Canada’s Productivity Mega Deduction: What the New Immediate Expensing Rules Could Mean for Your Business

On September 15, 2026, the federal government announced the proposed Productivity Mega Deduction, which would permanently allow businesses to immediately expense the cost of most depreciable capital property acquired on or after that date. Instead of claiming deductions gradually over several years, qualifying businesses could deduct up to 100% of a capital investment in the year it becomes available for use.

While the name may sound like an incentive aimed primarily at large corporations, the proposed rules could have much broader applications for Canadian businesses. The government estimates that roughly two-thirds of capital investment would qualify, compared with about 15% under the narrower Productivity Super-Deduction announced in Budget 2025.

Let’s take a look at some of the most important details.

How does immediate expensing work?

When your business purchases a depreciable capital asset, you generally cannot deduct the entire purchase price as a regular business expense. Instead, the cost is added to a capital cost allowance (CCA) class, allowing you to claim a portion as a tax deduction over time.

The Productivity Mega Deduction would accelerate that process. Eligible property could generally be deducted in full in the year it becomes available for use.

Claiming a larger deduction upfront would reduce taxable income in the near term, potentially leaving more cash available for other business needs. However, it would also leave less CCA available in later years and may result in a recapture of amounts previously deducted if the property is subsequently sold.

What kinds of assets could qualify?

The proposed rules are broad and would generally apply to capital property included in a prescribed CCA class unless it falls within one of the specified exclusions. Some assets, including computers and certain machinery and equipment, were already eligible for immediate expensing under measures announced in Budget 2025. The new proposal would extend immediate expensing to many additional types of depreciable property while making the broader treatment permanent.

Some important exclusions include:

• Most Class 1 buildings and structures, as well as certain Class 3 additions and alterations
• Class 14 property, including limited-period patents, franchises, concessions, and licences
• Class 14.1 property, such as goodwill and customer lists
• Class 51 property, including certain natural gas distribution pipelines
• Certain Class 10 and 10.1 vehicles
• Industrial mineral mines and certain related rights
• Timber limits and certain related cutting rights

Qualified LNG liquefaction equipment is also excluded from these general rules because it would be covered by a separate immediate-expensing measure.

Can used or transferred property qualify?

Used property could qualify where neither the taxpayer nor a non-arm’s length person or partnership previously owned it and it wasn’t acquired on a tax-deferred rollover basis.

However, acquiring property from a related party or through a tax-deferred rollover doesn’t automatically disqualify it. The property may still qualify if it has never previously been used and no person or partnership has previously claimed CCA or a terminal loss on it. Additional rules would restrict immediate expensing for certain transfers involving capital expenditures made before September 15, 2026.

Could the timing of your next purchase matter?

For businesses already planning capital expenditures, both the acquisition date and the date the asset becomes available for use are important.

Ordering or paying for equipment before year-end, for example, won’t necessarily result in a deduction that year if it hasn’t yet been delivered, installed, or otherwise made ready for its intended use. And while a larger deduction today may improve near-term cash flow, claiming the maximum available won’t necessarily make sense in every situation. Your current and expected future income, existing losses, other deductions, financing arrangements, and potential future CCA recapture should all be considered.

There are also limits for certain taxpayers. For individuals, trusts, and partnerships with at least one direct or indirect non-corporate member, the deduction would generally be limited to the income earned from the business or property in which the asset is used. In other words, immediate expensing couldn’t be used to create or increase a loss.

What about Canadian development expenses?

The proposal would also allow taxpayers to immediately deduct qualifying Canadian development expenses incurred on or after September 15, 2026.

Certain expenses would be excluded, including expenses inherited by a successor taxpayer and the cost of Canadian resource property acquired from a non-arm’s-length person or partnership. Canadian development expenses renounced under a flow-through share arrangement may also qualify where the applicable agreement was entered into on or after September 15, 2026.

Separate changes for LNG facilities

The government also announced changes for qualifying LNG facilities, although these are technically separate from the broader Productivity Mega Deduction.

Qualifying Class 47 LNG liquefaction equipment acquired on or after November 4, 2025 would be eligible for permanent immediate expensing. Qualifying LNG buildings wouldn’t receive immediate expensing, but buildings acquired after November 3, 2025 and before 2035 could qualify for an accelerated 10% CCA rate. Both deductions would be subject to income from eligible liquefaction activities at the particular facility.

Planning a capital investment? It may be worth another look

The Productivity Mega Deduction could provide a meaningful cash-flow advantage for businesses already planning to invest in equipment, technology, machinery, or other capital assets. However, whether an asset qualifies, and whether claiming the full deduction right away makes sense, will depend on the property and your broader tax position. Keep in mind: the measure remains proposed legislation and could change before it’s enacted.

If you’re planning a significant capital purchase or want to understand how the proposed immediate expensing rules could affect your business, talk to your DMCL advisor. They’ll help review your upcoming investments and determine how the new rules may fit into your broader tax and cash-flow planning.