Productivity Mega Deduction: Invest and Save

If you run a business in Canada and you are thinking about buying equipment, computers, furniture, or vehicles, the proposed Productivity Mega Deduction matters to you. Instead of writing the cost off slowly over several years, you may be able to deduct the full amount right away in the year the asset becomes available for use.

The reason behind it is competitiveness. The marginal effective tax rate (METR) is the tax imposed on an additional dollar of business investment, and it is one of the measures used to compare how attractive a country is to invest in.

With this measure in place, Canada is expected to have a more competitive METR compared to the US and other developed nations. In plain terms, the government wants you to invest in your business, and it is using the tax system to make that decision easier.

When is it available?

The government is proposing that immediate expensing be provided on a permanent basis for most depreciable property acquired on or after September 15, 2026. Immediate expensing simply means you fully deduct the cost of the investment in the year it becomes available for use, rather than spreading it out under the normal CCA rules. The timing of your purchase is therefore important, because anything acquired before that date falls under the old rules.

What qualifies, and is it only for the “big guys”?

No, and this is the part that surprises most people. Unlike some of the previous measures the government put out, immediate expensing is available to all Canadian businesses, regardless of size or industry. Whether you are a one-person consulting company or a large manufacturer, the same rules apply.

Does incorporation make a difference?

Yes.

If you are incorporated, the write off is straightforward. You can deduct the full cost of the asset even if that pushes you into a loss, and that loss can be carried back to earlier years or forward to future ones.

If you are a sole proprietor, your deduction is capped at the income that business earned. You cannot use the write off to create or increase a loss.

Example

To see how your structure changes the outcome, assume a business buys $500,000 of new, qualifying manufacturing equipment in the year, but only earns $200,000 in income before depreciation. Here is how the same purchase plays out two different ways:

• If you are incorporated: There is no income cap, so the corporation deducts the full $500,000. That creates a $300,000 loss, which can be carried back to prior years or forward to future years.
• If you are a sole proprietor: Your deduction is capped at the $200,000 of income the business earned. You cannot use the write off to create a loss.
• What happens to the leftover $300,000: For the sole proprietor, it stays in the pool and is available in future years, so nothing is lost. However, you cannot fall back on regular depreciation to claim any of it this year.

What assets generally qualify?

• Technology and Electronics: Laptops, servers, and general-purpose computer hardware, as well as data network infrastructure equipment.
• Office and Warehouse Equipment: Desks, chairs, filing cabinets, and machinery or fixtures used in the business (Class 8).
• Small Tools: Tools costing $500 or more (Class 8) or short-lived assets like kitchen utensils and medical instruments (Class 12).
• Eligible Vehicles: Delivery vans, trucks, or business passenger vehicles that are brand new and were assembled in Canada.

What assets generally don’t qualify?

• Real-Estate: Buildings and additions to buildings included in CCA Classes 1 and 3 are excluded from the proposed permanent Productivity Mega Deduction. Certain manufacturing buildings and eligible Class 1 buildings used in LNG facilities may instead qualify for separate temporary or accelerated CCA rules.
• Intangible Assets: Goodwill, franchises, and quotas (Class 14.1).
• Used or Foreign Vehicles: Any passenger vehicle (Class 10 or 10.1) or taxi that was either (i) previously used or (ii) assembled outside of Canada.

How about manufacturing and processing buildings?

Manufacturing and processing buildings would not be eligible for the Productivity Mega Deduction because Class 1 buildings are excluded. The good news is that they would continue to be eligible for temporary immediate expensing as announced in Budget 2025, so the opportunity is not gone, it just falls under a different measure.

Can a business transfer assets within a related corporate group to qualify?

This is usually the first question that comes up, and the answer is that the rules anticipate it. Eligible property that has been used, or acquired for use, for any purpose before it is acquired by the taxpayer would qualify for immediate expensing only if both of the following conditions are met:

• neither the taxpayer nor a non-arm’s-length person previously owned the property; and
• the property has not been transferred to the taxpayer on a tax-deferred “rollover” basis.

In short, simply moving assets around within your corporate group will likely not create a new deduction.

Is there an expiry to this incentive?

Not as currently proposed. The Government of Canada proposes to implement the Productivity Mega Deduction on a permanent basis, so this measure appears to be here for the foreseeable future.

Is there a $1.5 million limit like before?

No. The draft proposals effectively remove the prior $1,500,000 annual limit for immediate expensing, which was previously shared among associated groups, for property acquired on or after September 15, 2026. For larger purchases, this is one of the most meaningful changes.

Example: Before vs. After

Assume Maple Fabrication Inc. is a Canadian-controlled private corporation with a fiscal year running January 1 to December 31, 2027. It earns $500,000 of business income before depreciation and buys $200,000 of new equipment during the year. Because the company is a small business, the 11.2% small business tax rate applies. The equipment falls into a 20% CCA class. Under the old rules the purchase would have qualified as accelerated investment incentive property, meaning the half-year rule is suspended and the first-year claim is boosted by 50%, giving a first-year deduction of $60,000 rather than the full $200,000.

2027 fiscal year	Old rules	Productivity Mega Deduction
Business income before depreciation	$500,000	$500,000
Equipment purchased	$200,000	$200,000
Deduction claimed in 2027	$60,000	$200,000
Taxable income	$440,000	$300,000
Tax at 11.2%	$49,280	$33,600
Tax saved in 2027	—	$15,680

The company keeps an extra $15,680 in the business in 2027. Keep in mind this is a timing benefit rather than free money. Under the old rules the remaining $140,000 would have been deducted over the following years at 20% a year, so what the Productivity Mega Deduction really does is pull that deduction forward and improve your cash flow in the year you make the investment.

So what does this mean for me?

The government is incentivizing you to invest in capital assets, no matter your size or industry. You can purchase things like computer equipment, business equipment, furniture, fixtures, tools, and eligible vehicles, and potentially get an immediate write off. This may reduce your taxable income in the year of purchase, which is helpful, but keep in mind that a deduction is not the same as cash in hand. You still need the funds to make the purchase in the first place.

If you were already planning to buy equipment, the timing of that purchase is now worth a conversation. Before you sign anything, check with your accountant to confirm the asset qualifies and that the deduction actually helps you this year.