If you run an incorporated business in Ontario, two numbers define your corporate tax obligation before any deductions or credits enter the picture. Understanding which rate applies to your corporation, and why that number can shift from one year to the next, is the foundation of sound corporate tax planning.
Ontario's Two Corporate Tax Rates
Ontario operates two corporate income tax rates depending on the type of corporation and the nature of the income being earned.
The general Ontario corporate income tax rate is 11.5%. This applies to active business income earned by corporations that do not qualify for the small business deduction, and to all income above the small business limit for those that do. Combined with the federal general corporate rate of 15%, corporations paying the general rate face a combined federal and provincial rate of 26.5%.
The small business rate is significantly lower. Canadian-Controlled Private Corporations earning active business income up to the $500,000 small business limit pay a provincial rate of 3.2%, combined with the federal small business rate of 9%, for a combined rate of 12.2%.
The July 2026 Rate Cut Worth Knowing
The Ontario Budget 2026 announced a reduction to the provincial small business corporate income tax rate, dropping it from 3.2% to 2.2% effective July 1, 2026. For eligible CCPCs, this brings the combined small business rate down from 12.2% to 11.2%, saving qualifying businesses up to $5,000 per year.
This rate cut applies to Ontario’s provincial portion only. The federal small business rate of 9% remains unchanged. For corporations with fiscal years straddling July 1, 2026, a blended rate will apply across the two portions of the year.
If your corporate tax projections were built around the 12.2% rate, this is worth revisiting. The savings compound year over year for businesses consistently earning near the $500,000 threshold.
Who Qualifies for the Small Business Rate
Access to the small business rate depends on maintaining Canadian-Controlled Private Corporation status and keeping active business income within the $500,000 small business limit.
A CCPC is broadly a private corporation not controlled by public companies or non-residents. Most owner-operated incorporated businesses in Ontario qualify by default, but CCPC status is worth confirming when shareholder structures change or non-resident investors become involved.
The $500,000 limit applies to your corporation and any associated corporations combined. If you own multiple incorporated entities, their active business income is pooled for the purposes of this threshold, not calculated separately.
When Your Small Business Rate Can Change
Two situations can reduce or eliminate access to the small business deduction even for corporations that otherwise qualify as CCPCs.
The first is taxable capital. Ontario phases out the small business deduction when a CCPC’s taxable capital employed in Canada exceeds $10 million, eliminating it entirely at $50 million. This primarily affects corporations that have grown significantly or hold substantial retained earnings in investment assets.
The second is passive income. At the federal level, the small business limit is reduced by $5 for every $1 of adjusted aggregate investment income above $50,000, and eliminated entirely when passive income reaches $150,000. Ontario does not apply this passive income restriction to the provincial business limit, meaning the provincial rate reduction remains available even if the federal small business deduction has been partially reduced.
However, since the federal portion represents the larger share of your combined rate, passive income management still matters significantly for overall tax planning.
How Ontario Compares to Other Provinces
Ontario’s general corporate rate of 11.5% sits in the middle of the provincial range. Alberta leads with the lowest general rate at 8%, giving Alberta corporations a combined rate of 23%. As we covered in our Alberta corporate tax rate post, Alberta’s competitiveness extends beyond the rate itself to the absence of a provincial sales tax and payroll tax. New Brunswick’s general rate of 14% produces a combined rate of 29% at the high end.
For small business income specifically, Ontario’s current combined rate of 12.2% is competitive but not the lowest in Canada. British Columbia and Alberta both come in at 11% for CCPCs on the first $500,000 of active income. After July 1, 2026, Ontario’s rate of 11.2% closes that gap considerably.
Ontario also offers a reduced provincial rate of 10% rather than 11.5% for income from manufacturing and processing activities, producing a combined rate of 25% for qualifying corporations in that sector.
What These Rates Mean for Corporate Tax Planning
The gap between Ontario’s small business rate of 12.2% and the general rate of 26.5% is large enough that maintaining eligibility for the small business deduction is a meaningful planning priority. The difference on $500,000 of active income is roughly $72,000 in combined federal and provincial tax.
Beyond the rate itself, how you draw income from your corporation, whether through salary, dividends, or retained earnings held inside the company, directly interacts with your corporate tax rate and your personal marginal rate. The right structure depends on your overall income picture, your retirement planning goals, and how aggressively you intend to reinvest earnings inside the corporation.
Our corporate accounting services work with Ontario business owners on T2 corporate filings, annual tax planning, and structuring decisions that take full advantage of Ontario’s small business rate.
If you have questions about how these rates apply to your specific situation or want to make sure your corporation is set up correctly heading into the new rate environment, we work with incorporated businesses across the province through our Ontario tax services.