Spotlight: Budget ’26 and Ontario’s Defence Industry

The 2026 Ontario Budget identifies defence as a core pillar of Ontario’s economic competitiveness, noting that Ontario already accounts for 36% of Canada’s defence sector employment, with 300+ companies, $5B+ in annual revenues, and 13,000+ direct jobs. By placing defence alongside advanced manufacturing, cybersecurity, aerospace, AI, and dual‑use technologies, the province signals that it is a strategic priority for future investment and workforce development. This framing provides a clear policy commitment that strengthens confidence among existing firms and attracts new entrants to Ontario’s defence ecosystem.

2. Leveraging Increased Federal Defence Spending for Provincial Opportunity 

The federal government’s commitment to raise defence spending to 5% of GDP by 2035, representing $150B annually in military and industrial investments, creates the most significant expansion of defence procurement in Canadian history. Ontario’s budget explicitly positions the province to capture the lion’s share of this activity, given its industrial strengths and established supply chains in armoured vehicles, aerospace, marine systems, and advanced technologies. This alignment ensures Ontario firms will benefit from unprecedented procurement cycles in defence and security.

3. Launch of Ontario’s First Military Defence Representative  

A major structural step in the budget is the appointment of Ontario’s first-ever Military Defence Representative  in March 2026. This new diplomatic‑industry role is responsible for promoting Ontario defence firms globally, attracting foreign defence investment, expanding export markets, and connecting Ontario suppliers with NATO and allied procurement opportunities. The OMDR strengthens Ontario’s presence in global defence markets and provides coordinated, province‑level advocacy for defence manufacturers and technology firms.

4. Ontario’s Bid to Host the Defence, Security and Resilience Bank 

The budget highlights Ontario’s bid to secure Toronto as the headquarters for the new Defence, Security and Resilience Bank, which is a multilateral financing institution for NATO‑aligned governments. If successful, the headquarters would generate 3,500 direct jobs and thousands more indirect jobs while positioning Ontario as a global capital for defence project financing. This move would anchor long‑term growth in defence manufacturing, technology development, and international procurement partnerships across the province.

5. Major Tax Incentives for Defence Manufacturers 

The budget delivers substantial tax measures that directly support defence manufacturers and defence-adjacent operations. Through the Ontario Made Manufacturing Investment Tax Credit, companies investing in manufacturing buildings, equipment, and machinery receive meaningful cost reductions. Combined with accelerated capital cost allowances, including immediate 100% writeoffs on manufacturing and processing equipment, Ontario significantly lowers the cost of expanding and modernizing defence production lines.

6. $500 Million Critical Minerals Processing Fund Supporting Aerospace & Defence Materials 

Critical minerals are vital to defence manufacturing, including advanced batteries, aircraft alloys, and next‑generation armour materials. The budget renews support for the $500M Critical Minerals Processing Fund, which expands provincial capacity to process minerals like lithium, nickel, cobalt, graphite, high‑purity iron, and aluminum. This strengthens domestic supply chains for aerospace, naval systems, armoured vehicles, and dual‑use technologies, which will reduce reliance on foreign sources and improving supply chain security.

7. $215 Million Investment in Shipbuilding and Marine Defence Capacity 

Ontario will invest $215 million to support the shipbuilding and marine sector, including funding through the Ontario Shipbuilding Grant Program. This aligns with the federal National Shipbuilding Strategy and strengthens Ontario’s role in naval and Coast Guard projects. The budget highlights the milestone shipment of made‑in‑Ontario Algoma Steel for the Canadian Coast Guard’s new Polar Max icebreaker, demonstrating the province’s active participation in national security supply chains.

8. $50 Million in Venture Capital for Defence‑Relevant Technologies 

Ontario is investing $50 million through Venture Ontario to support venture capital firms backing companies active in AI, cybersecurity, advanced sensors, robotics, semiconductors, and other dual‑use technologies essential to modern defence systems. This increases early‑stage financing availability for Ontario innovators working on technologies that can feed into defence procurement, intelligence applications, and command‑and‑control systems.

9. “Buy Ontario Act” Increases Home‑Field Advantage for Defence Supply Chains 

The Buy Ontario Act (2025), reinforced through this budget, mandates that public-sector procuring entities prioritize Ontario-produced goods and services. This strengthens local supply chains, particularly in sectors like steel, vehicles, ICT infrastructure, and advanced manufacturing, which are foundational inputs for defence projects. The legislation includes compliance monitoring and penalties, ensuring Ontario firms retain procurement advantages that build industrial capacity and sustain high‑skilled jobs.

10. Broader Industrial, Workforce, and Infrastructure Investments that Strengthen Defence‑Adjacent Capabilities 

The budget’s broader investments, such as infrastructure expansion, critical mineral strategy modernization, skilled trades training, advanced manufacturing programs, and AI adoption, which will create favourable conditions for defence‑adjacent industries including aerospace, mobility, clean energy, robotics, and communications. Programs such as the Critical Technology Initiatives (CTI), major investments in nuclear energy infrastructure, and training expansions for skilled trades all contribute to the strength and resilience of Ontario’s industrial base supporting defence supply chains.