Ontario 2026 Budget: Key Tax Highlights 

The Ontario 2026 Budget includes tax relief for small businesses, changes to dividend taxation, the phase-out of a regional investment tax credit, and a temporary enhancement to Ontario’s HST new housing rebates. 

1. Ontario Small Business Tax Rate Reduced 

Ontario will reduce its small business corporate income tax rate from 3.2% to 2.2% effective July 1, 2026. 

The reduced rate continues to apply to the first $500,000 of active business income earned by a qualifying Canadian-controlled private corporation (CCPC). 

What this means: 

• The combined federal and Ontario small business tax rate will decrease from approximately 12.2% to 11.2%. 
• Qualifying corporations will retain more after-tax cash to reinvest in their business. 
• The reduced rate will be prorated for taxation years that include July 1, 2026. 

For many owner-managed businesses, this is one of the most significant tax measures in the budget. 

2. Higher Personal Tax on Non-Eligible Dividends 

To offset the small business tax reduction, Ontario will reduce the provincial non-eligible dividend tax credit effective January 1, 2027. 

What this means: 

• Personal tax on non-eligible dividends will increase. 
• The top combined federal and Ontario tax rate on non-eligible dividends is expected to increase from 47.74% to 48.89%. 

In practical terms: 

• Corporate tax on small business income is decreasing. 
• Personal tax on dividends paid from that income is increasing. 

While the increase in personal tax is relatively modest, business owners who regularly withdraw profits by dividend should be aware of the change. 

3. Regional Opportunities Investment Tax Credit Ending 

Ontario’s Regional Opportunities Investment Tax Credit (ROITC) is proposed to end effective January 1, 2027. 

What this means: 

• Eligible expenditures incurred on or before December 31, 2026 will continue to qualify. 
• Businesses planning investments in eligible regions should consider whether expenditures can be incurred before the deadline. 

If your business was considering a project that may qualify for the credit, timing may be important. 

4. Enhanced Ontario HST New Housing Rebates 

Ontario has announced a temporary enhancement to its HST new housing rebate programs, with the federal government agreeing to provide matching relief. Together, the measures can provide up to $130,000 of HST savings on qualifying new homes and residential rental properties 

Key features: 

• Available for qualifying purchase agreements entered into between April 1, 2026 and March 31, 2027. 
• Provides up to $130,000 of combined federal and Ontario HST relief. 
• Full relief is available for homes valued up to $1.5 million. 
• For homes valued between $1.5 million and $1.85 million, the rebate is gradually reduced. 
• Homes valued at $1.85 million or more generally continue to qualify only for the existing rebate of up to $24,000. 
• For owner-occupied homes, the purchaser must acquire the home as a primary place of residence. 
• Construction must generally begin on or before December 31, 2028, and the home must be substantially completed on or before December 31, 2031. 

What this means: 

The proposal could significantly reduce the cost of purchasing a qualifying newly built home or constructing qualifying residential rental property. 

The new rebate rules are not yet in force and require supporting federal regulatory changes before they can be implemented. 

What Should Business Owners Take Away? 

The Ontario 2026 Budget focuses on broad-based support for small businesses and housing. 

Key items to consider are: 

• Lower Ontario corporate tax rates for qualifying small businesses beginning July 1, 2026. 
• Higher personal tax on non-eligible dividends beginning January 1, 2027. 
• ROITC expenditures should generally be incurred by December 31, 2026 to remain eligible. 
• Homebuyers and developers may benefit from a temporary enhancement to Ontario’s HST new housing rebates. 

CRA Activity Continues to Increase: More Audits and Longer Delays 

The Canada Revenue Agency (CRA) continues to increase its compliance and enforcement activities. Recent government data shows a significant increase in the number of taxpayer disputes, with notices of objection rising from approximately 68,000 annually before the pandemic to approximately 128,000 in the 2024–25 fiscal year. CRA has acknowledged that objection volumes have grown faster than its ability to process them, resulting in longer response times and delays in resolving disputes.  

At the same time, audit activity has also increased. According to publicly reported CRA statistics, approximately 69,000 audits were conducted in 2024, increasing to approximately 84,000 in 2025, with further increases expected. As audit activity grows, more taxpayers are receiving requests for information, review letters, verification requests and reassessments. These reviews can involve extensive documentation requirements and often take many months to conclude. 

The increased workload is affecting processing times across the system. In addition to audits, many taxpayers and advisors are experiencing delays in having adjustment requests, reassessments, objections and other CRA reviews completed. Current CRA service standards indicate that more complex objections can take well over a year to resolve, with certain high-complexity matters taking substantially longer. 

Taxpayers should expect increased scrutiny and should ensure that supporting documentation is retained for all significant tax positions, deductions and credits claimed. It is also important to respond promptly to CRA requests and to seek professional advice where an audit or reassessment is received. 

While increased CRA activity can be frustrating, taxpayers should remember that a reassessment is not necessarily the final word. A significant percentage of objections are resolved either fully or partially in favour of taxpayers, making it important to carefully review CRA assessments and preserve any available appeal rights. 

Our recommendation: maintain complete records, respond promptly to CRA enquiries and obtain professional advice early when a review, audit or reassessment arises. Early involvement often helps resolve issues more efficiently and protects the taxpayer’s rights. 

Important Tax Update: Bare Trust Reporting Returns for 2026 

After several years of administrative relief, bare trust reporting is expected to return to certain arrangements for taxation years ending on or after December 31, 2026. 

Bare trusts are not required to file for the 2025 taxation year. However, for a bare trust with a December 31, 2026 year-end, a T3 Trust Income Tax and Information Return may be required, generally due 90 days after year-end (March 31, 2027), together with Schedule 15 reporting beneficial ownership information, unless an exception applies. 

Because penalties for non-compliance can be significant, it is important to identify any bare trust arrangements well before the filing deadline. 

What is a Bare Trust? 

A bare trust exists when the legal owner of an asset is different from the beneficial owner. 

In these situations, the legal owner holds title to the property but acts solely on behalf of the beneficial owner, who retains the economic benefits and decision-making authority. 

Many bare trust arrangements are created informally for convenience, financing, or estate planning purposes, often without realizing a trust relationship exists. 

Common Situations That May Require Filing 

Examples include: 

• A corporation holding legal title to property on behalf of individuals, investors, or a partnership. 
• Certain “In Trust For” (ITF) bank or investment accounts established for children or grandchildren. 
• Real estate owned by one family member but registered in the name of another. 
• A parent adding an adult child to the title of a cottage or investment property for probate planning purposes, while remaining the true owner. 

Whether these arrangements constitute a bare trust depends on the legal and factual circumstances of each case. 

Key Exemptions 

Not every bare trust will be required to file. Potential exceptions include: 

• Trusts that have existed for less than three months. 
• Trusts whose assets do not exceed $50,000 in fair market value throughout the year. 
• Certain qualifying family trusts whose assets do not exceed $250,000 in fair market value throughout the year, where all trustees and beneficiaries meet specific related-party requirements and the trust holds only prescribed assets such as cash, deposits, GICs, publicly traded securities, mutual funds, certain personal-use property, and certain exempt policies. 
• Certain arrangements involving principal residences and related persons. 
• Certain arrangements where all beneficiaries are also all legal owners. 

Whether an exemption applies will depend on the specific facts and circumstances of each arrangement. 

Penalties for Non-Compliance 

If a filing is required and not made on time, penalties may apply, including: 

• a late-filing penalty of $25 per day, with a minimum of $100 and a maximum of $2,500; and 
• where the failure is made knowingly or in circumstances amounting to gross negligence, an additional penalty equal to the greater of $2,500 and 5% of the highest fair market value of the trust property during the year. 

Information Required 

Where a filing is required, Schedule 15 generally requires disclosure of information for all trustees, beneficiaries, and settlors, including: 

• Name 
• Address 
• Date of birth (for individuals) 
• Jurisdiction of residence 
• Tax identification number (e.g., SIN or Business Number) 

How We Can Help 

We encourage you to review your personal and corporate assets for any arrangement where: 

• Your name appears on an asset for the benefit of someone else; or 
• Someone else’s name appears on an asset that you beneficially own. 

Identifying these arrangements before the end of 2026 will allow sufficient time to determine whether a filing obligation exists and whether any corrective steps should be considered. 

In the coming months, we expect to review certain arrangements previously brought to our attention that may be affected by these rules. However, clients should not assume that we are aware of all potentially reportable arrangements. If you have any arrangement where legal ownership differs from beneficial ownership, we encourage you to contact us so that we can evaluate whether a filing obligation exists. 

If you believe you may be involved in a bare trust arrangement, please contact our office. We can review your circumstances, determine whether an exemption applies, and assist with any required filings.