In 2026, an Ontario Canadian-controlled private corporation (CCPC) pays a combined 11.2% on its first $500,000 of active business income earned from July 1, 2026 (12.2% before that), and 26.5% on income taxed at the general rate. The federal rates are 9% and 15%. Ontario’s small business rate dropped from 3.2% to 2.2% on July 1, 2026, and its general rate stays at 11.5%.
This guide explains who qualifies for the small business rate, how the July cut applies to your year-end, how passive income can shrink your $500,000 limit, what investment and personal services business income pay, and the deadlines for 2026 year-ends. It’s written for Ottawa owner-managers, but the federal rules apply across Canada.
Table of Contents
- 2026 corporate tax rates at a glance
- Who gets the small business rate
- Ontario’s July 1, 2026 rate cut
- Passive income and the $500,000 business limit
- Investment income and personal services businesses
- Filing and payment deadlines for 2026 year-ends
- How BBA Tax helps
- Frequently Asked Questions
Key Takeaways
- Federal corporate tax rates for 2026 are 9% on small business income and 15% at the general rate.
- Ontario’s small business rate fell from 3.2% to 2.2% on July 1, 2026, and its general rate is 11.5%. Tax years that straddle July 1 are prorated by days.
- Combined, an Ontario CCPC pays 11.2% on its first $500,000 of active business income from July 1, 2026, and 26.5% at the general rate.
- The federal $500,000 business limit shrinks by $5 for every $1 of passive investment income over $50,000 and disappears at $150,000. Ontario does not apply this reduction.
- Investment income earned in a CCPC is taxed at a much higher rate, part of which is refunded when the corporation pays taxable dividends.
2026 corporate tax rates at a glance
An Ottawa CCPC pays a combined 11.2% on active business income up to $500,000 earned from July 1, 2026, and 26.5% on income above the limit. Here are the main rates, using the federal rates published by the CRA and Ontario’s corporate income tax rates:
| Type of income | Federal | Ontario | Combined |
|---|---|---|---|
| Active business income of a CCPC up to the $500,000 limit, January 1 to June 30, 2026 | 9% | 3.2% | 12.2% |
| Active business income of a CCPC up to the $500,000 limit, from July 1, 2026 | 9% | 2.2% | 11.2% |
| Income taxed at the general rate, including active business income over the limit | 15% | 11.5% | 26.5% |
| Investment income of a CCPC (interest, most rents, taxable capital gains) | 38.67% | 11.5% | about 50.17%, partly refundable |
| Personal services business income | 33% | 11.5% | 44.5% |
Combined rates are simply the federal and Ontario rates added together, and Ontario’s rates apply to income allocated to Ontario. Other provinces set their own rates.
Who gets the small business rate
The lower rate comes from the small business deduction, which is available to a CCPC on its active business income up to a business limit of $500,000 a year.
In short, a CCPC is a private corporation resident in Canada that is not controlled by non-residents or public corporations and has no shares listed on a designated stock exchange. Active business income generally means income from selling goods or services. Income from a specified investment business (such as most passive rental and investment activity) or from a personal services business does not qualify.
- Associated corporations share one $500,000 limit, which they allocate among themselves on Schedule 23.
- The business limit is reduced when taxable capital employed in Canada is between $10 million and $50 million, and eliminated above $50 million. Ontario applies the same phase-out.
- The federal limit is also reduced by passive investment income over $50,000, as explained below.
If you have not incorporated yet, our comparison of sole proprietorship vs incorporation covers the trade-offs beyond the tax rate.
Ontario’s July 1, 2026 rate cut
Ontario cut its small business rate from 3.2% to 2.2% for income earned from July 1, 2026. The change came in the 2026 Ontario Budget and is now law. The general rate is unchanged at 11.5%, and older summary tables that still show 3.2% are out of date for income earned after June 30, 2026.
If your corporation’s tax year straddles July 1, 2026, the Ontario rate is prorated by the number of days before and after that date. For a calendar-year corporation, that works out to an Ontario small business rate of about 2.70% for 2026, or about 11.70% combined.
Example: $300,000 of active business income
- Tax year ending December 31, 2026: federal tax of $27,000 (9%) plus prorated Ontario tax of about $8,088, for about $35,088 in total.
- Tax year starting on or after July 1, 2026: $300,000 at 11.2%, or $33,600.
- At the old combined rate of 12.2%, the same income cost $36,600.
The cut has a personal side too. From January 1, 2027, Ontario’s dividend tax credit on non-eligible dividends drops from 2.9863% to 1.9863%, so dividends paid out of this lower-taxed income carry more personal tax. Our guide to dividend tax in Canada shows the effect.
Wondering what the July 1 rate cut means for your year-end? BBA Tax prepares T2 returns for Ottawa corporations and can estimate your 2026 corporate tax before you file. Book a free intro call.
Passive income and the $500,000 business limit
Federally, the business limit shrinks by $5 for every $1 of passive investment income over $50,000 and reaches zero at $150,000. The CRA calls this adjusted aggregate investment income, and the reduction uses the investment income of the corporation and its associated corporations for tax years that ended in the previous calendar year.
For example, $100,000 of passive income cuts the federal business limit by $250,000 ($5 times $50,000), leaving $250,000. Active business income above $250,000 then loses the federal small business rate.
Ontario does not follow this rule, so the corporation keeps Ontario’s 2.2% rate on its first $500,000. In the example, active income between $250,000 and $500,000 would be taxed at about 17.2% combined (15% federal plus 2.2% Ontario) rather than 11.2%. If you are building up investments inside your company, our guide to holding companies in Canada covers when a separate company makes sense.
Investment income and personal services businesses
Two kinds of corporate income are taxed well above the small business rate: investment income and personal services business income.
Investment income
A CCPC’s investment income, such as interest, most rents and taxable capital gains, does not get the small business rate. Federally it is taxed at 38.67%: the 28% rate after the federal abatement, with no general rate reduction, plus an additional refundable tax of 10 2/3%. Ontario adds its 11.5% general rate, for about 50.17% combined.
Part of that tax comes back. When the corporation pays taxable dividends, it can recover tax at 38 1/3% of the dividends paid, limited by its refundable dividend tax on hand balance.
Personal services business income
If the person doing the work would be the client’s employee without the corporation in between, the corporation may be a personal services business. That income gets neither the small business deduction nor the general rate reduction, and an extra 5% federal tax applies, for a federal rate of 33% and 44.5% combined in Ontario. Our guide to personal services business rules explains the test.
Filing and payment deadlines for 2026 year-ends
A corporation files its T2 within six months of its year-end, but it has to pay any balance owing sooner. For a December 31, 2026 year-end:
| Obligation | Rule | December 31, 2026 year-end |
|---|---|---|
| File the T2 return | Six months after year-end | June 30, 2027 |
| Pay the balance owing (general rule) | Two months after year-end | March 1, 2027 (February 28 is a Sunday) |
| Pay the balance owing (qualifying CCPC) | Three months after year-end | March 31, 2027 |
A CCPC gets the three-month payment deadline if it was a CCPC throughout the year, claimed the small business deduction in the current or previous year, and its taxable income for the previous year was within its business limit (combined for associated corporations).
T2 returns must be filed electronically for tax years starting after 2023, with limited exceptions. A late return costs 5% of the unpaid tax plus 1% for each full month late, up to 12 months. Your corporation may also have to pay instalments during the year; our guide to CRA tax instalments explains who has to pay.
Rates can still move. The federal government has said Budget 2026 will be delivered this fall, and on September 15, 2026 it released draft legislation for a proposed Productivity Mega Deduction, which would allow immediate expensing of most depreciable property acquired on or after that date. It is not law yet, so check for updates before your year-end.
How BBA Tax helps
BBA Tax prepares T2 corporate returns for Ottawa corporations, and for corporations elsewhere in Canada remotely, along with the bookkeeping, payroll and T5 slips that feed into them. We can estimate how the July 1 rate change affects your year-end and flag passive income that is eating into your business limit. See our T2 corporate income tax return service; corporate returns start from $1,000.
Thinking about incorporating? Our incorporation service covers setting up the corporation.
Frequently Asked Questions
What is the small business tax rate in Ontario for 2026?
Ontario’s small business rate is 3.2% on income earned up to June 30, 2026 and 2.2% from July 1, 2026, on a CCPC’s first $500,000 of active business income. With the 9% federal rate, that is 12.2% before July 1 and 11.2% after. Tax years that straddle July 1 are prorated by days.
What is the corporate tax rate on income over $500,000?
Active business income above the $500,000 business limit is taxed at the general rate: 15% federally and 11.5% in Ontario, or 26.5% combined. The same general rate applies to the active business income of corporations that are not CCPCs. A CCPC’s investment income is taxed differently, at a higher rate with a refundable portion.
How does passive income affect the small business deduction?
Federally, the $500,000 business limit drops by $5 for every $1 of adjusted aggregate investment income over $50,000, reaching zero at $150,000. Ontario does not apply this reduction, so an Ontario corporation can lose the federal small business rate on part of its income and still keep Ontario’s 2.2% rate on it.
When is corporate tax due for a December 31, 2026 year-end?
The T2 return is due June 30, 2027. Any balance owing is due two months after year-end, which is March 1, 2027 because February 28 falls on a Sunday. A CCPC that claimed the small business deduction and stayed within its business limit the year before has until March 31, 2027 to pay.
Does the small business rate apply to rental or investment income?
Usually not. The small business deduction applies only to active business income. Interest, most rental income and taxable capital gains earned by a CCPC are investment income, taxed federally at 38.67% plus Ontario’s 11.5%, with part of the tax refunded when the corporation pays taxable dividends.
