If your business plans to buy new machinery and equipment, computers or software in the next year, a new federal proposal could significantly lower your tax bill. The Productivity Mega Deduction would allow you to write off the full cost of many business assets in the year you purchase and put the assets into use. Under the current rules, the cost of most assets is deducted over several years. Claiming the deduction all at once keeps more cash in the business at the point you are making the investment.
The government announced the proposed measure on September 15, 2026. It would apply to eligible assets bought on or after this date, and it would be in effect indefinitely until the measure is repealed or revised. About two-thirds of business capital spending would qualify, up from roughly 15% under current rules. The rules are still a proposal, so the details could change. Below, we explain what qualifies and what to check before you buy.
What is the Productivity Mega Deduction?
The deduction is an acceleration of the normal tax write-off. It is not a tax credit or an extra deduction. Under the usual capital cost allowance (CCA) system, the cost of a depreciable asset is deducted over time based on the type of asset, known as its CCA class. The proposed rules instead permit a full deduction when the eligible property becomes available for use.
That distinction matters. Immediate expensing generally changes when tax is paid, rather than permanently eliminating tax. A business receives a larger deduction upfront, but it will have less CCA available in later years. The deduction is most valuable when your business has enough taxable income to absorb it. It also helps most when getting the tax savings sooner would ease cash flow or free up money to reinvest.
What qualifies, and what does not?
The proposal is broad and would generally cover capital property subject to the CCA rules, including many assets commonly purchased by operating businesses. Examples include:
- machinery, production equipment and technology;
- computer equipment, software, data-network and fibre-optic infrastructure;
- aircraft and eligible vehicles;
- patents (Class 44), mining property, and infrastructure such as oil and gas pipelines, rail track, bridges and roads; and
- Canadian development expenses incurred on or after September 15, 2026.
Important exclusions include:
- Class 1 and Class 3 buildings and building additions, including manufacturing and processing buildings;
- Class 14 and 14.1 property, such as franchises, licences and goodwill;
- Class 51 regulated natural gas distribution pipelines;
- certain vehicles in Classes 10 and 10.1; and
- property depreciated under Schedules V and VI of the Income Tax Regulations.
Manufacturing and processing buildings are excluded from the Mega Deduction, but may remain eligible for the separate temporary immediate-expensing measure announced in Budget 2025. Property outside the Mega Deduction may also continue to receive an enhanced first-year deduction under the Accelerated Investment Incentive.
Who can claim it?
The proposed measure is not limited to Canadian-controlled private corporations. Corporations and other taxpayers may qualify if they acquire eligible property and satisfy the applicable conditions. However, there is a limit for sole proprietors and partnerships made up of individuals. They can use the deduction to bring business or property income down to zero, but not to create or increase loss.
Used assets may qualify, but there are two caveats. Neither you nor a related party, such as a family member or a company you control, can have owned the asset previously. The asset also cannot have been transferred to you through a tax-deferred transfer, such as during a reorganization.
What it could look like in practice
| Illustrative example: $500,000 equipment purchase
Assume an eligible Ontario corporation purchases $500,000 of eligible new equipment after September 15, 2026, and the equipment becomes available for use in the same taxation year. Under the proposed Productivity Mega Deduction, the corporation could claim up to $500,000 of CCA as a tax deduction immediately. At a 26.5% combined general corporate income tax rate in Ontario, the maximum first-year tax savings would be approximately $132,500. If the equipment instead falls into Class 43 with a 30% CCA rate, claiming the cost over time under the standard CCA rules would result in a maximum first-year tax deduction of $75,000. At a 26.5% combined general corporate income tax rate, the maximum first-year tax savings under the standard CCA rules would be approximately $19,875. Under this example, the Productivity Mega Deduction creates a tax deferral of $112,625 in the first year. To note: a corporation eligible for the lower small-business or manufacturing tax rate would see a smaller benefit. At the small-business rate, it would be roughly $47,600 in the first year on the same purchase. The actual benefit also depends on taxable income, applicable provincial rules and other deductions or credits. |
What it means for your financial statements
Your financial statements won’t reflect the deduction the same way your tax return does. The tax deduction does not change the asset’s accounting cost or useful life. For accounting, the asset is still depreciated over its estimated useful life. For tax, the full cost can be deducted up front.
Depending on the accounting standards you use, this gap between the accounting and tax treatment may appear on your balance sheet as a deferred tax liability. This represents tax you have postponed, not tax you have avoided entirely. Your accounting profit will also keep showing depreciation in future years, even though the tax deduction was claimed upfront. If lenders or investors rely on your statements, or you have bank covenants, talk to us before a large purchase about how it will affect your financial statements.
Planning points before you buy
- Focus on the available-for-use date. Buying or paying for an asset may not be enough. It must be ready and available for use before your year-end. For example, equipment that has been delivered but not yet installed may not count.
- Confirm the CCA class. Buildings, vehicles and intangible assets require particular attention because some classes are excluded or subject to special rules.
- Model the taxable-income impact. CCA is generally discretionary, so the business should compare taking a full claim in the first year with preserving the deductions for later years.
- Review used and related-party property. Prior ownership and tax-deferred rollover transactions can prevent immediate expensing.
- Consider other incentives. Coordinate the deduction with scientific research and experimental development (SR&ED) tax incentives, clean-economy investment tax credits and other available programs.
- Remember that the rules are proposed. Draft legislation has been released, but the measure had not been fully enacted as of October 1, 2026, and could change.
How SB Partners can help
The Productivity Mega Deduction may materially change the timing and after-tax cost of planned capital investments, but eligibility depends on the specific asset, transaction structure and timing. Before committing to a major purchase, SB Partners can help you classify the property, estimate the cash-tax and financial-statement effects, consider interactions with other incentives, and compare alternative purchase dates or structures.
If you plan to buy before your year-end, talk to your SB Partners advisor now. Timing can decide whether you claim the deduction this year or next.
Sources and important notice
Primary source: Department of Finance Canada, “Government of Canada introduces new Productivity Mega Deduction,” September 15, 2026.
This article provides general information only and is not tax, accounting or legal advice. The proposal remains subject to the legislative process. Advice should be obtained for your specific facts before completing a transaction or filing a return.
