Ontario's 2026 Budget bill has now received Royal Assent, and buried inside it is a change that will land directly on the personal tax bill of almost every incorporated owner-manager in the province: starting with the 2027 personal tax year, non-eligible dividends — the kind most CCPC owners pay themselves out of active business income — will carry a smaller provincial tax credit. It is a small-sounding percentage shift with a real dollar impact, and because it is timed to the calendar year rather than your corporation's fiscal year-end, the planning window to consider before it applies is now, in the second half of 2026.
What actually changed, and why it's now law rather than a proposal
Bill 97, the Plan to Protect Ontario Act (Budget Measures), 2026, received Royal Assent on April 24, 2026. Schedule 15 of the bill amends section 19.1 of the province's Taxation Act, 2007 — the provision that sets Ontario's dividend tax credit rates — so this is enacted legislation, not a budget-day proposal still working through committee.
Source: Legislative Assembly of Ontario — Bill 97, Plan to Protect Ontario Act (Budget Measures), 2026.
The amendment reduces Ontario's dividend tax credit rate for non-eligible dividends from 2.9863% to 1.9863% of the grossed-up dividend amount, effective for taxation years ending after December 31, 2026 — in practice, the 2027 personal tax year and every year after it. Eligible dividends (generally those paid out of income already taxed at the general corporate rate, and most commonly seen at larger or public companies) are not affected; this change targets only the non-eligible dividend credit, the one that applies to distributions of active business income taxed at the small business rate.
Why Ontario is doing this now
The timing is not a coincidence. Ontario's small business corporate income tax rate dropped from 3.2% to 2.2% on July 1, 2026 — a change RN Canada covered when it took effect. A lower corporate tax rate on the income a CCPC earns means less corporate tax has already been paid before that income reaches a shareholder as a dividend. Provincial "integration" policy tries to keep the combined corporate-plus-personal tax bill on a dollar of business income roughly similar whether an owner takes it as salary or as a dividend. When the corporate rate drops, the dividend tax credit is typically trimmed to offset the reduced corporate tax already paid, so the government is not left collecting materially less tax overall on income that flows through to an owner's personal return.
The dollar impact
A smaller dividend tax credit means more Ontario personal tax owing on the same non-eligible dividend. Multiple national accounting firms that model Ontario's marginal rate tables project the top combined federal-and-Ontario marginal tax rate on non-eligible dividends rising from 47.74% to 48.89% for 2027 once the lower credit rate applies to a taxpayer already in the top bracket — a difference of roughly $115 in additional Ontario tax for every $10,000 of non-eligible dividends received at the top marginal rate. Owners at lower personal tax brackets will see a smaller, but still real, increase, since the credit reduction applies uniformly to the rate itself rather than only at the top bracket.
Sources: PwC Canada — Tax Insights: 2026 Ontario Budget; Baker Tilly Canada — Key Tax Updates from Ontario's 2026 Budget.
What this means if you own a Toronto-area CCPC
For most owner-managers who draw some mix of salary and dividends from their corporation, this change doesn't flip the salary-versus-dividend decision on its own — Ontario's integration policy is designed so the two remain broadly comparable even after the adjustment. But it does shift the math at the margin, and it creates a genuine timing question for anyone with discretion over when a dividend is declared and paid.
- Dividends paid in 2026 still get the current 2.9863% credit. If your corporation has retained earnings and you were already planning a dividend distribution for late 2026 or early 2027, there is a real, quantifiable (if modest) personal-tax reason to lean toward declaring and paying it before December 31, 2026 rather than after — subject to the same corporate cash-flow, creditor, and solvency tests you would normally apply before any distribution.
- Re-run your salary-versus-dividend mix for 2027, not just 2026. The two moving pieces — a lower corporate small business rate since July 1, 2026, and a lower personal dividend credit from January 1, 2027 — pull in different directions. A mix that was optimal under the old rates may no longer be optimal once both changes are fully in effect; this is worth a specific recalculation rather than an assumption that last year's split still holds.
- Only non-eligible dividends are affected. If your corporation pays eligible dividends (rare for a typical small CCPC, but possible where income was taxed at the general corporate rate rather than the small business rate), the eligible dividend tax credit is unchanged by this measure.
- Coordinate with your capital dividend account planning. Distributions from a corporation's capital dividend account remain entirely tax-free to the recipient shareholder and are untouched by this change — a reminder to confirm your CDA balance is fully utilized before defaulting to a taxable non-eligible dividend. See our capital dividend account guide for how CDA distributions can reduce reliance on taxable non-eligible dividends, and our Ontario corporate tax guide for how the small business rate interacts with owner compensation planning generally.
- Update your 2027 personal tax instalment estimates now if dividends are a significant part of your income. An instalment base calculated using 2026 rates and credits will understate 2027 tax owing once the reduced credit applies, which can leave a CCPC owner facing instalment interest that was avoidable with earlier planning.
A year-end conversation worth having early
Because this change is timed to the calendar year rather than to any corporation's fiscal year-end, it applies uniformly to every Ontario resident receiving non-eligible dividends in 2027, regardless of when your corporation's books close. That makes late 2026 — well before the usual December scramble — the right time to model both the corporate-rate benefit you're already receiving and the personal-rate cost that starts January 1, 2027, together, rather than reacting to either in isolation.
Key takeaways
- Ontario's Bill 97 received Royal Assent on April 24, 2026 — the dividend tax credit reduction is enacted law, not a budget proposal awaiting a vote.
- The non-eligible dividend tax credit drops from 2.9863% to 1.9863% of the grossed-up dividend amount, effective for taxation years ending after December 31, 2026 (the 2027 tax year onward).
- The top combined marginal tax rate on non-eligible dividends is projected to rise from 47.74% to 48.89% for 2027 at the highest personal bracket, with a proportionally smaller increase at lower brackets.
- The change offsets, at the personal level, some of the benefit CCPC owners are already seeing from Ontario's small business corporate rate cut to 2.2% on July 1, 2026.
- Eligible dividends and capital dividend account distributions are unaffected — only non-eligible dividends carry the reduced credit.
- Dividends declared and paid in 2026 still receive the current, higher credit rate.
If your corporation is sitting on retained earnings, or you haven't recalculated your salary-dividend mix since Ontario's small business rate cut took effect, RN Canada works with Toronto-area owner-managed businesses to model 2026 versus 2027 compensation timing before the window to act on the current rate closes.