Amid continued trade uncertainty, Ontario’s 2026 Fall Economic Statement last week delivered an updated picture of the province’s increasingly precarious fiscal health.
The impact of U.S. tariffs on Canadian businesses and rising inflation is contributing to a challenging economic environment, with implications for everything from business investment to government finances. Against this backdrop, Ontario is reporting a widening deficit and adjusting its fiscal projections, while introducing measures intended to support business competitiveness and strengthen key sectors of the provincial economy.
The province now forecasts a $16.9 billion deficit for 2026–27, up from the $13.8 billion projected in its 2026 Budget. While the deficit is expected to narrow over the following two fiscal years, reaching $12.7 billion in 2027–28 and $6.7 billion in 2028–29, the government doesn’t anticipate a return to a balanced budget until 2029–30. The Ford government’s revised outlook reflects the financial strains associated with a rockier economic landscape, but also a more than $3 billion increase to the province’s fiscal reserves to provide flexibility in responding to potential risks.
That fiscal pressure is mounting just as economic growth slows. The province projects real gross domestic product (GDP) growth of 0.5 per cent in 2026, followed by growth of 1.5 per cent in 2027. These forecasts could prove optimistic if (as is likely) U.S. tariffs persist for the foreseeable future. On the positive side, Ontario’s net debt-to-GDP ratio is forecast to remain below the province’s 40 per cent target over the medium-term outlook.
Ontario Competitiveness Tax Cut
While the Fall Economic Statement proposes virtually no new program spending, it does include a significant tax change (announced earlier this week) and several other measures designed to spur investment across the province.
The most notable is the proposed Ontario Competitiveness Tax Cut, which would provide an estimated $8 billion in provincial tax relief to the business sector. The permanent measure is designed to reduce the tax burden associated with eligible capital investments and complements the federal government’s Productivity Mega Deduction.
The changes allow eligible businesses to deduct the full cost of qualifying investments in the year they’re acquired, rather than claiming deductions over several years under the regular depreciation rules.
As outlined in the Fall Economic Statement, eligible capital assets include:
- “Immediate 100 per cent writeoffs on a permanent basis for most eligible depreciable property, including manufacturing and processing (M&P) machinery and equipment, certain clean technology property, zero-emission vehicles, greenhouse buildings, and productivity enhancing assets;
- Immediate 100 per cent writeoffs on a permanent basis for certain qualifying new vehicles assembled in Canada;
- Immediate 100 per cent writeoffs on a permanent basis for certain liquefaction equipment used in liquefied natural gas facilities;
- Immediate 100 per cent writeoffs on a permanent basis for Canadian development expenses;
- Immediate 100 per cent writeoffs for M&P buildings, with a phase-out after 2029;
- Accelerated depreciation from 4 per cent to 10 per cent for purpose-built rental housing for construction completed before January 1, 2036; and
- Accelerated first-year deductions of up to three times the regular amount for most other depreciable assets with a phase-out after 2029”
In alignment with the Productivity Mega Deduction, the Ontario Competitiveness Tax Cut applies to eligible assets acquired on or after September 15th, 2026. Businesses considering equipment purchases, facility improvements or other major capital expenditures should assess whether their planned investments qualify and how the enhanced deductions may affect their tax position.
Research and development tax credits
The Fall Economic Statement proposes restoring eligible expenditures under the Ontario Research and Development Tax Credit and the Ontario Innovation Tax Credit. The government estimates this change will provide more than $50 million in additional research and development tax support over three years.
These credits are relevant to qualifying businesses investing in research, innovation and the development of new products, processes or technologies. Companies undertaking such activities should review their eligible expenditures and applicable credit requirements to determine whether the restored provisions may increase their available tax support.
Support for strategic industries
Also detailed in the Fall Economic Statement is the previously announced $8.7 billion federal-provincial joint action plan to support the province’s steel, automotive and critical minerals sectors. The initiative is intended to bolster industries affected by tariffs while encouraging modernization, investment and development across strategic areas, including advanced manufacturing, defence, energy, electric vehicles and critical infrastructure.
The statement also outlines continued measures to support businesses navigating trade disruptions, including initiatives intended to strengthen domestic supply chains and help companies explore new markets.
Changes to the Film and Television Tax Credit
The province is proposing changes to eligibility for the Ontario Computer Animation and Special Effects (OCASE) Tax Credit. The 18 per cent refundable corporate income tax credit would be available to film and television producers only under the proposed changes.
Businesses operating in the computer animation, visual effects and broader production industries should review the revised eligibility provisions and assess how they may affect their activities.
Investment fund update
The statement also confirms a pause on the $4 billion Protect Ontario Investment Fund. Businesses considering potential support through provincial investment initiatives should monitor future government announcements for updates on the fund’s status and any changes to available programs.
Overall, the 2026 Fall Economic Statement introduces measures that could have some influence investment decisions, tax planning and access to industry support. In particular, the enhanced capital deductions and restored research and development tax credits warrant attention from eligible businesses.
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