On October 28, 2026, Ontario announced the Ontario Competitiveness Tax Cut, a proposed provincial measure designed to complement the federal Productivity Mega Deduction. If implemented as proposed, these measures could allow eligible businesses to immediately deduct the cost of a broader range of capital investments, potentially improving cash flow and changing the timing of tax deductions.

What Just Happened?

On September 15, 2026, the federal government proposed the Productivity Mega Deduction, which would allow businesses to immediately deduct 100% of the cost of most eligible depreciable property in the year it becomes available for use, rather than claiming Capital Cost Allowance (CCA) over multiple years.

We covered the federal proposal in our earlier post: The Productivity Mega Deduction: What Ontario Business Owners Need to Know.

Ontario has now announced its proposed provincial counterpart, the Ontario Competitiveness Tax Cut, as part of the province’s multi-year Tax Action Plan.

If implemented as proposed, the provincial measure would permanently allow eligible businesses to write off 100% of the cost of a wide range of qualifying capital investments. Examples identified by the government include machinery and equipment, software, fibre-optic cable, aircraft, certain vehicles, patents, rail track, bridges, and roads.

Ontario estimates that the proposed measure would provide:

• More than $8 billion in additional provincial tax relief over five years.
• More than $12 billion in total tax relief over five years when combined with accelerated write-off measures already included in Ontario’s 2026 Budget.
• A combined Ontario marginal effective tax rate on new business investment of approximately 3.6%, reflecting the proposed measure and previously announced tax measures.

These figures are government estimates, not guaranteed savings for individual businesses.

Important: The Measures Are Still Proposed

Before changing your investment plans, there are three important considerations.

1. The federal proposal is not yet enacted.

Finance Canada released draft legislative proposals on September 15, 2026. The Productivity Mega Deduction must go through the applicable legislative process before it becomes law. The final legislation may differ from the draft.

2. Ontario’s measure depends on federal legislation.

Ontario has stated that eligible businesses would be able to benefit from the proposed provincial write-off following the passage of federal legislation. Businesses should not assume that the new provincial deduction is already available.

3. Further details may follow.

Ontario’s 2026 Ontario Economic Outlook and Fiscal Review is scheduled for October 29, 2026. Businesses should review any additional information released in that document and subsequent legislative developments before making decisions based on the proposed rules.

How the Proposed Rules Would Work

The federal draft provides a useful starting point for understanding the potential implications for Ontario businesses. However, the final federal and provincial rules will determine eligibility.

1. Acquisition and availability-for-use dates matter

The federal proposal would generally apply to eligible depreciable property acquired on or after September 15, 2026.

The deduction would generally be claimed in the year the property becomes available for use, subject to the applicable rules.

This distinction matters. Purchasing equipment before your fiscal year-end does not necessarily mean you can claim the deduction in that same year if the asset is not yet available for use.

2. The proposal would not have the previous $1.5 million annual limit

The proposed federal measure is designed to provide immediate expensing for most eligible depreciable property without the $1.5 million annual limit associated with the separate temporary immediate-expensing measure introduced in 2021.

Businesses should still review the applicable restrictions, including those affecting individuals and partnerships with individual members.

3. Not every capital investment qualifies

The federal draft generally excludes:

• Buildings and additions to buildings included in CCA Classes 1 and 3.
• Property in CCA Classes 14 and 14.1, including certain franchises, licences, and goodwill.
• Property in CCA Class 51, such as regulated natural gas distribution pipelines.
• Certain vehicles included in CCA Classes 10 and 10.1.
• Property depreciated under Schedules V and VI of the Income Tax Regulations.

Manufacturing and processing buildings would not qualify for the proposed Productivity Mega Deduction because Class 1 buildings are excluded. However, they would continue to qualify for the separate temporary immediate-expensing rules announced in Budget 2025, subject to those rules.

The proposal would also provide immediate expensing for qualifying Canadian development expenses incurred on or after September 15, 2026.

The key takeaway: Do not assume that every equipment purchase, vehicle, building, or software investment qualifies. The asset’s CCA classification and the applicable conditions matter.

4. Previously used property is subject to additional conditions

Property that has previously been used, or acquired for use, may qualify only if specific conditions are met.

Under the federal draft, these generally include that neither the taxpayer nor a non-arm’s-length person previously owned the property, and that the property was not transferred to the taxpayer through a tax-deferred rollover.

Businesses considering used equipment or assets acquired through a restructuring should confirm eligibility before relying on immediate expensing.

5. Special loss restrictions may apply

The federal proposal includes rules intended to restrict the ability of individuals and partnerships with individual members to use immediate expensing to create or increase a loss, consistent with restrictions under the earlier temporary measure.

The treatment of a particular investment will depend on the taxpayer’s circumstances and the final legislation.

A Timing Benefit, Not Free Money

Immediate expensing can improve cash flow by allowing a business to claim a deduction earlier than it otherwise could under the regular CCA system.

However, a larger deduction today generally means fewer deductions available in later years. The measure primarily changes the timing of tax deductions rather than automatically reducing the total cost of an asset over its useful life.

For example, if a corporation acquires eligible equipment and can deduct its full cost in the year it becomes available for use, the deduction may reduce taxable income sooner.