Productivity Mega Deduction

On September 15, the Government of Canada proposed permanent immediate expensing (under its Productivity Mega Deduction) for a broad range of depreciable property acquired on or after September 15, 2026, and for Canadian development expenses incurred on or after September 15, 2026.

What you need to know

• Most depreciable property acquired on or after September 15, 2026 could qualify for immediate expensing. Exclusions apply, including most buildings, goodwill, licences, franchises, and certain regulated infrastructure assets.
• Canadian development expenses incurred on or after September 15, 2026 also qualify.
• Special rules apply to liquefied natural gas facilities under the proposals.

Background

Immediate expensing allows taxpayers to fully deduct the cost of an investment in the year that it becomes available for use. According to the Government’s announcement, the Productivity Mega Deduction will reduce the marginal effective tax rate (i.e., the tax imposed on an additional dollar of business investment) from 13% to 6.4%.

Most depreciable property in the Capital Cost Allowance (CCA) regime is eligible for the Productivity Mega Deduction, except most buildings (and additions to buildings), franchises, licenses, goodwill, regulated natural gas distribution pipelines, certain vehicles, industrial mineral mines, and certain other properties. Property not eligible for the Productivity Mega Deduction would continue to be eligible for the existing temporary Accelerated Investment Incentive.

Restrictions

Certain restrictions apply, as follows:

• Property that has been used (or acquired for use) for any purpose before it is acquired by the taxpayer would be eligible for immediate expensing only if (i) neither the taxpayer nor a non-arm’s length person previously owned the property, and (ii) the property has not been transferred to the taxpayer on a tax-deferred “rollover” basis.
• Rules will apply to restrict the ability of individuals (and partnerships with members who are individuals), to create or increase a loss, consistent with those that applied as part of the temporary immediate expensing measure for small businesses that was announced in 2021.

Certain Canadian development expenses (CDE) incurred on or after September 15, 2026 would also be immediately deductible rather than deductible over time. This immediate CDE deduction is generally confined to the taxpayer that originally incurs the expense (i.e., not successored CDE).