On September 15, 2026, Prime Minister Carney announced the Productivity Mega Deduction, a set of enhanced tax deductions designed to incentivize new investments (the “Proposed Amendments”). The Proposed Amendments represent a fundamental shift in the economics of mine development in Canada.
Mining projects are among the most capital-intensive private undertakings in the Canadian economy, requiring enormous upfront investment. The timeline from exploration through permitting, construction, and ramp-up to commercial production can span ten years or more. In this context, the timing of the deductibility of expenses against taxable income is not merely an accounting consideration; it directly affects the ability to finance mining projects, project cash flow, net present value, and ultimately whether a project proceeds at all.
While the proposed measures have yet to be enacted into law, the federal Government has indicated that the legislative amendments will apply retroactively to the date of their initial announcement when ultimately enacted. Businesses should, therefore, begin assessing the implications of the new tax incentives now. For companies in the resource and mining sectors, the key change is that many “Canadian development expenses” (“CDE”) will be fully deductible in the year they are incurred, representing a shift from a 30% annual declining-balance deduction to a 100% write-off in year one.
What Are “Canadian Development Expenses”
CDE is generally comprised of expenses incurred in developing a resource property once it has been identified as viable. CDE typically captures a range of development-stage expenditures, from drilling and underground mine development to the acquisition of certain Canadian resource properties.
Proposed Change to the Deductibility of CDE
Before September 15, 2026, a taxpayer was generally permitted to only deduct 30% of the balance of its “cumulative Canadian development expenses” at the end of a year. Recent amendments to the Income Tax Act (Canada) (the “Tax Act”) temporarily increased the percentage of “reaccelerated Canadian development expenses” that a taxpayer is permitted to deduct to 45%; however, the full deduction of CDE was still required to be claimed over many years.
Under the Proposed Amendments, CDE incurred on or after September 15, 2026, will generally be 100% deductible in the year the expense is incurred.1
Impact on Flow-Through Financings
We anticipate that flow-through financings for development-stage projects will be more desirable by the exempt market. This is because the Proposed Amendments are also proposed to capture CDE renounced through flow-through share agreements entered into on or after September 15, 2026. Currently, CDE renounced to a holder of flow-through shares is only 30% deductible per year (or 45%/37.5% under the accelerated rules for agreements entered into after November 20, 2018). Under the Proposed Amendments, most CDE renounced under flow-through share agreements entered into on or after September 15, 2026 will generally be 100% deductible by the investor in the year of the renunciation.
The Proposed Amendments put CDE on a closer footing to “Canadian exploration expenses” (“CEE”). CEE are generally comprised of expenses incurred during the earlier, higher-risk stage of exploring for a resource before a viable deposit has been confirmed. CEE is generally fully deductible in the year incurred. Note, however, that the Proposed Amendments do not include a look-back rule for CDE. Accordingly, unlike CEE renounced under flow-through share agreements, the issuer must actually incur the CDE before renouncing it to the investor.
Before the Proposed Amendments, flow-through financings generally excluded CDE from inclusion as qualified expenditures. By permitting 100% of most CDE to be deductible on a current basis in a manner more akin to the deductibility of CEE, companies may now be able to issue flow-through shares backed by the renunciation of CDE at premiums similar to those that may be obtained in respect of flow-through shares that only contemplate the renunciation of CEE. We anticipate that these changes will open up wider funding opportunities for development-stage issuers. Issuers and investors should consider these changes when preparing their flow-through financing documentation.
Impact on Project-Level Economics
Beyond flow-through share economics, the Proposed Amendments stand to improve project-level economics across the mining sector. Receiving deductions sooner will improve project cash flow and net present value, lower the effective cost of investments in equipment and mine development, and could help brownfield expansions meet companies’ internal investment thresholds. For companies evaluating whether to advance a development-stage project into construction, extend the life of an existing operation, or invest in expanded mineral processing capacity, the Proposed Amendments may materially alter the investment calculus. Canada competes with other global mining jurisdictions for the capital needed to build out mineral supply chains. The Proposed Amendments have the potential to position Canada as a significantly more competitive mining tax jurisdiction in the world, strengthening the investment case for deploying capital in this country rather than abroad.
Unlike prior accelerated deduction measures that were time-limited, the Proposed Amendments are being presented as a permanent legislative change. The permanence of this measure is particularly significant for the mining sector. Mining investment decisions are inherently long-term; a new mine may operate for 20 to 30 years or more, and the decision to proceed with construction requires confidence that the fiscal framework underpinning the project’s economics will endure. By making immediate expensing permanent rather than temporary, the Proposed Amendments provide the certainty that mining companies and their investors require when committing the substantial capital needed to bring new mines into production or to extend the productive life of existing operations.
The Definition of CDE Will Remain Unchanged
Mining companies routinely incur some infrastructure costs that do not fall within the definition of either CDE or CEE. The Proposed Amendments do not expand the definition of CDE. They merely alter the rate and timing of deductibility of certain CDE.
CDE is expressly defined in subsection 66.2(5) of the Tax Act. A cost or expense will generally qualify as CDE only if it falls within the eligible expenditures specifically listed in the statutory definition of CDE. For instance, the definition of CDE specifically includes the cost of constructing a temporary access road to an oil or gas well. By contrast, costs incurred in constructing permanent access roads to a mine site do not qualify as CDE; such expenses are instead generally treated as depreciable capital property subject to the capital cost allowance (“CCA”) rules in the Tax Act. The Proposed Amendments do, however, permit 100% of the cost of a broad range of depreciable property to be immediately deducted, including permanent roads falling under CCA Class 17. Similarly, power lines constructed to service a mine site are not captured by the definition of CDE, but they would generally constitute Class 47 depreciable property for CCA purposes and, therefore, should generally also qualify for immediate deductibility under the Proposed Amendments.
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Companies involved in the development of Canadian resource properties would be well advised to carefully consider the opportunities created by the Proposed Amendments.
The intersection of tax policy and mine development planning requires coordinated legal and commercial analysis. McMillan’s Tax and Mining groups work together to help clients navigate these opportunities and would be pleased to discuss the implications of the Proposed Amendments for your business.
Footnote
1. The immediate deduction will not be available where the taxpayer is a successor corporation within the meaning of subsection 66.7(4) of the Tax Act. The immediate deduction will also not be available where the CDE relates to a Canadian resource property acquired from a person or partnership with whom the acquiror does not deal at arm’s length. These restrictions mirror the limitations under the existing accelerated CDE rules and are designed to ensure that the benefit flows to the party that originally incurred the expense.
The foregoing provides only an overview and does not constitute legal advice. Readers are cautioned against making any decisions based on this material alone. Rather, specific legal advice should be obtained.
© McMillan LLP 2025
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