On September 15, 2026, the Government of Canada proposed the Productivity Mega Deduction, a major expansion of immediate expensing for business investments. If you’re planning equipment purchases, software, or other capital investments, this proposed measure could affect the timing of your investment and when you receive the related tax deduction.
What Exactly Changed?
The federal government has proposed the Productivity Mega Deduction, which would allow businesses to immediately deduct 100% of the cost of most eligible depreciable property in the year the property becomes available for use, rather than claiming Capital Cost Allowance (CCA) over multiple years.
The proposal builds on the Productivity Super-Deduction announced in Budget 2025, which provided immediate expensing for about 15% of investment in capital assets, including certain machinery, equipment, manufacturing and processing buildings, clean energy and energy conservation equipment, zero-emission vehicles, patents, data network infrastructure, and computers.
The new Productivity Mega Deduction would significantly expand immediate expensing. The government estimates that about two-thirds of investment in capital assets would become eligible.
Examples of assets identified by the government include fibre-optic cable, mining property, oil and gas pipelines, software, research and development, computer equipment, aircraft, vehicles, patents, rail track, bridges, and roads. The government is also proposing to make immediate expensing permanent, rather than limiting it to a temporary period.
Which Assets Qualify?
Under the proposal, immediate expensing would generally apply to most depreciable property subject to the CCA rules that is acquired on or after September 15, 2026.
However, there are important exclusions.
The proposed rules generally exclude:
- Buildings and additions to buildings included in CCA Classes 1 and 3
- Property included in CCA Classes 14 and 14.1, such as franchises, licenses, and goodwill
- Property included 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 new 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.
The proposal would also provide immediate expensing for Canadian development expenses incurred on or after September 15, 2026. Because eligibility depends on the type of property and its CCA classification, businesses should confirm the classification of an asset before assuming it qualifies.
Why This Matters for Your Bottom Line
Immediate expensing is primarily a timing benefit. Instead of deducting the cost of an eligible investment gradually through CCA, a business could generally deduct the full cost in the year the property becomes available for use.
This can have several cash-flow and tax-planning implications:
- Earlier tax deductions. A larger deduction in the year of investment can reduce taxable income sooner.
- Improved cash flow. Receiving the tax benefit earlier can reduce the after-tax cost of an investment and provide businesses with more cash to reinvest.
- Greater planning certainty. If enacted as proposed, making immediate expensing permanent would give businesses greater certainty when planning long-term capital investments.
- More investment flexibility. Businesses considering new equipment, technology, infrastructure, or other qualifying assets may want to evaluate how the proposed rules affect the timing of their purchases.
The Department of Finance estimates that the Productivity Mega Deduction would reduce Canada’s marginal effective tax rate on new business investment from 13.0% to 6.4%.
For comparison, the government estimates the 2026 U.S. rate at 16.9% and the OECD average, excluding Canada, at 19.0%.
A Few Things to Watch
This is still a proposal
The Productivity Mega Deduction was announced on September 15, 2026, and draft legislative proposals have been released. However, the measure has not yet been enacted into law. The final legislation could contain changes to the proposed rules.
Not every capital purchase qualifies
Eligibility depends on the type of property, its CCA classification, when it was acquired, and whether other restrictions apply.
Restrictions can apply to previously used property
Property that has previously been used or acquired for use may qualify for immediate expensing only if specific conditions are met. Generally, neither the taxpayer nor a non-arm’s-length person can have previously owned the property, and the property cannot have been transferred through a tax-deferred rollover.
Loss restrictions apply
Special rules would restrict the ability of individuals and partnerships with individual members to use immediate expensing to create or increase a loss, consistent with restrictions that applied to the previous temporary immediate-expensing rules.
What Should Ontario Business Owners Do Right Now?
- Review planned capital purchases. If you’re considering equipment, technology, software, vehicles, or other capital investments, review whether the asset could qualify under the proposed rules.
- Check the CCA classification. Don’t assume that an asset qualifies simply because it is a business investment. The applicable CCA class and other conditions matter.
- Review cash flow and tax planning together. The timing of a large deduction can affect taxable income, cash flow, and tax instalment planning.
- Keep records of acquisition dates. The proposed rules generally apply to eligible depreciable property acquired on or after September 15, 2026, with the deduction generally claimed when the property becomes available for use.
- Monitor the legislation. Because the Productivity Mega Deduction is still proposed, businesses should confirm the final rules before making investment decisions based on the new deduction.
The Bottom Line
The proposed Productivity Mega Deduction would significantly expand Canada’s immediate-expensing rules for business investments.
For businesses acquiring qualifying depreciable property on or after September 15, 2026, the proposal could allow the full cost of an eligible investment to be deducted in the year the property becomes available for use, rather than over several years through the regular CCA system.
However, eligibility depends on the specific asset, its CCA classification, acquisition circumstances, and other applicable rules. Since the measure has not yet been enacted, businesses should review the final legislation before relying on it for tax-planning decisions.
At The TaxForce, we’re monitoring the proposed changes and reviewing how they may affect business investment and tax planning. If you’re considering a capital purchase and want to understand how the proposed Productivity Mega Deduction could apply to your business, contact us to discuss your specific situation.
Questions about how the Productivity Mega Deduction could affect your business? Get in touch with The TaxForce, we’re here to help.
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