Canadian Prime Minister Announces ‘Productivity Mega Deduction’

On September 15, 2026, the second day of the Canada Investment Summit, Prime Minister Carney announced a new “Productivity Mega Deduction” that, once enacted, will permanently provide immediate expensing for a wide range of depreciable property as well as for Canadian development expenses.

The federal government introduced a “Productivity Super Deduction” in Budget 2025, comprising immediate capital cost allowance (CCA) expensing for manufacturing and processing buildings, accelerated CCA for eligible liquefied natural gas equipment and related buildings on the condition that they are low-carbon facilities, temporary reinstatement of the Accelerated Investment Incentive (originally announced in the 2024 Fall Economic Statement) and immediate expensing of manufacturing or processing machinery and equipment, clean energy generation and energy conservation equipment, zero-emission vehicles, certain productivity-enhancing assets (including patents, data network infrastructure and computers) and capital expenditures for scientific research and experimental development.

The proposed Productivity Mega Deduction materially expands the scope of the immediate expensing from that granted under the Productivity Super Deduction. Immediate expensing will allow taxpayers that acquire eligible depreciable property on or after September 15, 2026, to claim a CCA deduction for 100% of the cost of that property in the year the property becomes available for use and to deduct 100% of Canadian development expenses incurred on or after September 15, 2026 (including Canadian development expenses deemed to have been incurred after that date as a result of a renunciation under a flow-through share agreement entered into on or after that date).

As described in the prime minister’s announcement, the Productivity Mega Deduction will significantly reduce the cost of new investments in depreciable property in Canada. The announcement notes that as a result of immediate expensing, “Canada’s marginal effective tax rate on new business investment will fall from roughly 13% to 6.4% – the lowest of any major economy in the world and less than half the rate in the United States.” The proposal is stated to supplement other tax measures adopted by Canada in recent years to strengthen its competitiveness for investment capital and to support economic growth, including the suite of refundable clean economy investment tax credits and the enhancement of the Scientific Research and Experimental Development tax incentive program.

If the acquired property was previously used (or acquired for use) for any purpose, a taxpayer that subsequently acquires such property can benefit from immediate expensing only if the prior owner was arm’s length and the property was not transferred to the taxpayer on a tax-deferred rollover basis. The deduction is available to individuals and partnerships that have individuals as members, but in such circumstances is limited to the income earned from the relevant business or property where the acquired property is used, and cannot be used to create or increase a loss from the business.

With respect to Canadian development expenses, the draft legislation contains limits that would prohibit the immediate expensing of a Canadian development expense in respect of which the taxpayer is a successor and an expense that is a cost in respect of Canadian resource property acquired from a non-arm’s length person or partnership. In substance, these restrictions are designed to limit the immediate deduction of a Canadian development expense to the party that originally incurs the expense.

The accompanying backgrounder released by the Department of Finance estimates that the “incremental fiscal cost of the measure is $36 billion over five years, beginning in 2026-27” in return for a potential “increase in economic activity between 1.4 and 3 times the federal cost, translating into an average economic output of up to around $22 billion annually” and “long-term employment increases estimated at up to 80,000 jobs annually ten years from now.”

The prime minister’s announcement notes that the Productivity Mega Deduction will increase the percentage of depreciable assets that are eligible for immediate expensing from approximately 15% to 65%. Assets that will benefit from the Productivity Mega Deduction include “fibre-optic cable, mining property, oil and gas pipelines, software, research and development, computer equipment, aircraft and vehicles, patents, rail track, bridges, and roads.”

Effective from November 4, 2025, Class 47 liquefaction equipment can also be immediately expensed without the requirement to satisfy the expected emissions intensity requirement proposed in the 2026 Spring Economic Update, but only up to the income earned by the taxpayer attributable to the liquefaction of natural gas at the relevant facility. The previously announced 10% accelerated CCA for Class 1 buildings used in low-carbon liquefied natural gas facilities (proposed in Budget 2025 with more details provided in the 2026 Spring Economic Update) will continue to be available.

Assets that do not qualify for immediate expensing, as set out in the backgrounder and accompanying draft legislation, are

• buildings (including additions and alterations) in CCA Classes 1(q) and 3(k) (though manufacturing and processing buildings still benefit from the Productivity Super Deduction)
• certain vehicles in Classes 10 and 10.1 (generally, passenger and rental vehicles, taxis and certain vans or pick-up trucks used to earn income from transporting goods, equipment or passengers; such vehicles will only qualify for immediate expensing if they were assembled in Canada and have never been used for any purpose before being acquired by the taxpayer)
• Classes 14 and 14.1 property (including franchises, licenses, goodwill and eligible capital property)
• Class 51 property (certain natural gas distribution pipelines)
• Schedules V (industrial mineral mines and rights to remove industrial minerals from such mines) and VI (timber limits and cutting rights other than timber resource property) of the Income Tax Regulations property

Assets that do not qualify for the Productivity Mega Deduction may still qualify for the Productivity Super Deduction, including the reinstated Accelerated Investment Incentive.

The announcement of the Productivity Mega Deduction was made one day after the Minister of Finance and National Revenue announced that advance income tax ruling (AITR) requests relating to investments of at least $1 billion in Canada would be prioritized by the Canada Revenue Agency.