The proposed Productivity Mega Deduction allows for immediate expensing of most capital property acquired on or after September 15, 2026.
On September 15, 2026, the Government of Canada introduced the proposed Productivity Mega Deduction (PMD), which would allow businesses to immediately deduct the full cost of most depreciable capital property acquired on or after September 15, 2026. For businesses planning significant capital expenditures, the proposal could provide a valuable opportunity to accelerate tax deductions and improve after-tax cash flow.
What Is the Productivity Mega Deduction?
Under the proposed PMD guidelines, eligible property could instead be fully deducted in the taxation year in which it becomes available for use. Typically, and prior to the introduction of the PMD, these deductions would be spread over several years through the capital cost allowance (CCA) system.
The measure would be permanent and expand the types of capital covered by the Productivity Super-Deduction introduced in the 2025 Federal Budget, which provided immediate expensing for approximately 15% of capital investment.
What Businesses and Property Would Qualify?
The proposed PMD would be available to businesses and other taxpayers that acquire eligible depreciable capital property on or after September 15, 2026. For individuals and partnerships with individual members, restrictions would prevent the deduction from being used to create or increase a loss.
Most property subject to the capital cost allowance (CCA) rules would qualify, including many investments in equipment, machinery, technology, furniture and other depreciable business assets. Key exclusions include:
- most buildings and building additions in CCA Classes 1 and 3;
- franchises, licences, goodwill and other property in Classes 14 and 14.1;
- certain vehicles in Classes 10 and 10.1; and
- certain other specifically excluded property.
Canadian development expenses incurred on or after September 15, 2026, would also generally qualify.
Used property may qualify provided the taxpayer or a non-arm’s-length person did not previously own it and it was not acquired through a tax-deferred rollover.
Property that does not qualify for immediate expensing may still be eligible for deductions under the existing Accelerated Investment Incentive or other CCA measures.
What This Could Mean for Your Business
The key benefit of immediate expensing is the ability to claim tax deductions sooner, potentially reducing current taxes and improving near-term cash flow.
For businesses planning investments in equipment, technology or other capital assets, the timing of purchases and when assets become available for use may therefore have important tax implications.
Immediate expensing will not necessarily be the best approach in every situation. Businesses should consider the deduction alongside expected taxable income, available losses and their broader tax strategy.
Planning Ahead
The Productivity Mega Deduction is currently a proposal; therefore, the related tax rules may change as the legislation moves through the federal legislative process. Businesses making current capital investments should begin considering the potential impact.
If you are planning a significant equipment, technology or other capital purchase, your Bateman MacKay advisor can help determine whether the investment may qualify for immediate expensing and how the proposed rules could affect your business’s tax and cash-flow planning. Topical accounting, tax, and business advisory articles pertinent to business owners can be accessed by subscribing to our blog and following us on LinkedIn.
