Ontario Corporate Tax Rates

Definition

Ontario corporate income tax is levied under the Taxation Act, 2007 (Ontario) on the taxable income of corporations with a permanent establishment in the province. Since 2009, Ontario corporate tax has been administered by the Canada Revenue Agency alongside federal tax on a single T2 return, using Schedule 5 to allocate taxable income among provinces. Ontario applies three basic rates: a small business rate on income eligible for the Small Business Deduction, a general rate on other active business income and investment income, and a reduced manufacturing and processing rate.

Key rules

• The Ontario small business rate is 3.2% on the first $500,000 of active business income earned by a Canadian-controlled private corporation (CCPC). Combined with the 9% federal rate, this produces a combined 12.2% rate.
• The Ontario general rate is 11.5% on taxable income not eligible for the small business deduction. Combined with the 15% federal rate, the top combined rate on general active business and investment income is 26.5%.
• The Ontario manufacturing and processing (M&P) reduced rate is 10% on income from qualifying M&P activities not eligible for the small business deduction. Combined with the 15% federal rate, the combined M&P rate is 25%.
• The $500,000 small business limit is shared among associated corporations and is reduced when federal taxable capital employed in Canada exceeds $10 million, phasing out entirely at $50 million.
• Refundable investment taxes apply to CCPCs earning passive income: a 10.67% Ontario additional refundable tax approximates the federal ART under ITA Part I.

Example

A Toronto-based CCPC earns $700,000 of active business income in 2026. The first $500,000 is eligible for the small business deduction; the remaining $200,000 is taxed at general rates.

The corporation's combined effective tax rate is approximately 16.3% for 2026.

Common mistakes

• Applying the Ontario general rate of 11.5% to all income. CCPCs earning active business income are entitled to the 3.2% small business rate on the first $500,000.
• Ignoring the associated corporations rule. Two or more corporations controlled by the same person or group must share the $500,000 limit on agreed allocations.
• Forgetting the taxable-capital phase-out. Passive investment income above $50,000 also grinds the federal small business limit, which flows through to Ontario.
• Applying the M&P rate to activities that do not qualify. Qualifying Canadian manufacturing and processing profits are computed on Schedule 27, not simply claimed at 10%.

Related concepts