A major equipment purchase or technology upgrade can support your business for years, but the upfront cost can put pressure on cash flow. A new federal tax proposal could allow businesses to recover more of those costs sooner through earlier tax deductions.
Announced on September 15, 2026, the Productivity Mega Deduction would permanently expand immediate expensing to a much broader range of capital investments. For businesses planning to purchase assets, modernize operations or expand, the proposal is an opportunity to revisit the tax implications of those decisions.
The measures remain proposals and are subject to the legislative process. Here is what business owners should understand before making their next capital investment.
A larger deduction, earlier
Businesses generally deduct the cost of depreciable capital assets over time through capital cost allowance, or CCA. Immediate expensing allows the full eligible cost to be deducted for tax purposes in the year the asset becomes available for use.
The proposed Mega Deduction builds on the Productivity Super-Deduction introduced in Budget 2025. It would expand immediate expensing from roughly 15% of capital investment to approximately two-thirds, on a permanent basis.
The principal dates are:
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September 15, 2026: The proposed rules generally apply to eligible depreciable property acquired, and qualifying Canadian development expenses incurred, on or after this date.
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November 4, 2025: A separate measure would apply to eligible Class 47 liquefied natural gas (LNG) liquefaction equipment acquired on or after this earlier date.
For depreciable assets, acquisition and availability for use are separate considerations. Purchasing equipment before year-end does not necessarily establish a deduction for that year if it is not yet available for use.
Finance Canada estimates an additional fiscal cost of $36 billion over five years, starting in 2026–27. It also projects a reduction in Canada’s marginal effective tax rate on new investment from 13.0% to 6.4%. This is a measure of the tax burden on new investment, rather than a new corporate income tax rate.
Which investments could qualify?
The proposal covers a broad range of assets and expenses. Potentially eligible investments include:
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Machinery, equipment and technology, including computers, software and fibre-optic cable.
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Mining property and eligible oil and gas pipelines.
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Aircraft and vehicles that meet the applicable eligibility rules.
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Patents, railway track, bridges and roads.
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Eligible research and development investments and qualifying Canadian development expenses.
The description of a purchase is only a starting point. Its tax classification, acquisition history and use will determine the treatment available.
Several categories would remain outside the general Mega Deduction:
| Property category | Proposed treatment |
|---|---|
| Buildings and additions in Classes 1 and 3 | Excluded from the general measure; qualifying manufacturing and processing buildings may receive separate temporary relief. |
| Classes 14 and 14.1, including certain franchises, licences and goodwill | Excluded. |
| Class 51 regulated natural gas distribution pipelines | Excluded. |
| Certain Class 10 and 10.1 vehicles | Restricted; eligibility depends on the vehicle and the applicable rules. |
| Property depreciated under Schedules V and VI | Excluded. |
Vehicle purchases require particular attention. The draft includes an exception for qualifying new Canadian-assembled vehicles that would otherwise fall within the specified vehicle exclusions.
Manufacturing and processing buildings remain subject to the separate temporary immediate-expensing measure announced in Budget 2025. Other excluded property may continue to qualify for enhanced first-year deductions under the Accelerated Investment Incentive, subject to that program’s conditions.
Class 47 LNG liquefaction equipment is addressed separately: the proposed additional allowance would bring the deduction rate to 100%, but that allowance would be limited to income attributable to liquefaction at the relevant facility.
Ownership history and income restrictions matter
Used assets can qualify, but an arm’s-length purchase alone is not enough. Neither the purchasing taxpayer nor a non-arm’s-length party can have previously owned the property, and the asset must not have been transferred to the taxpayer through a tax-deferred rollover.
These conditions deserve early attention in business acquisitions, related-party transactions and corporate reorganizations.
The proposal also includes restrictions on using immediate expensing to create or increase a loss for individuals and partnerships with individual members. These follow the approach used in the temporary small-business immediate-expensing measure announced in 2021.
Four examples to put the proposal in context
These simplified examples assume the proposal is enacted as described and all relevant requirements are met.
A $500,000 equipment purchase
A manufacturer acquires $500,000 of eligible production equipment in October 2026 and makes it available for use in the same tax year. The proposal could permit the full eligible cost to be deducted that year.
The comparison should account for existing incentives: some manufacturing equipment already qualifies for immediate expensing, so the Mega Deduction would not necessarily create a new benefit for every purchase.
An $80,000 software investment
A business acquires $80,000 of eligible capital software after the proposed effective date and makes it available for use that year. The eligible cost could qualify for a full first-year tax deduction. The business should distinguish capital software purchases from subscriptions and other operating expenses, which may have different tax treatment.
A $150,000 used-equipment purchase
A company purchases otherwise eligible used equipment for $150,000 from an unrelated supplier after September 14, 2026. If neither the company nor a non-arm’s-length party previously owned it, no disqualifying rollover occurred, and the equipment becomes available for use, it could qualify.
A $2 million manufacturing building
A new manufacturing building would not qualify under the general Mega Deduction. However, it could qualify for the separate temporary Budget 2025 measure if its timing, use and other conditions are satisfied.
In each case, a deduction reduces taxable income; it does not reimburse the purchase price. The immediate cash-flow benefit depends on the business’s tax position. Tax expensing also does not automatically change how an asset is depreciated in financial statements.
What to review before committing to a purchase
An effective capital plan considers the investment and its tax treatment together. Before proceeding, review:
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Timing: Confirm acquisition, expenditure and available-for-use dates, including any transition rules affecting a project already underway.
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Asset classification: Check the CCA class, particularly for buildings, vehicles and intangible assets.
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Cash flow and financial reporting: Model the potential tax savings, future deductions and deferred tax implications, where applicable.
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Other incentives: Consider SR&ED, Clean Economy investment tax credits and the Accelerated Investment Incentive when assessing the overall benefit.
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Transaction history: Review prior ownership and rollover arrangements for used assets and acquisitions.
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Provincial treatment: Confirm the applicable provincial rules and whether they align with the federal proposal.
This summary is intended as a general update rather than advice tailored to your specific circumstances, based on proposals announced on September 15, 2026. The measures remain subject to legislative approval and may change. Speak with your Empire CPA advisor about your circumstances before acting.