On September 15, 2026, Prime Minister Mark Carney announced the Productivity Mega Deduction, with its stated objectives being to “boost business investment, enhance certainty and simplicity for businesses, and strengthen Canada’s tax competitiveness”. The proposed measure is a significant change to Canada’s business tax system. The proposed measure would generally allow taxpayers to immediately write off the full cost of a broad range of newly-acquired capital assets in the year that those assets become available for use, rather than deducting that cost gradually over several years. If enacted, the measure would be permanent, and it would have a substantial impact on capital-intensive businesses.
What Has Changed
Canada’s tax system generally allows taxpayers to deduct the cost of depreciable property (machinery, equipment, vehicles, software, and so on) through the capital cost allowance (CCA) system. These deductions are typically spread out over many years, which means that a business that spends $10 million on new equipment today will recover that cost slowly through modest annual deductions. This reduces the attractiveness of making the investment.
In recent years, enhancements were introduced to Canada’s tax depreciation system, but none went as far as hoped for, notably to match the permanent 100% first year depreciation deduction currently in effect in the United States. For example, the Productivity Super-Deduction, enacted in 2025, permitted a full write-off but only for a relatively narrow scope of asset classes.
The Productivity Mega Deduction represents a material change to the CCA regime: instead of waiting years to recover the cost of a capital asset, a business could deduct 100% of the eligible asset’s cost in the year that it becomes available for use.
What Assets Qualify?
The proposed measure would generally apply to all depreciable capital property acquired on or after September 15, 2026, subject to specific exceptions such as buildings, franchises and licenses, regulated natural gas distribution pipelines, and certain passenger vehicles.
The application of the proposed measure is not limited to new property: a taxpayer acquiring previously used property may still benefit from immediate expensing, but only if neither the taxpayer nor a non-arm’s length person previously owned it, and if the property was not transferred on a tax-deferred (rollover) basis.
Implications and Insights
1. Permanence
Previous iterations of accelerated CCA measures in Canada were temporary. Businesses were incentivised to sprint rather than plan. If enacted as proposed, the Productivity Mega Deduction would be permanent. That would give businesses the certainty needed to make long-term capital investment decisions without racing against an expiry date.
2. Canada Steps Up
The United States first enacted 100% bonus depreciation temporarily in 2017, and made it permanent in 2025. Canada, which had previously offered a more limited form of accelerated CCA but on a temporary basis, risked falling behind. With the introduction of the Productivity Mega Deduction, the federal government projects that Canada’s marginal effective tax rate on new business investment would fall to 6.4%, as compared to the US rate of 16.9% and the OECD average of 19.0%.
3. Practical Implications
The Productivity Mega Deduction may not be ideal for all taxpayers. It is fundamentally a capital expenditure incentive and, as such, it is most valuable to businesses that make substantial investments in depreciable property.
Capital-intensive industries, such as infrastructure, construction, energy, mining, telecommunications, transportation and aviation, are likely to see the greatest benefit. Many of the assets commonly used in these sectors, including aircraft, rail infrastructure, fibre-optic networks and mining property, should qualify for immediate expensing.
It is important to note that CCA may in some instances only result in a deferral of taxes rather than a permanent tax savings, notably due to the potential application of the recapture rules upon an eventual disposition of the particular asset.
Noting that CCA is a discretionary deduction, taxpayers that are considering taking advantage of the Productivity Mega Deduction should first validate whether it would benefit them and, if so, how best to structure their acquisition in order to qualify.
In anticipation of increased audit activity from the Canada Revenue Agency to confirm that all conditions for the proposed measure are met, taxpayers that seek to claim the deduction would be well advised to prepare and maintain appropriate documentation to evidence compliance.
4. Key Limitations
The Productivity Mega Deduction may provide businesses with a welcome boost to cash flow, however immediate expensing is only as valuable as the income against which it can be applied. A taxpayer that is already in a loss position, or one that does not expect to generate meaningful taxable income, will not derive the same benefit from this incentive. In such cases, the deduction may simply accelerate the creation of non-capital loss carry-forwards, which can be carried back three years and forward twenty years. While the resulting tax benefit would be deferred—and not eliminated—the timing advantage would nonetheless be diminished.
Additionally, for individuals and partnerships with individual members, the deduction cannot be used to create or increase a loss.
Looking Ahead
While the Productivity Mega Deduction is proposed legislation and not yet law, the federal government has signaled a clear intention to enact it. Businesses reviewing capital investment plans should begin assessing eligibility as early as possible, given that the proposed measure would apply to property acquired on or after September 15, 2026.
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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