The Productivity Mega Deduction, explained for business owners

On September 15, 2026 the federal government proposed permanent immediate expensing for most depreciable property. Here is what it means in practice, what qualifies, and how to plan purchases before your fiscal year-end.

1. What it is

Canada's tax system normally makes you deduct the cost of equipment slowly, through capital cost allowance (CCA). Each type of property has a class and a rate. Furniture and most equipment (Class 8) deducts at 20% a year on a declining balance; vehicles and machinery (Class 10, 43) at 30%; computers (Class 50) at 55%. In the year you buy, the half-year rule cuts the first claim in half. A $100,000 Class 8 purchase produced a $10,000 deduction in year one and took more than a decade to write off fully.

The Productivity Mega Deduction replaces that for eligible property with a single 100% deduction in the year the property becomes available for use. It is proposed to be permanent and to apply to property acquired on or after September 15, 2026. The government estimates the fiscal cost at $36 billion over five years and says the measure cuts Canada's marginal effective tax rate on new investment from about 13% to 6.4%.

2. What qualifies

The announcement and the draft regulations both describe all depreciable property subject to the CCA rules, with specific exclusions. Where the two differ in detail, this page follows the draft, which is more precise. Named examples include computer equipment, software, machinery and equipment, vehicles, aircraft, patents, research and development expenditures, fibre-optic cable, mining property, oil and gas pipelines, rail track, bridges and roads. Roughly two-thirds of business capital investment is expected to qualify, up from about 15% under the previous targeted measures.

3. What is excluded

• Buildings, including additions and alterations, in Classes 1 and 3. (Eligible manufacturing and processing buildings have their own temporary Budget 2025 rule.)
• Class 14 and 14.1 property: franchises, licences, goodwill and similar intangibles.
• Class 51 property, such as regulated natural gas distribution pipelines.
• Certain vehicles in Classes 10 and 10.1. The draft is narrower than the announcement implied: a vehicle is excluded only where it is both (a) a passenger vehicle, a vehicle acquired primarily for use as a taxi, or an automobile described in paragraph (d) or (e) of the Income Tax Act definition, and (b) either used for some purpose before you acquired it or assembled outside Canada. A cargo van or work pickup fails the first limb and is not excluded. A new, Canadian-assembled passenger vehicle fails the second limb and is also not excluded on the draft wording.
• Qualified liquefaction equipment, and property subject to a separate election under the regulations. Neither appears in the public backgrounder; both are in the draft definition of excluded property.
• Property depreciated under Schedules V and VI of the Income Tax Regulations (certain industrial mineral mines and timber limits).

4. Buying used equipment

Second-hand property is not automatically excluded, but it has to clear two conditions. It qualifies only where neither you nor a person you do not deal with at arm's length previously owned it, and where it did not come to you on a tax-deferred rollover. Buying a used excavator from an unrelated dealer can qualify. Transferring a machine in from a company you control, or buying back equipment you once owned, does not. This matters most to trades, farms and transport operators, where the second-hand market is where the good value is.

5. Timing and 'available for use'

Two dates matter. The property must be acquired on or after September 15, 2026, and the deduction is claimed in the taxation year it becomes available for use. For most equipment that means delivered, installed and capable of performing its function. Ordering, paying a deposit, or having it sitting in a shipping container does not count. If your fiscal year ends December 31, the equipment must be usable by then to claim it in 2026. If it slips to January, the deduction slips a full year.

Businesses with a non-calendar year-end have more flexibility: a purchase in October against a June 30, 2027 year-end still lands in the 2027 taxation year, but the deduction is worth the same, so there is no reason to rush unless your current year is unusually profitable.

6. What it is worth

Strictly, immediate expensing is a deferral: the total deduction over the life of the asset does not change. What changes is when you get it. For a corporation paying the small business rate (9% to 12% combined, depending on province), a $100,000 purchase now cuts tax in the year of purchase by that percentage of the full cost, instead of by roughly a tenth of it under the old Class 8 schedule. At the general corporate rate (23% to 30% combined) the same purchase cuts this year's tax by $23,000 to $30,000. The net present value of the acceleration, at a 6% cost of capital, is typically 2% to 8% of the purchase price depending on the class. Use the calculator for your numbers, or read how this fits the wider immediate expensing rules.

7. Corporations vs. sole proprietors

The draft applies to a 'taxpayer' and expressly provides that this includes a partnership, so unincorporated businesses are in scope. If you are a sole proprietor the deduction offsets income taxed at your personal marginal rate, which is often higher than the corporate rate, so the headline reduction can be larger. There is no fixed dollar cap of the kind the earlier temporary regime imposed at $1.5 million.

8. Pitfalls

• Recapture. After a 100% deduction the asset's undepreciated capital cost is zero. Sell it later for $40,000 and that $40,000 is income.
• Losses. A deduction is only useful against income. CCA is permissive, so you can claim less than 100% and carry the rest forward in the class.
• Leasing. Only owned property gets CCA. A lease is a current expense with no capital deduction.
• Vehicles. Work vehicles are simpler than they look: a cargo van or work pickup is not a passenger vehicle, so it is not caught by the exclusion at all. For an actual passenger vehicle, whether it was previously used and where it was assembled decide the answer, and the Class 10.1 cost cap still limits what you can capitalise.
• Purchase price allocation. When buying a business, the split between equipment (eligible) and goodwill (excluded) now has a large cash impact.
• Used equipment. Second-hand property qualifies only if neither you nor a non-arm's-length person owned it before, and it did not arrive on a tax-deferred rollover. Buying from an unrelated dealer is fine; moving an asset in from a related company is not.
• Sole proprietors cannot create a loss with it. Where the taxpayer is neither a corporation nor an eligible partnership, the deduction is capped at the income from the business using the asset.
• It is not law yet. Draft legislative proposals have been released, but no bill implementing the measure has been identified. The CRA generally administers announced measures, but a plan built on draft text carries some risk until it passes.

9. How it relates to Budget 2025's Productivity Super-Deduction

Budget 2025 (November 2025) reinstated the Accelerated Investment Incentive (1.5x the normal first-year CCA) and granted immediate expensing to a targeted list: computers (Class 50), patents (Class 44), data network infrastructure (Class 46), clean energy equipment (Classes 43.1 and 43.2), zero-emission vehicles (Classes 54 and 55), manufacturing and processing buildings, and scientific research and experimental development capital expenditures. The Mega Deduction keeps those, makes immediate expensing permanent, and extends it to nearly everything else: Class 8 equipment and furniture, Class 10 vehicles outside the narrow excluded-vehicle definition, Class 43 machinery, Class 16 heavy trucks, Class 38 construction equipment, aircraft, fibre-optic cable and more.

10. A year-end plan

1. Estimate this year's taxable income with your accountant. The deduction is worth the most in a high-income year.
2. List the equipment, vehicles, software and machinery you planned to buy in the next 12 months.
3. Run each item through the calculator and check its class on the eligible assets pages.
4. Confirm delivery and installation dates against your fiscal year-end. 'Available for use' is the test.
5. Keep invoices for installation, freight and commissioning together; they are part of the capital cost.
6. Send your accountant a one-page brief with the list, the classes and the timing so they can confirm the plan quickly.