The federal government has announced a proposed significant change to how Canadian businesses may deduct the cost of many capital investments. And it’s very positive news for business owners.
Under the proposed Productivity Mega Deduction, businesses would be able to deduct the full cost of many eligible assets in the year they become available for use. Currently, businesses generally deduct these costs gradually over several years through the capital cost allowance system. For example, machinery and equipment were generally at the rate of 20% a year; that would now increase to 100% in the year of purchase under the proposed rules. The decision to make immediate expensing permanent (as compared to some other measures from Finance that were for a set period) will give business owners the confidence and clarity they need to act (once officially enacted, of course).
In practical terms, the total deduction available to the business does not increase. Businesses would just be able to claim it much sooner, potentially reducing their tax payable and keeping more cash in the business during the year of investment. A tax write-off today is worth much more than one over several years.
What Could Qualify?
The proposed measure would apply to a broad range of depreciable property acquired on or after September 15, 2026. At this point in the proposed rules, they are prospective only, so any assets acquired before that date would not qualify for the new relief.
Eligible capital investments at this point include:
- Machinery and equipment
- Computers and technology
- Software
- Data network infrastructure
- Patents
- Aircraft
- Certain vehicles
- Canadian development expenses
To claim the deduction, an eligible asset must be available for use. Ordering equipment or paying a deposit may not be enough if the asset has not yet been installed and is not ready to operate.
Finance Canada estimates that approximately 65% of business investment in capital assets would be eligible for immediate expensing under the new measure. That is a significant increase over the 15% of assets that were expected to qualify for immediate write-off in the much more restricted rules announced in Budget 2025.
What Would Not Qualify?
The Productivity Mega Deduction would not apply to every asset purchase.
Some of the proposed exclusions include:
- Most buildings and additions to buildings
- Franchises
- Licences
- Goodwill
- Certain passenger vehicles not assembled in Canada
What Else Do I Need to Know?
Manufacturing and processing buildings would not qualify under the Productivity Mega Deduction, but may continue to qualify for separate temporary immediate expensing measures introduced in Budget 2025.
Other assets that are not eligible for the new proposed immediate expensing may still qualify for an enhanced first-year deduction under the existing, but temporary, Accelerated Investment Incentive.
Restrictions are also expected to apply to certain used property, related-party transactions, and assets transferred through a tax-deferred rollover. Individuals and partnerships with individual members may also be restricted from using the deduction to create or increase a business loss. No such restriction is expected to apply to corporations.
Once the legislation passes and these rules are official, there will be important discussions to have with your accountant related to when and how you use the enhanced write-off. The decision may not be black and white, and there may be cases where you don’t want to use the 100% write-off in the year of purchase, such as if it would result in a write-off at a lower tax rate than you would pay in a future year.
Why Timing Matters
The main benefit of the proposed measure is timing.
For example, if a corporation purchases eligible equipment and puts it into use, it may be able to deduct the full cost in that tax year instead of claiming smaller deductions over several years.
While the overall deduction remains the same, receiving the tax benefit sooner can improve cash flow and make it easier to reinvest in equipment, technology, employees or other areas of the business.
Businesses considering a major purchase should review not only what they are buying, but also when the asset will be acquired and ready for use. The new rules may also affect business acquisitions and how a purchase price is allocated among equipment, buildings and goodwill.
Details Are Still Subject to Change
The Productivity Mega Deduction is currently a proposal in draft form and has not yet been passed into law. There has been no timeline provided at this point in terms of when the government expects to enact it. The details may change as the legislation moves through the usual process.
Before purchasing equipment, vehicles, technology or other capital assets, speak with your GGFL advisor to understand whether the property may qualify and how the timing could affect your tax position.
