The ceiling for CCA for passenger vehicles will be increased from $38,000 to $39,000, before tax, in respect of vehicles (new and used) acquired on or after January 1, 2026.
The ceiling for capital cost allowances (CCA) for zero-emission passenger vehicles will remain at $61,000, before tax, in respect of vehicles (new and used) acquired on or after January 1, 2026.
Leasing Costs
Deductible leasing costs will remain at $1,100 per month, before tax, for new leases entered into on or after January 1, 2026.
Tax-Exempt Allowance Limit
The limit on the deduction of tax-exempt allowances paid by employers to employees who use their personal vehicle for business purposes will increase by one cent to 73 cents per km for the first 5,000 km’s driven, and 67 cents for each additional km.
Maximum Allowable Interest Deduction
The maximum allowable interest deduction for amounts borrowed to purchase an automobile will remain at $350.00 per month for loans related to vehicles acquired after January 1, 2026.
2026 Combined Federal and Ontario Personal Income Tax Rates(I)
Taxable
Income
Salary/
Interest (%)
Eligible
Dividends (%)
Ineligible
Dividends(II) (%)
Capital
Gains (%)
First $53,891
19.05
(8.24)
8.09
9.53
$53,892–$58,523
23.15
(2.58)
12.80
11.58
$58,524–$94,907
29.65
6.39
20.28
14.83
$94,908–$107,785
31.48
8.92
22.38
15.74
$107,786–$111,814
33.89
12.24
25.16
16.95
$111,815–$117,045
37.91
17.79
29.78
18.95
$117,046–$150,000
43.41
25.38
36.10
21.70
$150,001–$181,440
44.97
27.53
37.90
22.48
$181,441–$220,000
48.26
32.07
41.68
24.13
$220,001–$258,482
49.82
34.22
43.47
24.91
Over $258,482
53.53
39.34
47.74
26.76
(I) These rates do not include the Ontario Health Premium. (II) These rates apply to the actual amount of taxable dividends received from taxable Canadian corporations. Eligible dividends are those paid by public corporations and private companies out of earnings that have been taxed at the general corporate tax rate. E. & O.E.
2026 Combined Federal and Ontario Corporate Income Tax Rates
2026
General Rate
26.50%
Small Business (to $500,000)
12.20%
Investment
50.17%
Based on corporations with fiscal years commencing January 1, 2026, and ending December 31, 2026.
E. & O.E.
2025 Combined Federal and Ontario Personal Income Tax Rates(I)
Taxable
Income
Salary/
Interest (%)
Eligible
Dividends (%)
Ineligible
Dividends(II) (%)
Capital
Gains (%)
First $52,886
19.55
(7.55)
8.66
9.78
$52,887–$57,375
23.65
(1.89)
13.38
11.83
$57,376–$93,132
29.65
6.39
20.28
14.83
$93,133–$105,775
31.48
8.92
22.38
15.74
$105,776–$109,727
33.89
12.24
25.16
16.95
$109,728–$114,750
37.91
17.79
29.78
18.95
$114,751–$150,000
43.41
25.38
36.10
21.70
$150,001–$177,882
44.97
27.53
37.90
22.48
$177,883–$220,000
48.29
32.10
41.71
24.14
$220,001–$253,414
49.84
34.25
43.50
24.92
Over $253,414
53.53
39.34
47.74
26.76
(I) These rates do not include the Ontario Health Premium. (II) These rates apply to the actual amount of taxable dividends received from taxable Canadian corporations. Eligible dividends are those paid by public corporations and private companies out of earnings that have been taxed at the general corporate tax rate. E. & O.E.
2025 Combined Federal and Ontario Corporate Income Tax Rates:
2025
General Rate
26.50%
Small Business (to $500,000)
12.20%
Investment
50.17%
Based on corporations with fiscal years commencing January 1, 2025, and ending December 31, 2025.
Maximum employee contribution
($71,100.00 x 5.95%)
$ 4,230.45
Maximum employer contribution
($71,100.00 x 5.95%)
$ 4,230.45
Self-employed maximum
$ 8,460.90
A higher, second earnings ceiling of $85,000 will be implemented and used to determine second additional CPP contributions (CPP2). As a result, pensionable earnings between $74,600 and $85,000 are subject to CPP2 contributions.
2026 additional maximum pensionable earnings
$85,000.00
Additional maximum employee contribution
4.00%
Additional maximum employee contribution
($85,000.00 – $74,600.00) x 4.00%
$ 416.00
Additional maximum employer contribution
($85,000.00 – $74,600.00) x 4.00%
$ 416.00
Additional self-employed maximum
$ 832.00
EI premiums for 2026:
Maximum annual insurable earnings
$68,900.00
Premium rate
1.63%
Maximum employee contribution
$ 1,123.07
Maximum employer contribution
($68,900.00 x 2.282%)
$ 1,572.30
CPP contributions for 2025:
Maximum pensionable earnings
$71,300.00
Basic annual exemption
-3,500.00
Maximum contributory earnings
$67,800.00
Contribution rate
5.95%
Maximum employee contribution
($67,800.00 x 5.95%)
$ 4,034.10
Maximum employer contribution
($67,800.00 x 5.95%)
$ 4,034.10
Self-employed maximum
$ 8,068.20
A higher, second earnings ceiling of $81,200 will be implemented and used to determine second additional CPP contributions (CPP2). As a result, pensionable earnings between $71,300 and $81,200 are subject to CPP2 contributions.
2025 additional maximum pensionable earnings
$81,200.00
Additional maximum employee contribution
4.00%
Additional maximum employee contribution
($81,200.00 – $71,300.00) x 4.00%
$ 396.00
Additional maximum employer contribution
($81,200.00 – $71,300.00) x 4.00%
$ 396.00
Additional self-employed maximum
$ 792.00
EI premiums for 2025:
Maximum annual insurable earnings
$65,700.00
Premium rate
1.64%
Maximum employee contribution
$ 1,077.48
Maximum employer contribution
($65,700.00 x 2.296%)
Instalments are periodic payments of income tax that individuals have to pay the Canada Revenue Agency (CRA) to cover tax they would otherwise have to pay on April 30 of the following year.
WHO HAS TO PAY?
You have to pay your income tax instalments for 2026 if your net tax owing is more than $3,000 in 2026; and in either 2025 or 2024
INTEREST AND PENALTY CHARGES
Instalment interest is charged if ALL of the following conditions apply:
CRA sends you an instalment reminder in 2026 that shows the amount to pay
You are required to make instalment payments in 2026; and
You choose not to make instalment payments, or you make payments that are late or less than the required amount
You may also have to pay a penalty if your instalment payments are late or less than the required amount. CRA applies this penalty only if your instalment interest charges for 2026 are more than $1,000.
Generally, corporations have to pay their taxes in instalments. An instalment payment is a partial payment of the total amount of tax payable for the year.
WHO HAS TO PAY?
You have to pay your income tax in instalments for 2026 if your federal tax owing is more than $3,000 in 2025 or in 2024. Similarly, you have to pay your income tax in instalments if your provincial tax owing for the current or previous year is more than $3,000
Corporations generally make monthly or quarterly payments towards their tax liability. A small Canadian Controlled Private Corporation (CCPC) is eligible to make quarterly instalments under certain circumstances
DUE DATES
Instalment payments are due on the last day of every complete month of your taxation year, or of every complete quarter if you are an eligible small CCPC
PAYING INSTALMENTS
Instalments may be paid by telephone or internet banking, at your financial institution or by mail
INTEREST AND PENALTY CHARGES
Interest is charged on late or insufficient payments. Instalment interest is compounded daily at the prescribed interest rate
You may also have to pay a penalty if your instalment payments are late or less than the required amount. CRA applies this penalty only if your instalment interest charges for 2026 are more than $1,000
Beginning in 2019, the federal government began a carbon tax rebate program for small businesses to offset the costs associated with carbon pollution pricing.
Earlier this year, in the federal budget, the government announced it will reimburse small businesses a portion of the carbon rebate.
Who qualifies for the rebate?
Any small business registered as a Canadian-controlled private corporation (CCPC), which has between 1 and 499 employees qualifies for the rebate. The number of employees is determined by the number of T4 slips issued. There is no distinction made between full-time, part-time, or seasonal employees. Sole proprietorship and partnerships are not eligible.
When can the rebate be expected?
Small businesses that filed their 2023 corporate tax returns by July 15, 2024, can expect to receive their carbon rebate in December 2024. Any small business that filed their 2023 corporate tax returns after July 15, 2024, are still eligible for payment, however the legislation enacting these changes still requires Royal Assent. No timing has been given on the rebate for these businesses.
There is no need to do anything, the rebate will be automatically issued. Once payments are ready, they will be deposited directly into the bank accounts of businesses that are set up for direct deposit with the CRA. If your business isn’t set up for direct deposit, the rebate will be issued by cheque.
What is the amount of the rebate?
The amount to be paid depends on the number of employees, or more specifically the amount of T4 slips issued, and the provincial location of the small business.
Specified Payment Rates Per Employee for the Canada Carbon Rebate for Small Businesses, 2019-20 to 2023-24
2019-20
2020-21
2021-22
2022-23
2023-24
AB*
n/a
$147
$123
$140
$181
SK
$110
$271
$244
$298
$233
MB
$48
$99
$77
$89
$168
ON
$26
$68
$75
$86
$146
NB*
n/a
n/a
n/a
n/a
$87
NS*
n/a
n/a
n/a
n/a
$119
PEI*
n/a
n/a
n/a
n/a
$82
NL*
n/a
n/a
n/a
n/a
$179
* As the federal fuel charge only cam into effect as of January 1, 2020 in Alberta, and as of July 1, 2023 in New Brunswick, Nova Scotia, Prince Edward Island, and Newfoundland and Labrador, small businesses in these provinces will receive payments for proceeds collected after those respective dates.
Many of our clients are confused with how the vehicle expense deduction works. Please note that we usually refer to it as a ‘mileage deduction’, even though we use kilometres… we’re weird like that.
How Does Mileage Deduction / Vehicle Expense Deduction Work?
Any corporation can reimburse you, as an employee, on a per-km basis.
This reimbursement is tax-free to you, to a maximum of $0.72/km for the first 5,000km’s and $0.66/km thereafter (in 2025).
Note that the rates usually change annually.
Tracking & Submitting Mileage Deductions
All you need to do here is track your mileage and submit it to your employer.
All of your vehicle costs are paid out of your own pocket and unless the per km reimbursement is unreasonable (say $0.10/km), you are not allowed to deduct any vehicle costs that you paid personally, because you got a tax-free reimbursement from your employer to offset the costs.
This is often the most advantageous and efficient way for an owner of their own corporation to reimburse themselves for their vehicle usage.
Monthly Allowance For Mileage
On the other hand, if you are an employee, and your employer requires you to drive your own vehicle for work purposes (gives you a T2200), but doesn’t reimburse you on a per km basis like above, (say they give you a monthly allowance of $500/month instead), then things work differently.
This monthly allowance is included on your T4 slip and therefore added to your total taxable income.
However, to offset this, you can deduct your actual vehicle expenses from your taxable income.
How Much Do I Deduct For Vehicle Expenses?
The amount to deduct is based on your total vehicle expenses, multiplied by the number of business km’s / total km’s.
This is referred to as an employment expense deduction. You still have to track your mileage, but it works a bit differently. You have to now track your total mileage for the year AND your business-use mileage for the year.
Self-employed people would also have to track their mileage and all vehicle expenses the same way as above. They take all of their vehicle costs and prorate by the business use mileage over their total mileage.
What is Considered Business Use?
Well, this is not an easy question to answer, but basically, it is NOT to and from your work, or what is referred to as your regular place of employment – CRA considers that personal-use.
However, if you go to your office, and then out to a client, or vice-versa, that is business-use.
If you drive directly to a client’s place of business and back home, that is business-use.
If you drive throughout the day from customer to customer, that is business-use.
If you pick up a coffee on your way to the office, that’s personal.
Things get a bit tricky when you have multiple places of regular employment or long-term job sites.
Medical mileage
This is really rare, and I’ve only seen it maybe half a dozen times, but if you require medical treatments that are not available in your vicinity and you need to travel more than 40km’s to a hospital or a specialist, and there is no reasonable public transit option, then you can claim vehicle expenses as medical expenses. You’d only be tracking your actual medical-rated mileage here.
The rules here are complicated, so call us if this applies to you.
Recently, the tax rules regarding non-cash gifts and awards given by employers have been updated. To understand the changes, let us take a look at the different types of ways employees maybe be rewarded by employers.
Gifts are given to an employee for a special occasion. Awards is given for a work-related accomplishment, beyond the scope of the employees job description like outstanding services. An award may be given for years of service or given in a manner that is not common, like a draw, nomination process, or an evaluation, and the award is not given to many recipients.
If the gift or award is cash or akin to cash it is taxed like income. If the gift or award is not cash and the fair market value of the item is below $500 it is not taxed. Once the combined total of the gifts and awards exceed $500 at fair market value, then tax will be applied.
There are a few exemptions:
If a gift or an award is given after an evaluation process and there are a limited number of recipients, the amount is not taxable.
If the gift award was given for years of service, then the fair market value does not get linked with other gifts. However, the years of service must be for five or more years, and the recipient may not have received another award for years of service within the previous five years with the same employer. This is a new update.
Trivial items like a cup of coffee, a mug, or t-shirt are not included in combined total of non-cash gifts.
Included in the recent update are specific guidelines about gift cards, along with gift certificates and chip cards. They are considered “non-cash” if the card comes with money on it, it may only be used from a single retailer or a set group of retailers, and their terms and conditions of the card clearly state the amount loaded on the card may not be converted into cash.
Correctly calculating and remitting HST to the CRA can become a time-consuming task for small to medium-sized businesses even when they have a dedicated accounting department.
If done incorrectly, it can lead to audits and other issues. To simplify the process, the CRA has introduced a “Quick Method” of accounting for HST.
What is the benefit of the Quick Method?
Not only is this method simpler but it can save you money, especially if you have limited taxable expenses or most of your expenses are salaries.
Normally, you collect HST on your sales of goods and services. From this amount, you deduct the HST that you pay on purchases of goods and services, called Input Tax Credits, or ITC’s.
The difference gets remitted to the CRA.
Under the Quick method, you still charge the standard HST rate (13% in Ontario) on any taxable supplies of goods or services.
However, you are not entitled to claim any HST you pay on goods or services as you normally would, except for capital asset purchases (such as computers and vehicles).
So, why would you do this?
Well, under the Quick Method, you only have to remit a portion of the 13% you collect from your customers.
The rates for remittance are:
4.4% for businesses that purchase goods for resale (antique dealers, convenience stores)
8.8% for businesses that provide services
In addition, CRA allows a 1% credit on sales up to a maximum of $30,000 per fiscal year.
Here’s an example:
Bobby’s corporation Bobby Inc. has consulting revenues of $100,000, and $10,000 of HST-eligible expenses.
The regular method would have led to a remittance of: $100,000 x 13% = $13,000 Less ITCs $10,000 x 13% = ($1,300) Amount to be remitted to CRA = $11,700
Using the Quick Method, the calculation is: $100,000 x 1.13 = $113,000 x 8.8% = $9,944 Less Credit 1% of $30,000 = ($300) Amount to be remitted to CRA = $9,644
In this example, Bobby Inc. will save $2,056, which is included in the corporation’s income.
Now, The Quick Method isn’t available for everyone. For example, lawyers, accountants, bookkeepers, and financial consultants are among those not permitted to use it.
Furthermore, since the Quick Method is geared for small businesses if a business has revenues in excess of $400,000, the Quick Method is not permitted. Also, there are complicated rules for when the election can be made.
In conclusion, the Quick Method can save you a lot of time and money should it be implemented properly.
For help determining if this method is useful for your circumstances please contact us so we can analyze your unique situation.
Disclaimer
This post is only applicable to corporations in Ontario
The information provided on this page is intended to provide general information. The information does not take into account your personal situation and is not intended to be used without consultation from accounting and financial professionals. SSL Group will not be held liable for any problems that arise from the usage of the information provided on this page.
Are you an employee or a self-employed contractor?
There is no clear-cut answer in determining whether a person is in a business relationship (self-employed independent contractor) or in an employee-employer relationship. There have been many court cases on this subject. Generally, a government auditor would base their decision on the following criteria:
Chance of profit or loss – Self-employed individuals may make or lose money depending on the job. Employees are paid if they work
Operation integration – Employees are normally part of an organization’s processes. For example, employees don’t have to find their own replacement to go on holidays
Ownership of tools – Self-employed individuals are responsible for providing their own tools. Employees are generally provided with the necessary tools
Control over work performance – Self-employed individuals are generally hired to do a job with little direction over how the work is to be performed. Employees are generally under supervision and direction as to how a job is to be performed. Often employees’ hours and work days are dictated whereas self-employed individuals determine their own schedules
No one criteria makes the determination
Employee Advantages
They qualify for Employment Insurance (EI) benefits
Canada Pension Plan premiums paid are matched by the employer
They participate in employee benefits; including vacation pay, health benefits, disability insurance, pension plans, worker’s compensation coverage
Possible higher rate of pay for overtime
They qualify for severance pay if terminated
Less record-keeping and administration
The employer purchases and maintains necessary equipment
Dividends may slightly reduce the overall tax costs (corporate and personal) as compared with salary
If the only source of personal income was from ineligible dividends, it was possible to receive up to $34,313 in 2024 without paying any personal income tax other than the Ontario Health Premium. (Eligible = $55,704)
Dividends do not require you to contribute to the Canada Pension Plan (CPP), Employer Health Tax (EHT) or the Workplace Safety and Insurance Board (WSIB)
Dividends will provide more opportunities for income splitting with your family
Dividends do not require the recipient to perform services for the business, whereas salaries must not exceed a “reasonable” remuneration for the services rendered to the business
The payment of dividends does not require an immediate personal income tax payment; salaries require income tax and CPP amounts to be withheld by the employer and remitted within days or weeks
If there are insufficient corporate profits to make use of the tax deduction for salaries, dividends may be more tax-efficient
Some of the advantages of salaries
Salaries provide opportunities for deferring taxes by maximizing RRSP contribution room
Corporate taxes can be deferred by accruing bonuses
Salaries are required to qualify for future Canada Pension Plan benefits
The distribution of salaries among shareholders may be more flexible than dividends
Salaries paid to children are taxable at normal rates, whereas dividends paid to children may be subject to tax at the highest rates
Salaries entitle the recipient to the Canada employment credit
If the company’s taxable income exceeds $500,000, salaries can reduce that income to eliminate any corporate income tax that would be payable at the higher corporate income tax rates
A requirement for quarterly personal income tax instalments in future years may be one result of paying dividends
If personal income is so low that the dividend tax credit would be unused, a salary may be more tax efficient
