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Key Tax Updates for Small Businesses in 2026

  • Writer: Linda Trafford
    Linda Trafford
  • Sep 3
  • 2 min read

As 2026 begins, Canadian small businesses face several important tax changes. Some proposals have been cancelled, while others open new planning opportunities. At LCT Accounting Services, we’ve summarized the key updates to help you prepare.


Federal Tax Updates


🚫 Capital Gains Inclusion Rate Cancelled

The government scrapped the planned hike in the capital gains inclusion rate. It remains at 50%, avoiding higher tax on gains above $250,000.

💰 Lifetime Capital Gains Exemption (LCGE)

The LCGE is now $1.25 million for qualifying small business shares, farming, and fishing property. Starting in 2026, it will once again be indexed to inflation.

🚀 Canadian Entrepreneurs’ Incentive (CEI)

Launched in 2025, this incentive phases in a reduced 33.3% inclusion rate on eligible business sales. By 2029, up to $2 million of gains will qualify.

📉 Personal Income Tax Relief

The lowest federal tax rate drops to 14.0% in 2026, putting more money in the hands of small business owners.

🌱 Carbon Pricing Update

The federal consumer carbon tax ended in April 2025. Industrial carbon pricing remains, but households and small businesses will no longer face direct charges.


Ontario Tax Updates


🏢 Small Business Corporate Rate

Ontario’s small business corporate income tax rate stays steady at 3.20%.

🏭 Manufacturing Investment Tax Credit

Ontario manufacturers can now claim a 15% refundable credit on qualifying “Ontario-made” investments. This rate, raised in May 2025, continues through 2026.

🔬 Research & Development Incentives

Innovative businesses benefit from strong R&D support:

  • Federal SR&ED: 35% refundable credit on the first $3M of eligible expenses (for CCPCs), 15% thereafter.

  • Ontario SR&ED: Additional 10% provincial credit stackable on top of the federal one.


What This Means for You

  • Thinking of selling? Higher LCGE and the CEI create more favourable exit options.

  • Paying yourself a salary? Lower federal rates mean more take-home pay.

  • Investing in growth? Ontario’s manufacturing and R&D credits can reduce costs.


Next Steps

Tax planning in 2026 comes with opportunities—and complexity. At LCT Accounting Services, we’ll help you minimize tax, stay compliant, and position your business for growth.

📞 Contact us today to see how these changes affect your business.

Linda Trafford, CPALCT Accounting Services🌐 lctaccounting.com | ✉️ [Your Email] | 📞 [Your Phone]




 
 
 

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