Ontario's Dividend Tax Credit Drops on January 1, 2027: What Owners Should Ask Before Year-End

This guide is for owners who pay themselves dividends from an Ontario corporation. It explains what changes on January 1, 2027, why Ontario made the change, and what to raise with your accountant before year-end. Your accountant should lead any decision about how and when you are paid.

What is changing on January 1, 2027?

Ontario's dividend tax credit on non-eligible dividends drops by one percentage point. It goes from 2.9863% of the grossed-up dividend to 1.9863% for the 2027 taxation year and later.

Rates are from the Ontario government's dividend tax credit page and apply to the grossed-up (taxable) amount of the dividend. Bill 97 writes the new non-eligible rate as 15.2283% of the 15% gross-up, which works out to the same 1.9863% of the grossed-up dividend.

Is this a proposal or the law?

It is law. The cut was announced in the 2026 Ontario Budget and enacted by Bill 97, the Plan to Protect Ontario Act (Budget Measures), 2026, which received Royal Assent on April 24, 2026.

Schedule 15 of the bill amends the Ontario dividend tax credit in the Taxation Act, 2007 for taxation years ending after December 31, 2026. The bill also amends the corporate small business deduction for days after June 30, 2026, the change behind Ontario's lower small business rate.

Which dividends does it affect?

Only non-eligible dividends. For most owner-managers, those are the dividends paid from income that was taxed at the small business rate.

• Eligible dividends are generally paid from income taxed at the general corporate rate. Corporations track this through the general rate income pool (GRIP), which the CRA describes as generally reflecting taxable income that did not benefit from the small business deduction. Ontario's 10% credit on these does not change.
• Non-eligible dividends are generally the rest, including dividends paid from income that benefited from the small business deduction. These are the ones affected.

The federal side does not change. For dividends paid in 2019 or later, the CRA's T5 guide sets the gross-up on non-eligible dividends at 15% and the federal credit at 9.0301% of the grossed-up amount.

Why did Ontario lower the credit?

Because it lowered the small business tax rate. Dividends are paid out of profit the corporation has already paid tax on, and the dividend tax credit is meant to account for that corporate tax.

The 2026 Ontario Budget says the credit rate approximates the corporate tax rate the corporation paid, and that the cut aligns the credit with the lower small business rate. The CRA lists Ontario's small business rate as 2.2%, reduced from 3.2% effective July 1, 2026.

In other words, the corporation pays less Ontario tax on the way in, and the owner gets a smaller Ontario credit on the way out. The budget ties the two changes together.

What does a one-point drop mean in dollars?

On every $10,000 of non-eligible dividends, Ontario's credit is about $115 smaller in 2027 than in 2026. How that shows up in your final tax bill depends on the rest of your income for the year.

The 2027 figure matches the wording of Bill 97, which sets the Ontario credit at 15.2283% of the gross-up. On a $1,500 gross-up that is also about $228.

Does the timing of a dividend matter?

Yes. The rate depends on the year you receive the dividend, not the year the corporation earned the income.

The Income Tax Act includes a dividend in your income for the taxation year in which you receive it, and an individual's taxation year is the calendar year. A dividend received on or before December 31, 2026 falls in 2026. One received on January 2, 2027 falls in 2027 and gets the lower Ontario credit.

Should you pay dividends before the change?

That is a question for your accountant, and the answer depends on more than the credit. A smaller credit is one input among several, and paying earlier has its own costs.

• Personal tax comes sooner. A dividend received in 2026 is taxed on your 2026 return, a year earlier than a dividend received in 2027.
• Cash leaves the corporation. Money paid out is no longer available to the business or for use inside the corporation.
• Your bracket can change. Adding income to 2026 can push part of it into a higher personal bracket than it would reach in 2027.
• Other plans may be affected. Dividends are not earned income for RRSP purposes, so they create no RRSP room. Salary or a year-end bonus works differently.

For many owners the change is simply a modest shift in how much Ontario tax applies to non-eligible dividends. Your accountant can show whether it changes anything about how you are paid.

Who does this not affect?

• Owners who pay themselves only salary or bonus.
• Shareholders who receive only eligible dividends, because Ontario's 10% credit on those stays the same.

What should you ask your accountant before year-end?

• How much of what I take from the corporation is paid as non-eligible dividends?
• How does the lower Ontario credit change my personal tax for 2027?
• Does it change the mix of salary and dividends we would use?
• Is there any reason to change the timing of dividends this year, given my brackets and the corporation's cash needs?
• Does our corporation have a general rate income pool that allows eligible dividends?

Where do we fit?

LG Financial Group is an insurance agency. Your accountant leads the tax side, and we complement them. Our planning guide for business owners covers how pay, pensions and benefits fit together, and our tax strategies overview explains the small business rate in more detail. Our year-end checklist lists the other questions to raise before December 31.

Sources

• Government of Ontario, Ontario dividend tax credit
• Legislative Assembly of Ontario, Bill 97, Plan to Protect Ontario Act (Budget Measures), 2026
• Ontario Gazette, Volume 159, Issue 19 (Royal Assent notice)
• Ontario Ministry of Finance, 2026 Ontario Budget, Annex: Details of Tax Measures
• Canada Revenue Agency, Corporation tax rates
• Canada Revenue Agency, T4015 T5 Guide
• Canada Revenue Agency, General rate income pool (GRIP)
• Justice Laws, Income Tax Act, section 82 (taxable dividends received)
• Justice Laws, Income Tax Act, section 249 (taxation year)
• Canada Revenue Agency, T4040 RRSPs and Other Registered Plans for Retirement