Canada’s productivity mega-deduction offers further incentives for investment

Canadian businesses considering investments in equipment, technology, infrastructure or resource development may soon have access to a powerful new tax incentive.

The federal government recently proposed a productivity mega-deduction that would allow many businesses to immediately deduct the costs of eligible capital investments.

This measure, which supplements the productivity super-deduction that was introduced in last year’s federal budget, could accelerate tax relief, improve cash flows and enhance the after-tax economics of major projects. Its impact could be particularly significant for capital-intensive sectors such as mining, energy, manufacturing and technology—where investments in equipment, infrastructure and development projects can be substantial.

While the mega-deduction is intended to encourage investment and productivity growth across the Canada’s economy, the benefits will vary depending on the nature of a business's assets, operations and growth plans.

How the mega-deduction works

When a business acquires depreciable property—such as buildings, equipment or software—the cost is generally deducted over time for tax purposes as a capital cost allowance (CCA) rather than deducting it in full in the year of acquisition. The applicable maximum deduction rate depends on the CCA class to which the property belongs.

The productivity mega-deduction would allow taxpayers to instead deduct the full cost of an investment in such property in the year that it becomes available for use. Eligible properties must have been acquired on or after Sept. 15, 2026.

The mega-deduction does not apply to the following types of property:

• Certain buildings and additions to buildings.
• Patents, franchises, concessions or licenses, subject to certain exceptions.
• Goodwill.
• Regulated natural gas distribution pipelines. 
• Certain vehicles. 
• Certain property related to industrial mineral mines, timber limits and cutting rights. 

Eligible property that was previously used, or previously acquired for use, may still qualify for immediate expensing if certain conditions are met. Neither the taxpayer nor a non-arm’s-length person can have previously owned the property— and the property cannot have been transferred to the taxpayer on a tax-deferred rollover basis.

Property excluded from mega-deduction eligibility could still benefit from other measures announced separately as part of the productivity super-deduction. Manufacturing and processing buildings acquired on or after Nov. 4, 2025 and before 2033, for instance, may remain eligible for accelerated expensing.

Implications across industries

As businesses evaluate whether their projects can benefit from the proposed mega-deduction, here is a look at what this measure could mean for key Canadian industries: