30% employer up to this amount. |
| RRSP contribution limit (2026) | $32,490 | 18% of prior year earned income to this maximum. |
| TFSA contribution limit (2026) | $7,000 | Annual TFSA room (cumulative if unused). |
Frequently Asked Questions: Ontario Corporate Tax Rates
What is the Ontario small business tax rate for 2026?
12.2% combined (9.0% federal + 3.2% Ontario) on the first $500,000 of active business income for CCPCs. This is the lowest corporate tax rate available in Ontario. Corporate Tax Filing →
What is the general corporate tax rate in Ontario for 2026?
26.5% combined (15.0% federal + 11.5% Ontario) on active business income above the $500,000 SBD limit. This rate applies to CCPCs on income above $500,000 and to all income for non-CCPC corporations.
What is the tax rate on investment income inside an Ontario corporation?
50.17% combined (38.67% federal + 11.5% Ontario). A portion (30.67%) is refundable through RDTOH when taxable dividends are paid to shareholders. The effective rate after the RDTOH refund is approximately 19.5%, with the remaining tax integrated through the shareholder's personal dividend tax.
What is the M&P rate in Ontario?
25.0% combined (15.0% federal + 10.0% Ontario) on qualifying manufacturing and processing income above the SBD limit. Ontario is one of the few provinces with a reduced provincial M&P rate. The savings is 1.5% compared to the 26.5% general rate. M&P income within the SBD limit is taxed at 12.2% (SBD rate is lower).
How does passive income affect my SBD?
Aggregate investment income (interest, foreign dividends, taxable capital gains) above $50,000 reduces the SBD business limit by $5 for every $1. At $150,000 in passive income, the entire SBD is eliminated, costing up to $71,500/year in additional tax on active business income. Corporate Tax Planning →
What is RDTOH?
Refundable Dividend Tax on Hand is a notional account tracking refundable corporate tax on investment income. When the corporation pays taxable dividends, $38.33 is refunded for every $100 in dividends paid. Eligible RDTOH is refunded when eligible dividends are paid. Non-Eligible RDTOH is refunded when non-eligible dividends are paid.
What is the difference between eligible and non-eligible dividends?
Eligible dividends are paid from income taxed at the general corporate rate (26.5%). They receive a higher gross-up (38%) and higher dividend tax credit, resulting in lower personal tax (39.34% at top bracket). Non-eligible dividends are paid from SBD income (12.2%). Lower gross-up (15%) and lower credit, resulting in higher personal tax (47.74% at top bracket).
Do associated corporations share the SBD?
Yes. Associated corporations must share the $500,000 SBD business limit. Two corporations controlled by the same person share one $500,000 limit allocated via Schedule 23. You cannot create multiple corporations to multiply the SBD. Passive income and taxable capital grinds also apply at the associated group level.
Is the SBD benefit a permanent tax savings or a deferral?
Primarily a deferral. The combined corporate tax (12.2%) plus personal dividend tax (47.74% on non-eligible dividend from SBD income) totals approximately 54.1%, slightly above the top personal rate of 53.53%. The value is in the deferral: the corporation pays only 12.2% now and retains 87.8 cents of every dollar for reinvestment. The personal tax is deferred until the money is withdrawn as a dividend.
How much does corporate tax filing cost?
T2 corporate tax return from $400. T2 filed FREE for all bookkeeping clients ($100/month). CRA audit support FREE for every client. Fixed flat fees. No hourly billing. Know Your Exact Fee →
Need Help with Ontario Corporate Tax?
Corporate tax filing, tax planning, salary-dividend optimization, holdco structuring. Fixed flat fees. CRA audit support FREE.
Book Free Consultation