Key Takeaways
- The proposed Productivity Mega Deduction would allow immediate deduction of the full cost of eligible investments.
- Immediate expensing would expand from roughly 15% of capital investment to about two-thirds.
- Ottawa estimates the measure would cost about $36 billion over five years beginning in 2026–27.
Ottawa’s ‘Mega Deduction’ Could Let Canadian Businesses Write Off 100% of Many Investments in Year One
Ottawa is putting a major new business tax incentive in the spotlight.
The federal government's proposed Productivity Mega Deduction would allow businesses to immediately deduct the full cost of a much broader range of eligible capital investments in the year those assets become available for use.
Currently, many capital assets are deducted gradually over several years.
Under the proposal, immediate expensing would expand from roughly 15% of capital investment to about two-thirds.
Eligible investments could include software, computer equipment, fibre-optic cable, mining property, certain pipelines, aircraft, patents, rail tracks, bridges and roads.
The government estimates the changes would lower Canada's marginal effective tax rate on new business investment from roughly 13% to 6.4%.
Ottawa estimates the expanded measure would cost approximately $36 billion over five years, beginning in 2026–27.
TwikUp Analysis
The key here isn't that businesses suddenly get free equipment.
A 100% deduction means an eligible business could deduct the full qualifying cost immediately instead of spreading the deduction across several years.
That could improve cash flow and make investing in new technology, equipment and expansion more attractive — exactly the behaviour Ottawa is trying to encourage.