Ontario Surtax

Definition

The Ontario surtax is a tax imposed on top of Ontario basic personal income tax, calculated as a percentage of Ontario tax (not of taxable income) in two layers: 20% on Ontario tax above a first threshold, and an additional 36% on Ontario tax above a higher second threshold. Because the surtax is applied to Ontario tax rather than to income, it compounds the marginal rate at higher income levels. The surtax is computed on Form ON428 after the Ontario basic tax has been calculated and the non-refundable credits have been applied. It is in addition to the Ontario Health Premium.

Key rules

• The surtax thresholds are indexed annually for inflation. Projected 2026 thresholds (confirm against Form ON428 for 2026):
  • First layer: 20% of Ontario tax above approximately $5,710
  • Second layer: additional 36% of Ontario tax above approximately $7,307
  • Combined layer: 56% on Ontario tax exceeding the second threshold
• The surtax applies to Ontario tax after non-refundable credits but before refundable credits and instalment credits.
• At the top of the scale, the surtax effectively adds about 7.4 percentage points to the marginal Ontario rate (13.16% × 1.56% − 13.16% = approximately 7.4 percentage points).
• The surtax does not apply to Ontario tax on eligible dividends in the same way; the dividend tax credit partially shelters this effect. The calculation is done within ON428 following a specific order of operations.
• The Ontario Health Premium is separate: an additional amount up to $900 per year based on taxable income, also added on ON428.

Example

An Ontario resident has Ontario tax of $12,000 after applying non-refundable credits in 2026. Using projected thresholds:

• Layer 1: ($12,000 − $5,710) × 20% = $6,290 × 20% = $1,258
• Layer 2: ($12,000 − $7,307) × 36% = $4,693 × 36% = $1,689
• Total surtax = $1,258 + $1,689 = $2,947

Adding the surtax to the base Ontario tax yields $14,947 before the Ontario Health Premium. Effective average Ontario rate rises materially above the bracket-based calculation alone.

Common mistakes

• Calculating the surtax on taxable income instead of Ontario tax. The surtax is a tax on tax, not a tax on income.
• Stopping at the 20% layer. Once Ontario tax exceeds the second threshold, both layers apply simultaneously, stacking to 56% on the marginal increment.
• Forgetting to use indexed thresholds. Thresholds change each year; using the prior-year figures understates or overstates the liability.
• Conflating the surtax with the Ontario Health Premium. The OHP is a separate charge, graduated up to $900, calculated in a different section of ON428.

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