Canada’s productivity mega deduction

What changed on 15 September 2026

Budget 2025 introduced the productivity super-deduction in November 2025. That package gave immediate expensing to manufacturing and processing buildings, a set of productivity-enhancing assets and low-carbon LNG equipment, and it brought back the accelerated investment incentive. By the Department of Finance's own estimate it reached about 15% of capital investment.

The mega deduction takes that to more than 65% of assets. Finance costs it at $36 billion over five years starting in 2026-27, and says the marginal effective tax rate on new business investment falls to 6.4% from roughly 13% after Budget 2025. Its comparison figures are 16.9% for the United States and 19.0% for the OECD average. Finance Minister François-Philippe Champagne called it one of the most significant changes to Canada's business tax system in half a century.

For an owner-managed corporation none of that is the point. The point is a $60,000 machine in Class 8. Under the plain half-year rule it gave a first-year deduction of $6,000, and more than that once the accelerated investment incentive was applied. Under the mega deduction it gives $60,000.

What qualifies

Immediate expensing applies to capital property subject to the CCA rules, with a short list of exceptions. The assets named in the announcement are machinery and equipment, computer equipment and software, research and development property, patents, aircraft, fibre-optic cable, mining property, oil and gas pipelines, rail track, bridges and roads.

Canadian development expenses incurred after 15 September 2026 are also eligible, including amounts deemed incurred through flow-through share renunciations. Class 47 liquefaction equipment for natural gas runs on a separate timetable, available from 4 November 2025, and the deduction can only be claimed against liquefaction income.

The availability test still governs everything. A deduction arises in the year the property becomes available for use, which is not the year of the purchase order, the deposit or the invoice. Nothing in the announcement changes that, and it remains the rule that decides which side of a year end a year-end equipment purchase lands on.

What does not qualify

• Buildings and building additions in Class 1 and Class 3. Manufacturing and processing buildings are the exception. They keep their Budget 2025 treatment, which is 100% in the first year through 2029, 75% for 2030 and 2031, 55% for 2032 and 2033, then back to the ordinary 10%. The 90% floor space test applies.
• Class 14 and Class 14.1 property. Franchises, licences, quotas and goodwill are unchanged.
• Class 51, regulated natural gas distribution pipelines.
• Certain vehicles in Class 10 and Class 10.1.
• Property in Schedules V and VI of the regulations, which is resource property with its own depletion rules.

The vehicle carve-out is the one to watch if you run a trades business. The government's release says only "certain vehicles in classes 10 and 10.1" and does not itemise them. Firms reading the draft describe the exclusion as covering passenger vehicles, vehicles held for rent or lease and taxis, with a narrow exception for vehicles that have never been used. Until the final text is published, price a vehicle purchase on ordinary CCA and confirm before you file. The passenger vehicle and motor vehicle distinction matters more than ever here, because the two land in different places.

None of this moves the cost ceilings. For 2026 acquisitions, a passenger vehicle in Class 10.1 is capped at $39,000 plus tax and a zero-emission passenger vehicle in Class 54 is capped at $61,000 plus tax. Those and the other current limits are on our reference page.

Leasehold improvements in Class 13 are not on the exclusion list, which would matter a great deal for a clinic, med spa or restaurant paying for a fit-out. Class 13 runs on straight-line mechanics of its own rather than a declining pool, so confirm how it is treated against the final text before you build a number around it.

The used-property rule, and where owner-managers get caught

Used property qualifies, but only when two things are true. Neither you nor anyone not dealing at arm's length with you owned the property before. And you did not acquire it on a tax-deferred rollover.

That closes the obvious manoeuvre. Rolling your own equipment into a new corporation under section 85 produces no fresh deduction. Buying the assets of a company your spouse controls produces no fresh deduction either. The same restriction sat inside the Budget 2025 rule for manufacturing buildings, so this is a condition Finance is applying consistently rather than a one-off.

Buying used equipment from a genuine third party is fine and always was.

Losses, and what a corporation can do that a sole proprietor cannot

A corporation can use the deduction to create or increase a non-capital loss. That loss carries back three years and forward twenty, which makes the deduction useful even in a year with no income to shelter.

An individual or a partnership with individual members cannot. The claim is limited to the income from the business the property is used in, and anything beyond that is denied for the year. This mirrors the 2021 immediate expensing rules, so it will be familiar to anyone who claimed under that measure.

For a sole proprietor with $70,000 of profit and a $90,000 equipment purchase, that is a hard stop on $20,000 of deduction. It is one more item on the list of reasons to look again at whether incorporating makes sense, though never the deciding one on its own.

What it means for an Ontario CCPC

Most of our clients are Canadian-controlled private corporations sitting inside the small business limit, and for them this measure is a planning problem rather than a windfall.

Ontario's small business rate dropped from 3.2% to 2.2% on 1 July 2026. With the 9% federal rate, active business income inside the $500,000 small business limit is taxed at 11.2% combined. A corporation with a calendar 2026 year end gets a blended Ontario rate of roughly 2.7% for this year, so about 11.7% combined. Income above the limit is taxed at the general combined Ontario rate of 26.5%. We went through the change and the proration in our note on the Ontario small business rate for 2026.

So $100,000 of eligible equipment saves $11,200 of tax claimed against small business income, and $26,500 claimed against income above the limit. Same asset, same year, more than double the value depending on where the income sits.

Six things follow from that for a CCPC.

The claim is discretionary, and that is now the main decision. You can claim anything from zero up to the full cost, and what you do not claim stays in the pool. A corporation comfortably inside the small business limit this year, with a much larger year in front of it, is often better off claiming nothing and keeping the pool. Spending a $100,000 deduction at 11.2% rather than at 26.5% later costs $15,300. No tax software prompts for that comparison.

The $500,000 limit is shared. Associated corporations allocate one limit between them. If you run two or three companies, the question of which one buys the equipment and which one claims the deduction is worth five minutes before the purchase, not after.

Creating a loss is possible but rarely the best move. A loss year wastes low-rate room and the small business deduction that goes with it. The case where it earns its keep is the carryback: three years of returns are open, so a loss created now can refund tax paid in a stronger year.

Instalments do not adjust themselves. Corporate instalments are normally based on the prior year, so a large deduction this year does not automatically reduce what you are asked to pay. Switching to the current-year estimate method can free up cash inside the year, with the usual interest exposure if the estimate comes in low. Our note on instalments covers the methods.

Your financial statements do not change. CCA is a tax deduction. Accounting depreciation carries on as before, so the statements a bank, a bonding company or a landlord asks for look the same whether you claim the full amount or none of it. That gap between book income and taxable income just got much wider, which is worth explaining to a lender before they ask.

Salary and dividend planning moves with it. If a large deduction already brings corporate income down to where you wanted it, the bonus you were going to declare may no longer be needed, and the salary versus dividend decision changes shape. The deduction reverses over time, so the year you take the bonus still matters.

Two things that do not change. Class 12 tools are already written off at 100%, so nothing moves there. And GST/HST is untouched. You still claim the input tax credit on an equipment purchase in the period you buy it, on the full amount, exactly as before.

What it means for a medium-sized Ontario business

Above the small business limit the arithmetic gets simpler and the number gets bigger. Every $100,000 of eligible equipment is worth $26,500 of tax deferred at the Ontario general rate. On a $2 million line of equipment that is $530,000 of cash staying in the company this year rather than going to the CRA.

That is enough to change an expansion decision, not just the accounting for one. It is also the first thing to raise with a lender, because the after-tax cost of financed equipment drops noticeably in year one.

Three things to watch at this size.

The passive income grind. Deferring tax leaves more cash in the corporation. Invested, that cash produces adjusted aggregate investment income, and once that passes $50,000 in a year the small business limit is reduced by $5 for every $1 above, disappearing entirely at $150,000. A company that swings between the small business rate and the general rate should model the deferral before banking it.

Taxable capital. The small business limit is also ground down where taxable capital employed in Canada sits between $10 million and $50 million, on an associated-group basis. A large capital purchase moves taxable capital, so this can bite from two directions at once.

Loss carrybacks are worth real money here. A deduction large enough to create a loss can be carried back three years against income that was taxed at 26.5%. For a business coming off two strong years into a heavy investment year, that is the single most valuable use of the measure.

Recapture is the other side of it

Writing an asset off in full drives its undepreciated capital cost to nil immediately. When you sell, the proceeds come off the class pool. If other assets in that class still carry a balance, the proceeds grind that balance down and nothing happens on the return. If they do not, the pool goes negative and the negative balance is recapture, added straight to income in the year of sale.

A contractor who buys a $120,000 excavator, deducts it in full, and sells it four years later for $55,000 out of an otherwise empty Class 38 picks up $55,000 of income that year. A business that is constantly buying may never see recapture at all, because new additions keep the pool positive. The exposure sits with businesses that own one or two large assets and eventually sell them.

Brian Ernewein at KPMG described the measure as the government handing the taxpayer an interest-free loan equal to the tax saved. The loan is worth having, particularly with borrowing costs where they are. It does not reduce the total tax the asset attracts over its life.

What still runs on the accelerated investment incentive

Property outside the mega deduction does not fall back to the plain rate table. It falls back to the reinstated accelerated investment incentive, which Bill C-15 brought back on royal assent, 26 March 2026. It covers property acquired after 2024 and available for use before 2034. The half-year rule is suspended and the first-year base is increased, which for most classes works out at roughly three times the ordinary first-year claim.

So a Class 1 building addition, a franchise fee in Class 14.1 and a passenger vehicle all still get accelerated treatment. They just do not get all of it in year one.

What to do before your year end

• Date the availability, not the invoice. A machine that arrives in December and is commissioned in February belongs to the following year.
• Look at anything ordered before 15 September 2026. Acquisition date governs, and a deposit paid in August against a November delivery needs checking.
• Do not restructure to capture it. The used-property and non-arm's-length rules were written to stop that specific thing.
• Model the rate before you claim. The same deduction is worth more than twice as much above the small business limit as below it.
• If you run associated corporations, decide which one buys the asset.
• Hold off on a vehicle decision until the carve-out is itemised in the final text.
• Keep an asset schedule that ties to the pool balances. With far more assets going to nil UCC in year one, recapture on a disposal becomes much easier to miss.

None of this needs to be decided this month. Royal assent is the point at which any of it is certain, and the measure applies to acquisitions from 15 September 2026 regardless of when the bill passes, so waiting costs nothing. What it does change is how a capital purchase gets handled on the corporate return, because the default claim the software produces and the claim that is right for the corporation are now much further apart.

The short version

• Immediate expensing of most depreciable property acquired on or after 15 September 2026, permanent, and still only draft legislation.
• Out: Class 1 and 3 buildings, Class 14 and 14.1, Class 51, certain vehicles in Classes 10 and 10.1, and Schedule V and VI property. Manufacturing and processing buildings keep their own 100% deduction through 2029.
• Used property qualifies only from a genuine arm's length seller, and not on a rollover.
• A corporation can create a loss with it. A sole proprietor or partnership cannot.
• For an Ontario CCPC the deduction is worth 11.2% inside the small business limit and 26.5% above it, so the decision is how much to claim rather than whether to claim.
• It is a timing benefit. Recapture comes back on disposal.

Where these figures come from

• The measure itself, the effective date, the exclusions and the $36 billion cost: the Department of Finance news release of 15 September 2026, and the draft legislation released with it.
• The scope figures, the marginal effective tax rate comparison and the quote from the Minister of Finance: the Prime Minister's news release of the same date.
• The reading of the vehicle carve-out and the used-property conditions: published commentary on the draft legislation from Osler and from MNP.
• The manufacturing and processing building schedule: Budget 2025, and commentary on it from McMillan.
• The accelerated investment incentive dates: Bill C-15, royal assent 26 March 2026.
• The 2026 vehicle ceilings: the automobile deduction limits announced by the Department of Finance in January 2026.

Where a figure here differs from the final legislation, the legislation governs. This page will be updated when the bill is tabled and again on royal assent.

All of our corporate and personal tax work

General information only, current at September 2026. Tax rules change and GST/HST status is fact-specific. Confirm your own position before relying on anything here.