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Overview of 2026 Ontario Budget: What It Means for Your Business Valuation
- Ryan Roopnauth
- 1 day ago
- 7 min read
How recent tax proposals could affect the fair market value of Ontario CCPCs.
Ryan Roopnauth, CPA, CBV| Article Written April 19, 2026 | Posted 2026-04-22 | Business Valuation | Tax Planning | Family Law | Ontario CCPCs
The 2026 Ontario Budget (“the Budget”) was introduced on March 26, 2026.¹ The key changes relate to the reduction of the small business income tax rate and the increase of the top marginal tax rate for non-eligible dividends for individuals. This article summarizes the anticipated effects on valuations.
Small Business Income Tax Rate
The small business income tax rate is available to Canadian-controlled private corporations (“CCPC”)² on the first $500,000 of active business income.³ The Federal government taxes the first $500,000 at 9%. Ontario currently taxes the first $500,000 at 3.20% for a combined Federal and Ontario tax rate of 12.20%. The Budget proposes a decrease of Ontario’s tax rate to 2.20% for a combined Federal and Ontario rate of 11.20%, effective July 1, 2026.
Non-eligible Dividend Tax Rate
Non-eligible dividends are dividends paid by a corporation from income subject to preferential income tax rates such as the small business income tax rate. Income subject to preferential income tax rates is tracked in the low income tax rate pool (“LRIP”).⁴
The Budget proposes to increase the top personal marginal income tax rate on non-eligible dividends from 47.74% to 48.89% effective January 1, 2027. In 2026, the top personal marginal tax rate is applicable for individuals with taxable income over $258,482.⁵
Relevance to Valuations
Although the Budget has not received Royal Assent⁶ at the date of this article, it is very relevant as business valuations are generally based on information and future events that are foreseeable at the Valuation Date.
The most common value term used in notional valuation is fair market value which is defined as the highest price, expressed in terms of cash equivalents, at which property would change hands between a hypothetical willing and able buyer and a hypothetical willing and able seller, acting at arm’s length in an open and unrestricted market, when neither is under compulsion to buy or sell and when both have reasonable knowledge of relevant facts.⁷
It is reasonable that both a buyer and seller would have reasonable knowledge of the proposed Ontario tax changes on March 26, 2026, and their potential relevancy to business valuations.
However, the previous “unwritten rule” that Budgets will ultimately become law through Royal Assent has come into question because of the 2024 Federal Budget that was introduced on April 16, 2024 by the Minority Trudeau government.⁸ Readers will recall a controversial proposed increase of the capital gains inclusion rate from 50.00% to 66.67% effective June 25, 2024 for corporations, trusts and individuals on the portion of annual capital gains above $250,000. This change was never substantively enacted because the effective date was postponed several times, and the new government under Mark Carney cancelled the proposed increase of the capital gains inclusion rate on March 21, 2025.⁹
Consequently, there was uncertainty about whether the 50.00% or 66.67% capital gains inclusion rate should be utlilized in notional valuations with valuation dates between April 16, 2024 and March 21, 2025 because it is very difficult to determine what the most reasonable assumption would have been during that period without using hindsight.¹⁰
In our view, there is considerably less uncertainty concerning the 2026 Ontario Budget because the Ford government is a majority government and there is no looming election. Since 2000, all budgets introduced by a majority government in Ontario have received Royal Assent.¹¹
Quantification of Impact on Valuations
Small Business Income Tax Rate
The proposed decrease in the combined Ontario and Federal small business tax rate from 12.20% to 11.20% will increase the fair market value of equity for Ontario CCPCs assuming all other factors remain unchanged and a potential purchaser will be able to fully access the small business deduction limit.
For example, we have reflected the potential value impact of the proposed tax rates for an Ontario CCPC with $750,000 of maintanable earnings before interest, taxes, depreciation and amortization (“EBITDA”) under the capitalized cash flow method:¹²
Non-eligible Dividend Tax Rate
The proposed increase of the top personal marginal income tax rate on non-eligible dividends from 47.74% to 48.89% effective January 1, 2027 would increase the personal contingent disposition costs¹³ when a shareholder redeems their shares of an Ontario CCPC. In other words, this proposed change decreases the after-tax proceeds that a shareholder receives on redemption of their shares¹⁴ assuming the proceeds are distributed as non-eligible dividends from the LRIP when the shareholder would be in the top personal marginal tax rate.
Consideration of after-tax proceeds is often relevant relevant in family law matters and in actual sale transactions.
In family law, personal contingent disposition costs are discounted to reflect the timing and method of accessing the value of the shareholder’s interest in an Ontario CCPC. Factors in this calculation include the shareholder’s current age, expected retirement age, anticipated method of disposition (i.e., sale of shares vs. assets), distribution preference and income from other sources.
For example, we have prepared a simple comparison of the calculation of undiscounted personal contingent disposition costs at the current top Ontario personal marginal tax rate on non-eligible dividends versus the proposed increase assuming that a shareholder is retiring and winding up their Ontario CCPC on January 1, 2027 by distributing a non-eligible dividend of $750,000:
Conclusion
Based on historical events, it is probable that the Budget will receive Royal Assent. As such, in our view, valuation dates commencing on March 26, 2026 should consider the impact of the proposed changes introduced in the Budget.
Kalex Partners Inc. welcomes the opportunity to answer your questions and provide support on business valuation matters, including those related to topics covered in this article such as income tax, estate planning, family law, and more.
Footnotes
² A CCPC is a private corporation that is not controlled directly or indirectly by non-residents and/or public corporations and is not publicly traded.
³ The $500,000 small business deduction limit can be reduced or eliminated if the CCPC earns investment income. In addition, CCPCs must share this limit across associated corporations.
⁴ A CCPC can also pay eligible dividends, but it must track income subject to general (i.e., not preferential) corporate income tax rates. Eligible dividends can only be paid once the LRIP balance is zero.
⁶ Royal Assent is when a bill is formally approved by the Lieutenant Governor and becomes law.
⁷ Defined in the International Glossary of Business Valuation Terms which is jointly published by the Canadian Institute of Chartered Business Valuators (“CICBV”). This definition has also been adopted by the Canada Revenue Agency (“CRA”).
⁸ Source: 2024 federal budget's key takeaways: Housing and carbon rebates, students and sin taxes | CBC News.
⁹ Source: Prime Minister Carney cancels proposed capital gains tax increase | Prime Minister of Canada.
¹⁰ Hindsight can be defined as using information that was not known or reasonably knowable at the valuation date, but became clear afterward. In this scenario, hindsight would be assuming that the capital gains inclusion rate would remain at 50.00% because the Carney government cancelled the increase to 66.67% after the Valuation Date. The information available at the valuation date should determine the capital gains inclusion rate used (i.e., on April 16, 2024, it would not be foreseeable that Mark Carney would become Prime Minister and cancel the proposed hike to 66.67%. However, there was uncertainty at various points as to whether the legislation would be enacted, and the level of uncertainty would differ depending on the relevant date used).
¹¹ Mike Harris/Ernie Eves from 2000 to 2003, Dalton McGuinty from 2003 to 2011, Kathleen Wynne from 2014 to 2018 and Doug Ford 2018 to current date have not failed to have a budget substantively enacted. There was some uncertainty regarding the 2022 Ontario Budget tabled on April 28, 2022 as Parliament ended before it passed because an election was held in June of 2022. After Doug Ford won a majority again, the 2022 budget was reintroduced on August 9, 2022 and received Royal Assent on September 8, 2022. As another Provincial election is not on the horizon, the risk of the 2026 Ontario Budget not receiving Royal Assent is limited.
¹² A capitalized cash flow model involves applying a capitalization rate/multiple to a cash flow stream into perpetuity. Please note that the below calculation is a simplified version assuming that the Ontario CCPC does not have operational or structural debt, EBITDA equates to taxable active business income, sustaining capital expenditure is nominal, tax shield on existing assets is nominal and there are no redundant assets or liabilities.
¹³ Contingent disposition costs are the potential future financial consequences (i.e., taxes, selling fees, legal fees etc.) of realizing the value of an asset that is currently owned and for which future disposition is anticipated, but the timing and mode of disposition is not determined at the Valuation Date. In other words, contingent disposition costs represent future liabilities of an asset owner at the Valuation Date. Whether an asset owner’s family property should be reduced to reflect contingent disposition costs is ultimately a decision for the Court to make, and may depend on such factors as the anticipated timing of a future disposition, and the likelihood of such costs being incurred at that future disposition date.
¹⁴ Shareholders can also access the value of their Ontario CCPC in a share sale which would be taxed as a capital gain rather than a dividend. A shareholder can potentially shelter up to $1,275,000 in capital gains by utilizing the lifetime capital gains exemption (“LCGE”). Note that the Ontario CCPC would need to qualify as a qualified small business corporation (“SBC”) which requires planning ahead of a share sale to ensure the SBC eligibility is met.
About the Author
Ryan Roopnauth, CPA, CBV is an Associate Director at Kalex Partners Inc. He has experience preparing valuations for income tax planning, estate planning, family law, financial reporting, shareholder buyouts and more.
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