With the announcement of the Ontario Small Business Tax Cut for 2026, there’s a window opening on July 1, 2026, and a window closing on January 1, 2027. If you own a Canadian-controlled private corporation (CCPC) in Ontario and haven’t started thinking about how to sequence your compensation this year, now is the time.

Summary: Ontario is cutting its small business corporate income tax rate by a full percentage point, effective mid-year. That’s good news for your corporation. But as a direct trade-off, the non-eligible dividend tax credit will be reduced starting in 2027, meaning dividends you pull out of your company next year will cost you slightly more personally than dividends you pull out this year.

That asymmetry is the planning opportunity. Let’s walk through what’s actually happening, why it matters, and what you should consider doing between now and December 31, 2026.

What’s Actually Changing: The Numbers

On March 26, 2026, Ontario’s Minister of Finance Peter Bethlenfalvy presented the 2026 provincial budget. Two connected changes were announced.

Change 1 – Corporate: The rate cut

Ontario is reducing its CCPC small business corporate income tax rate from 3.2% to 2.2%, effective July 1, 2026. This applies to the first $500,000 of annual active business income for eligible CCPCs. Taxable capital phase-out rules still apply.

Because the change takes effect mid-year, corporations with a December 31 fiscal year-end will have a blended rate for 2026, 3.2% for the first half of the year and 2.2% for the second half, working out to roughly 2.7% on average for the full year.

Combined with the 9% federal small business rate, this brings the total federal-plus-Ontario corporate tax on eligible income down from 12.2% to 11.2%.

For a CCPC earning the full $500,000 annually, that’s a tax saving of up to $5,000 per year in Ontario corporate tax, real money to reinvest, compensate owners, or build retained earnings.

Change 2 – Personal: The dividend credit reduction

Here’s the counterweight. Ontario’s non-eligible dividend tax credit rate will decrease from 2.9863% to 1.9863% of the grossed-up dividend amount, effective January 1, 2027.

The result? The top combined federal-plus-Ontario personal tax rate on non-eligible dividends rises from 47.74% in 2026 to 48.89% in 2027, an increase of about 1.15 percentage points at the top marginal rate.

This is not surprising; this is an intentional realignment to maintain “tax integration,” the principle that earning income through a corporation and paying it out personally should produce roughly the same tax result as earning it directly as an individual. Lower corporate tax in → lower personal credit on the way out.

What Is Tax Integration And Why You Should Care

Before we get into the strategy, it helps to understand the framework in which everything sits.

Canada structures its tax system to equalize taxes. Ideally, a corporate dollar paid as a non-eligible dividend incurs the same total tax as a dollar an individual earns directly. Accountants call this concept integration. While imperfect in practice, this principle governs how policymakers calibrate corporate and personal tax rates together.

When Ontario cuts the corporate rate, it simultaneously reduces the personal dividend tax credit to stay in balance. The net effect is supposed to be roughly neutral over the full earn-retain-distribute cycle.

So, where is the actual planning opportunity?

Timing. The corporate rate cut happens on July 1, 2026. The dividend credit reduction doesn’t kick in until January 1, 2027. There is a six-month window, July through December 2026, where your corporation is already benefiting from the lower corporate rate on income earned in that period, but the personal tax on dividends paid has not yet increased.

Depending on your personal income level and what you need to draw out of the company, this window can matter.

What Are Non-Eligible Dividends (And Why Does This Apply to Most Small Business Owners)?

If you own a CCPC and pay yourself dividends from income that was taxed at the small business rate, those dividends are classified as non-eligible dividends. This applies to most owner-managers of private companies, consultants, physicians, lawyers, contractors, real estate professionals, and small business owners across sectors.

Eligible dividends, by contrast, come from income taxed at the general corporate rate (currently 26.5% in Ontario), or from public corporations. CCPCs can pay eligible dividends from their General Rate Income Pool (GRIP) balance, income that was taxed at the higher general rate and therefore qualifies for a larger personal dividend credit. If your CCPC has GRIP, you have an additional layer of planning flexibility that’s worth discussing with your advisor.

For this article, the rate changes discussed above specifically affect non-eligible dividends, the type most owner-managers of small businesses pay themselves.

The Practical Planning Window: July 1 to December 31, 2026

Let’s map out the key dates:

• January 1 to June 30, 2026: Old corporate rate (3.2% Ontario) still in effect. Non-eligible dividend personal tax rate is still at 47.74% combined (top marginal).
• July 1, 2026: New corporate rate (2.2% Ontario) takes effect.
• July 1 to December 31, 2026: Lower corporate rate applies to income earned; dividend tax credit has not yet been reduced. This is the window.
• January 1, 2027: Non-eligible dividend tax credit drops. Personal tax rate on non-eligible dividends rises to 48.89% at the top combined rate.

For most owner-managers with a December 31 year-end, the corporation won’t lock in the full benefit of the new rate until the 2027 tax year (the first full year at 2.2%). However, the more favorable current personal rates apply to any dividends you receive in 2026 before the credit drops.

Five Planning Moves to Consider

None of these is a universal recommendation; your optimal approach depends on your income level, personal needs, corporate retained earnings, and overall financial plan. But here are the strategies worth walking through with your tax advisor.

1. Accelerate Non-Eligible Dividend Distributions Before December 31, 2026

If you were planning to pay yourself non-eligible dividends in early 2027, consider pulling those dividends forward into 2026. The personal tax rate on non-eligible dividends will be marginally higher starting January 1, 2027.

This is particularly relevant for owner-managers who have accumulated retained earnings in the corporation and were already planning to draw them out. The tax rate difference of approximately 1.15% at the top marginal level is modest, but on a dividend of $200,000, that’s roughly $2,300 in additional personal tax if you wait until 2027. On larger accumulated earnings, the numbers grow proportionally.
Watch for: Your overall 2026 personal income level. Pulling more income into 2026 only makes sense if it doesn’t push you into a higher bracket than where you’d land in 2027. Run the numbers both ways.

2. Leave Active Business Income in the Corporation Through Year-End

With the corporate rate dropping to 2.2% (Ontario) on July 1, there is an argument to keep active business income inside the corporation through the second half of 2026 rather than extracting it as salary. The corporation benefits from the reduced rate on that income, and you defer personal tax on it until you choose to distribute.

This is a deferral strategy, not a permanent savings; the income will be taxed personally when distributed. But deferral has value, especially if you expect to be in a lower personal tax bracket in future years, or if the corporation can invest those retained funds productively.

3. Optimize Your Salary-Dividend Mix for 2026

The salary versus dividend decision in 2026 is more nuanced than ever. Here’s the honest context: the after-tax difference between a pure salary and a pure non-eligible dividend is relatively marginal in Ontario due to integration. The more meaningful considerations are:

• RRSP contribution room: Only salary (or self-employment income) generates RRSP room. If maximizing RRSP contributions is part of your retirement plan, you need to pay yourself enough salary to generate the room. The RRSP contribution limit for 2026 is 18% of earned income, to a maximum that is indexed annually.
• CPP contributions: Salary up to the Year’s Maximum Pensionable Earnings ($71,300 in 2026) generates CPP contributions, both the employee and employer portions, which are deductible to the corporation. Whether this is desirable depends on your retirement income planning and how much CPP entitlement you want to build.
• 2026 window: A dividend credit reduction is coming in 2027. If your personal tax situation allows, consider weighting your 2026 compensation slightly toward non-eligible dividends instead of salary.

4. Review Your Retained Earnings Pool and Dividend Designation Strategy

Does your corporation have a GRIP balance? Eligible dividends offer a more generous tax credit than non-eligible ones. Furthermore, the 2027 credit reduction does not affect eligible dividends. If you have GRIP, review your compensation structure today. Distributing eligible dividends might be a smart strategic move.

Similarly, your corporation might carry a Capital Dividend Account (CDA) balance. If so, you can pay out those capital dividends personally with zero tax. Business owners often underutilize this pool.

5. Plan for the Blended Rate in Multi-Year Projections

Does your corporation have a December year-end? For multi-year projections, the 2026 blended effective rate is approximately 2.7% on the Ontario small business portion. This is prorated over two six-month periods at 3.2% and 2.2%. The full benefit of 2.2% only applies in full for 2027 and beyond.

For planning purposes, the combined federal-plus-Ontario corporate tax rate on the first $500,000 of active business income is:

• 2026 (blended): ~11.7% on average for a December year-end
• 2027 and onward: 11.2% (9% federal + 2.2% Ontario)

A Note on Tax Integration: What This Means Long-Term

It’s worth being clear about what this rate change does and doesn’t do. The reduced corporate small business rate offers a genuine saving. Saving $5,000 per year on $500,000 of active income is real money. However, the corresponding reduction in the non-eligible dividend tax credit offsets some of those savings when you eventually pull money out personally.

The system aims for rough neutrality over the full cycle. You can control the timing of when the corporation earns income (less controllable) and when you distribute dividends (much more controllable). The planning opportunity in 2026 centers on that second variable: capturing the dividend extraction at more favorable personal rates before the government reduces the credit.

Who Should Be Acting on This Right Now

• Owner-managers of Ontario CCPCs with retained earnings and a planned distribution in the next 12–18 months
• Incorporated professionals (physicians, lawyers, accountants, engineers, consultants) with significant income accumulating inside their corporations
• Business owners approaching retirement who are beginning to wind down corporate earnings and need a structured drawdown plan
• Shareholders of family corporations considering income-splitting strategies via dividends to family members (subject to the Tax on Split Income rules TOSI, which your advisor must review)
• Anyone planning a shareholder loan repayment or corporate restructuring in the near term, where dividend timing intersects with other transactions

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Talk to Berger Law Before Year-End

At Berger Law, we work with Ontario business owners, incorporated professionals, and corporations on the full intersection of corporate tax, estate planning, and M&A, including the planning that keeps your structure aligned with evolving tax law.

Book a consultation with Berger Law today. Our team will walk through your corporate compensation structure, review your retained earnings, and help you make the most of the planning window before December 31, 2026.

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This article is for general informational purposes only and does not constitute legal or tax advice. Every taxpayer’s situation is different. Please consult a qualified tax professional before acting on any information in this post. Berger Law is a law firm serving clients in Ontario, Canada, in the areas of Estate Planning, Corporate/M&A, and Tax.