Annex: Details of Tax Measures and Other Legislative Initiatives

Overview

This Annex contains detailed information on certain tax measures and other legislative initiatives proposed in the 2026 Budget.

Lowering Taxes for Small Businesses

Ontario’s general corporate income tax (CIT) rate is 11.5 per cent. Up to $500,000 of active business income earned by small Canadian-controlled private corporations (CCPCs), and associated groups of CCPCs, is eligible for a reduced small business CIT rate of 3.2 per cent. The small business limit of $500,000 of active business income begins to phase out when a CCPC, or an associated group of CCPCs, has over $10 million of taxable capital employed in Canada and phases out completely at $50 million.

To continue supporting small businesses in the province, the government is proposing to cut the Ontario small business CIT rate from 3.2 per cent to 2.2 per cent, effective July 1, 2026. The tax rate reduction would be prorated for taxation years straddling July 1, 2026.

As dividends are paid out of after‐tax corporate earnings, individual shareholders are eligible for personal income tax relief through the federal and Ontario dividend tax credits, the rate of which approximates the CIT rate paid by the corporation. To align with the reduction in Ontario’s small business CIT rate, Ontario’s small business (non‐eligible) dividend tax credit rate would be reduced from 2.9863 per cent to 1.9863 per cent, effective January 1, 2027.

Enhancing Harmonized Sales Tax Relief on New Homes

The government is taking steps to temporarily enhance the existing Ontario Harmonized Sales Tax (HST) New Housing Rebate and New Residential Rental Property Rebate to fully remove the 8 per cent provincial portion of the HST paid for qualifying new homes valued up to $1 million.

Currently, the two provincial housing rebates provide a 75 per cent rebate of the provincial portion of the HST, up to a maximum rebate of $24,000 on purchases of a qualifying new or substantially renovated home. These rebates are not limited to individuals who would qualify for the proposed provincial rebate for first-time home buyers. 

The province will work with the federal government to propose that Ontario’s enhanced rebates be available from April 1, 2026 to March 31, 2027. For example, purchasers who acquire the home as their primary place of residence could be eligible if they enter into an agreement of purchase and sale with a builder on or after April 1, 2026 and on or before March 31, 2027. For these purchasers, construction of the home must begin on or before December 31, 2028 and the home must be substantially completed on or before December 31, 2031.

The maximum rebate amount after the enhancement would be $80,000 for a new home valued at or under $1 million, with that amount being maintained for new homes valued up to $1.5 million. The maximum amount of the rebate would follow a linear reduction for higher-valued homes. For new homes valued at or above $1.85 million, a rebate of $24,000 would continue to be available as under the current rules.

The new home must be used as a primary place of residence to qualify for the New Housing Rebate or as a residential rental property for the New Residential Rental Property Rebate. Eligible individuals who would qualify for the proposed rebate for first-time home buyers, and who make a purchase during this enhancement period, would be able to receive the same rebate amount as under this proposed enhancement. 

Changes to Ontario’s existing rebates require federal regulatory changes. The Ontario government will work closely with the federal government to ensure timely implementation of the enhancement.

Eliminating the Harmonized Sales Tax New Housing Rebate and New Residential Rental Property Rebate

Eligibility for the provincial HST New Housing Rebate and New Residential Rental Property Rebate is proposed to end after the end of the proposed enhancement period for those same rebates. Further details on transitional provisions detailing the elimination of the rebates will be provided in the 2026 Ontario Economic Outlook and Fiscal Review.

Eligibility for Ontario’s proposed HST rebate for first-time home buyers and the Ontario HST Purpose-Built Rental Housing Rebate would not be affected and would continue to follow the criteria set by the federal government for eligible properties.

Expanding Harmonized Sales Tax Relief for First-Time Home Buyers on New Homes

After the federal Goods and Services Tax/Harmonized Sales Tax (GST/HST) First-Time Home Buyers’ Rebate was announced, the federal government amended its draft legislation to have the rebate take effect earlier, on March 20, 2025.

Federal regulations are required to bring the provincial rebate into force. Ontario will continue working with the federal government to align the Ontario rebate’s effective period with the federal rebate. This would mean both the Ontario and federal rebate would be available if the agreement of purchase and sale for the home is entered into with the builder on or after March 20, 2025, and before 2031.

All other rebate parameters, as announced by Ontario on October 28, 2025, would remain unchanged.

Ontario Trillium Benefit Lump-Sum Payment Threshold

The Ontario Trillium Benefit (OTB) is a tax-free payment that helps low- to moderate-income Ontario residents pay for energy costs as well as sales and property taxes. The OTB combines the following three credits:

• Northern Ontario Energy Credit;
• Ontario Energy and Property Tax Credit; and
• Ontario Sales Tax Credit.

The OTB is paid either monthly or as a single lump sum, depending on certain factors, including the amount payable for the benefit year.

When the amount of the OTB payable for the benefit year is no more than a certain threshold, the benefit is paid as a single lump-sum payment at the beginning of the benefit year (instead of as a series of monthly payments throughout the benefit year). Since the 2013–14 benefit year, the threshold value has been $360.

The government is proposing to increase this threshold from $360 to $500, starting with the 2026–27 benefit year (July 1, 2026 to June 30, 2027), which would result in more OTB recipients receiving their full benefit upfront. This change would not impact the total benefit amount received.

As a result of this proposed change, starting July 2026:

• Individuals who are to receive OTB of $500 or less for the benefit year would receive one lump‑sum payment in the first month of the benefit year; and
• Individuals who are to receive OTB of more than $500 for the benefit year would continue to receive monthly payments starting the first month of the benefit year (unless they chose on their personal income tax return to receive a single lump-sum payment at the end of the benefit year).

Simplifying and Reducing Alcohol Taxes

The government is proposing to consolidate legacy taxes into simplified single rates to reduce complexity and provide further tax cuts on sales of beer, wine and spirits products sold in producer stores.

The government is proposing to combine the basic, volumetric and environmental beer taxes into a single tax rate of $1.18 per litre for non-draft and $0.90 per litre for draft beer made by a beer manufacturer, and $0.46 per litre for non-draft and $0.36 per litre for draft beer made by a microbrewer. The Small Beer Manufacturers’ Tax Credit (SBMTC) would also be adjusted to account for proposed beer tax rate changes. This would increase the maximum benefit for eligible small beer manufacturers and maintain the phase-out at 2 million litres of annual sales.

To simplify wine taxes that apply on wine products sold in on-site and off-site winery retail stores, the government is proposing to combine the basic, volumetric and environmental wine taxes into a single rate. A single rate of 0 per cent will apply on Ontario wines and wine coolers and 19.1 per cent will apply on non-Ontario wines and wine coolers in on-site winery retail stores. A single rate of 12 per cent will apply on owner wines and wine coolers sold in off-site winery retail stores.

To align the treatment of spirits sold in on-site distillery stores with the respective products sold in other channels, the spirits and spirits coolers categories would be replaced with three categories distinguished by alcohol by volume (ABV): (1) 7.1 per cent or below; (2) greater than 7.1 per cent to 18 per cent; and (3) greater than 18 per cent. The government is proposing to combine the basic, volumetric and environmental spirit taxes into a single rate of 20 per cent on the first category, 25 per cent on the second category and 30.75 per cent rate on the third category.

The government is proposing changes to beer, wine and spirits tax rates effective April 1, 2026, to align with the implementation of the new LCBO wholesale mark-up pricing structure. To allow time to update tax administration systems and educate beer, wine and spirits tax filers, the government will defer the requirement for tax filing and reporting from April to July 2026. No interest or penalties will be charged as long as the April to July returns are filed by the July return due date of August 20, 2026.

Regional Opportunities Investment Tax Credit

Since 2020, the Regional Opportunities Investment Tax Credit (ROITC) has met its objective of supporting business investment in regions of the province that were lagging in employment growth compared to the provincial average between 2009 and 2019. Furthermore, employment has grown in regions eligible for the ROITC since the parameters for the credit were set. Given these developments, and to focus tax support more broadly through measures like the proposed small business CIT rate cut and accelerated writeoffs, the government is proposing that the ROITC expire, effective January 1, 2027. To ensure an appropriate transition period, expenditures incurred on or before December 31, 2026 would continue to be eligible for the credit.

Providing Insurance Premium Tax Flexibility for Benefit Plans

Under the Corporations Tax Act, Ontario applies the Insurance Premium Tax (CT-IP) to insurance policies and benefit plans based on how the plan is funded. Under the Act, a benefit plan is considered a funded benefit plan if the contributions paid into it exceed the amounts required for the payment of benefits foreseeable and payable within 30 days. Any other benefit plan is considered an unfunded benefit plan.

For a funded benefit plan, CT-IP is imposed on taxable contributions at the time they are paid into the plan, resulting in an upfront tax liability. For an unfunded benefit plan, contributions paid into the plan are not subject to CT-IP and liability arises only as benefits are paid out. In both cases, the tax is collected by the plan administrator or trustee, and administration fees related to the plan are also subject to CT-IP.

The government is proposing amendments to the Corporations Tax Act that would enable all funded benefit plans to elect to be treated as unfunded benefit plans, effective April 1, 2026. This amendment would allow planholders of the benefit plans to make an election that would trigger a CT-IP liability once benefits are paid out of the plan, instead of when contributions are paid into the plan.

Summary of Measures

Technical Amendments

Amendments are being proposed to various statutes administered by the Ontario Minister of Finance, and other statutes, to improve administrative effectiveness or enforcement, maintain the integrity and equity of Ontario’s tax and revenue collections system, or enhance legislative clarity or regulatory flexibility to preserve policy intent.

Proposed legislative amendments include:

• Amendments to the Taxation Act, 2007 to:
  • Clarify the calculation of the Ontario Computer Animation & Special Effects Tax Credit with respect to the minimum labour expenditure threshold;
  • Align Ontario’s income tax administration with federal income tax administration by adopting the federal government’s provisions regarding proof of sending certain items by mail, personal service and electronic delivery; and
  • Adopt the federal government’s provision regarding when certain periods of time are not to be counted when computing the period of time that an assessment may be made of a taxpayer.
• Amendments to the Land Transfer Tax Act so that First Nation individuals who are registered under the federal Indian Act are excluded from the application of the Non-Resident Speculation Tax (NRST).
• Amendments to the Pension Benefits Act to clarify the application of the conversion framework from a single employer pension plan to a jointly sponsored pension plan that were introduced last fall.

Other Legislative Initiatives

Additional proposed legislative initiatives include:

• Amendments to the Financial Administration Act to repeal section 28 and replace it with a modernized directives-based approach to the oversight and management of contingent liabilities.
• Amendments to the Fiscal Sustainability, Transparency and Accountability Act, 2019 updating the debt burden reduction strategy.
• Amendments to the Workplace Safety and Insurance Act, 1997 to require the Minister of Labour, Immigration, Training and Skills Development to establish and maintain an advisory committee to make recommendations for appointments to the Workplace Safety and Insurance Board (WSIB) Board of Directors to the Minister. The Lieutenant Governor in Council would be required to make 50 per cent plus one of the member appointments (excluding Chair and Chief Executive Officer) to the WSIB Board of Directors from the recommended individuals.
• A proposed new Act to repeal the SkyDome Act (Bus Parking), 2002 and remove bus parking requirements from 305 Bremner Boulevard, a government-owned property in downtown Toronto, and to enable regulations to address other development restrictions.