As we step into 2026, small business owners across Canada face several important updates to the tax landscape. These changes, driven by annual inflation adjustments, payroll contribution increases, and ongoing policy refinements, can impact everything from your bottom line to compliance obligations. Whether you're running a local shop in London, Ontario—the Forest City—or managing operations virtually across the province, staying informed is crucial for effective tax planning.
At Bhundhoo Tax, we specialize in helping small and medium-sized enterprises navigate corporate tax, income tax, and strategic financial decisions. As your trusted CPA and accountant near me in London Ontario, or through our virtual accountant and fractional CFO services, we're here to ensure you maximize deductions and minimize surprises. This comprehensive guide breaks down the most relevant 2026 tax changes, drawing on official sources from the Canada Revenue Agency (CRA) and Department of Finance Canada.
Personal Income Tax Brackets and Rates: A Welcome Reduction
One of the most positive developments for 2026 is the full implementation of the federal lowest marginal tax rate reduction to 14% (from 14.5% in 2025). This "middle-class tax cut," which began mid-2025, now applies for the entire year, putting more money back in the pockets of owners and employees alike (source: Canada Revenue Agency - Canadian income tax rates for individuals).
Federal tax brackets have also been indexed by approximately 2% to account for inflation, preventing "bracket creep" where rising wages push you into higher tax tiers without real income growth. For 2026:
14% on the first $58,523 of taxable income
20.5% on income between 58,523 and117,045
26% on income between 117,045 and181,440
29% on income between 181,440 and258,482
33% on income over $258,482
In Ontario, provincial brackets and rates remain stable, but combined with federal changes, many small business owners in Forest City will see modest tax relief on personal drawings or salaries. This is particularly helpful for incorporated owners balancing corporate tax and personal income tax.
Payroll and Contribution Updates: Higher CPP and EI Costs
While personal rates offer relief, payroll deductions are heading upward due to enhanced Canada Pension Plan (CPP2) contributions and slight Employment Insurance (EI) adjustments. These changes affect both employers and employees, increasing the cost of hiring or compensating staff.
For 2026, the maximum pensionable earnings rise to 74,600 (with a second-tier ceiling at85,000), pushing maximum employee CPP contributions to around 4,230 (plus the second-tier amount), matched by employers (source: CRA - Payroll deductions tables). EI premiums also see minor increases, with the maximum insurable earnings at68,900.
Small businesses in London Ontario should review payroll systems early. As your accountant, Bhundhoo Tax can assist with updated withholding calculations or explore salary-dividend mixes to optimize after-tax income. For those using virtual accountant services, we offer remote payroll reviews to ensure compliance without added overhead.
Capital Gains: Stability with Enhanced Exemptions
After years of uncertainty, the capital gains inclusion rate remains at 50% for 2026—no increase to two-thirds will occur, providing welcome stability for asset sales or investments (source: Department of Finance Canada - Capital gains measures).
However, the Lifetime Capital Gains Exemption (LCGE) for qualified small business corporation shares, farming, or fishing property stands at $1.25 million (with indexation resuming in 2026, potentially pushing it higher). This exemption allows owners to shelter significant gains when selling their business tax-free—a powerful tool for succession planning in Forest City enterprises.
If you're considering a business transition, consulting a CPA for a compilation engagement or tax planning is essential to purify assets and maximize this benefit.
Corporate Tax Rates and Small Business Deduction: Steady for Now
The federal small business tax rate holds at 9% on the first $500,000 of active business income for Canadian-controlled private corporations (CCPCs). In Ontario, the provincial small business rate remains competitive, resulting in a combined rate around 12.2%.
No major cuts or hikes are slated for 2026, but provincial adjustments in other regions highlight the value of localized advice. For London Ontario businesses, this stability supports reinvestment, especially when paired with ongoing incentives like the Scientific Research and Experimental Development (SR&ED) program (source: CRA - SR&ED tax incentives).
Bhundhoo Tax provides expert corporate tax filing and tax planning to ensure you claim the full small business deduction and explore accelerated deductions for equipment or clean technology investments.Other Notable Adjustments and Compliance Considerations
Several smaller changes round out the 2026 landscape. Automobile allowance rates increase slightly to reflect higher vehicle costs, benefiting owners claiming business mileage (source: CRA - Automobile rates). Home office deductions remain simplified for many, with the flat rate option continuing.
GST/HST remittances and reporting see no fundamental shifts, but enhanced CRA digital tools emphasize accurate filing. For growing businesses, quarterly instalments based on rising profits require careful forecasting to avoid interest penalties.
In Forest City, where manufacturing and services thrive, these updates underscore the need for proactive tax planning. Whether you need an accountant near me for in-person support or a fractional CFO for strategic oversight, partnering early prevents year-end rushes.
Compliance Risks and Best Practices
Overlooking these changes can lead to underpayments, missed credits, or audit triggers. The CRA continues focusing on accurate payroll reporting and benefit claims, with penalties for errors in source deductions or instalments.
Best practices include reviewing payroll software for 2026 rates, reconciling personal and corporate tax strategies, and documenting vehicle or home office expenses thoroughly. Routine reconciliations and proactive documentation—much like tracking health premiums for past credits—ensure smooth filings.
Engaging a CPA for periodic reviews catches issues early, positioning your business for audits or growth opportunities.Conclusion
The 2026 tax changes offer a mix of relief (lower personal rates, stable capital gains treatment) and increased costs (payroll contributions), with stability in corporate tax rates providing planning certainty. For small business owners in London Ontario and beyond, these updates reinforce the importance of informed tax planning to protect profitability.
At Bhundhoo Tax, we're committed to guiding you through income tax, corporate tax, and beyond—whether as your local accountant in the Forest City, virtual accountant, or fractional CFO. This not only ensures compliance but also helps you leverage every available advantage.
If these changes affect your operations, contact us for a personalized review. Proactive steps today mean stronger financial health tomorrow.
Keywords: CPA, Accountant, Income Tax, London Ontario, Forest City, Accountant near me, Virtual Accountant, Fractional CFO, Compilation Engagement, Corporate Tax, Tax Planning
(Sources include: Canada Revenue Agency (canada.ca/en/revenue-agency), Department of Finance Canada (budget.canada.ca), KPMG Tax Facts (kpmg.com/ca/en/home/services/tax/tax-facts.html), and BDC.ca for small business insights.)