Ontario Budget 2025

On May 15, 2025, Ontario’s Finance Minister Peter Bethlenfalvy unveiled the province’s latest budget, charting a cautious course through continued economic uncertainty. The government forecasts a massive deficit of $14.6 billion for 2025-26, with a return to a surplus postponed until 2027-28. Despite the fiscal shortfall, the budget stays true to the government’s recent “building Ontario” mantra, with major investments in infrastructure, healthcare, and housing aimed at supporting a growing population and stimulating long-term economic growth.

Titled “A Plan to Protect Ontario,” the budget places a strong emphasis on building a resilient and robust economy in the face of ongoing U.S. tariffs and includes funding of up to $5 billion to support businesses and strategic sectors of the economy impacted by international trade disruptions, as well as various enhancements to existing workforce development and skilled trades programs.

This year’s budget did not announce a long-overdue general property reassessment. For the time being, assessments for property tax purposes will continue to be based on a valuation date of January 1, 2016, further exacerbating concerns about fairness and fiscal sustainability. See Property Tax Reassessment Not Addressed in Ontario Budget for further discussion on what this might mean for Ontario taxpayers.

Several new and enhanced tax measures―some of which were previously announced―were included in the budget, as summarized below.

Corporate Tax Measures

Ontario Made Manufacturing Investment Tax Credit Enhancements

As previously announced, the government is proposing to temporarily increase the Ontario Made Manufacturing Investment Tax Credit rate from 10 to 15% for qualifying corporations, making eligible capital investments in Ontario on or after May 15, 2025, and before January 1, 2030. This enhanced refundable credit will apply to qualifying expenditures on buildings, machinery, and equipment used in manufacturing or processing, up to a limit of $20 million in a taxation year.

In addition, a new non-refundable 15% version of the credit will be introduced for corporations that are not Canadian-controlled private corporations (CCPCs), temporarily broadening access to this incentive.

New Investment Tax Credit for Shortline Railways

The budget includes the introduction of an Ontario Shortline Railway Investment Tax Credit, which will provide a refundable tax credit for 50% of eligible capital and labour expenditures related to railway maintenance incurred on or after May 15, 2025, and prior to January 1, 2030. The new tax credit will be limited to a maximum of $8,500 per track mile in Ontario.

Small Beer Manufacturers Tax Credit Enhancement

The government is proposing minor adjustments to its refundable Small Beer Manufacturers Tax Credit to reflect the new beer basic tax rates for microbrewers and other proposals related to alcohol tax (see discussion below), effective for eligible sales by qualifying corporations on or after August 1, 2025.

Alcohol Tax Measures

As part of ongoing efforts to modernize the taxation of alcohol and foster a more competitive marketplace, the government is proposing several legislative changes, including amendments to the Liquor Tax Act, 1996, which will impact producers and retailers of alcoholic beverages.

Spirits Basic Tax Rate Reduction

Effective August 1, 2025, the spirits basic tax will be reduced by 50% on sales made by Ontario distillers from their on-site retail stores, cutting the tax rate to 30.75% from 61.5%.

Basic Tax and Markup Rate Reductions for Microbrewers

Similarly, the beer basic tax rates for qualifying microbrewers will be reduced to 17.98 cents from 35.96 cents per litre for draft beer and to 19.88 cents from 39.75 cents per litre for non-draft beer, effective August 1, 2025. A transitional rule will apply to ensure that beer sold after the effective date of the change, but received by a collector before that date, will be taxed based on the rates in effect as of July 31, 2025.

The Liquor Control Board of Ontario (LCBO) will be required to reduce its markups on beer to align with these new tax rates.

Increased Flexibility for Microbrewers

To enhance operational flexibility, the government is proposing to allow qualifying microbrewers to enter production contracts with non-microbrewers without losing their microbrewer status, subject to certain conditions. This change would take effect upon the legislation receiving Royal Assent.

In addition, a new five-year averaging rule for microbrewers will be introduced, effective March 2, 2026. Under the new rule, a brewer will qualify as a microbrewer if the lesser of its average annual worldwide beer production over the past five years and its annual worldwide production in the prior year does not exceed 49,000 hectoliters.

LCBO Markup Rate Reductions

Under proposals in the budget, the basic markup rate applied by the LCBO to cider will be reduced to 32% from 60.6%. Similarly, markup rates for wine and spirit-based ready-to-drink beverages with an alcohol-by-volume (ABV) content up to 7.1% will be reduced to 48% (from 60.6% or 64.6% and 68.5% or 96.7%, respectively). These changes will take effect on August 1, 2025.

New Alcohol Category

The government is proposing to create a new category of controlled alcohol called “alcohol refreshment beverages” to be comprised of ready-to-consume hard seltzers, coolers, and other premixed cocktails made from any combination of wine, spirits, beer, or fermented sugar with an ABV content up to 7.1%, as well as other beverages meeting prescribed conditions. The new category will allow the province to set separate tax rates for these beverages. Prior to implementation, the government intends to seek feedback from stakeholders on the proposed changes.

Gasoline and Fuel Tax Measure

Permanent Reduction in Tax Rates

As announced in advance of the budget, the province intends to make its previously temporary gasoline and diesel fuel tax rate reductions permanent, effective July 1, 2025, leaving the tax rate on both types of fuel at 9 cents per litre. The government first introduced these reductions on July 1, 2022.

Tax on Propane for Use in Licensed Road Vehicles Eliminated

The budget proposes to eliminate the tax on propane used in licensed road vehicles, effective July 1, 2025. This measure is intended to simplify small business tax compliance, as the use of propane-powered vehicles continues to decline.

Property Tax Update

As noted above, a general property reassessment was not announced in this year’s budget and limited information was provided on the government’s plans for property taxation in Ontario.

However, the province did announce a few initiatives to modernize its property assessment and taxation operations, including measures to:

• Allow the Municipal Property Assessment Corporation (MPAC) to deliver assessment notices electronically, beginning in 2026;

• Authorize expanded use of MPAC’s property assessment information by municipalities;

• Develop tools to assist municipalities with assessment base management; and

• Enable MPAC to provide online access to assessment roll information.

In addition, the government committed to working with municipalities on a modernized fiscal framework, indicating that municipalities, facing rising service demands and limited revenue options, will receive additional funding to help maintain essential services without resorting to steep property tax hikes.

Simplifying Tax Administration

The government continues to explore ways to improve and simplify the administration of its tax system and, in this year’s budget, noted recent upgrades to digital services and improvements in providing online information about its tax programs. The government also expressed its intention to continue investing in digital technologies with a view to expanding online access to services.

Tariff Relief

In addition to the $5 billion in funding noted above, the government alluded to the need to protect Ontario’s economy and workers from the impact of U.S. tariffs while introducing or commenting on the following measures in this year’s budget:

• Proposals to increase the province’s internal trading capacity, invest in infrastructure, and develop resource and critical mineral projects;

• The provision of temporary six-month tax remittance deferrals from April 1 to October 1, 2025, on 10 provincial tax programs;

• The issue of $4 billion in surplus rebates to safe employers via the Workplace Safety and Insurance Board;

• Enhancements to training and support programs for laid-off workers;

• The creation of a Trade-Impacted Communities Program to administer up to $40 million in flexible grants to affected communities and local industries;

• A proposal to increase the LCBO wholesale discount rate from 10 to 15% on alcoholic beverages supplied to bars, restaurants, convenience stores, and LCBO Convenience Outlets until December 31, 2025; and

• The expansion of investments in the auto sector, including electric vehicle battery production.

The material presented in this communication is intended to provide general information only and should solely be seen as broad guidance and not directed to the particular facts or circumstances of any individual who may read this publication. No liability is accepted for acts or omissions taken in reliance upon the content of this piece. Before taking (or not taking) any action, readers should seek professional advice specific to their situation from Ryan, LLC or other tax professionals.