New Productivity Mega Deduction could allow significant expansion of immediate expensing

This measure is proposed to be permanent, unlike the accelerated and reaccelerated capital cost allowance (CCA) measures, and more limited immediate expensing measures for certain asset classes. The draft legislation, introduced on September 15, 2026, hasn’t yet been introduced in a bill and could change. Additionally, it’s unclear if all provinces plan to harmonize with this federal measure.

What are the proposed rules? 

When a business acquires a capital asset, its cost is typically deducted for tax purposes over multiple years, according to the relevant CCA rate. Under the draft legislation, a business may generally deduct the full cost of qualifying “immediate expensing property”. For corporations and eligible partnerships, there is no dollar limit on the deduction. For individuals, trusts, and partnership with any non-corporate partners, the CCA deduction is limited to the income earned from the business or property in which the immediate expensing property is used.

What assets qualify? 

The Productivity Mega Deduction greatly expands the types of capital assets available for immediate expensing. Generally, any depreciable property may qualify as “immediate expensing property”, with some exceptions. These exceptions include a building, an improvement to a building, most intangible assets, certain vehicles (including most used passenger vehicles), natural gas pipelines and related equipment, qualified liquefaction equipment, timber limits and timber rights, and mineral mines and mineral rights.

In addition to being in a qualifying asset class, the property must also:

• Be purchased on or after September 15, 2026.
• Become available for use in the taxation year.
• Be a brand new property, or if used, not previously owned by the taxpayer or a non-arm's length party or acquired through certain rollover transactions.

The draft legislation also includes an additional allowance for liquefaction equipment used in liquefied natural gas (LNG) facilities that effectively allows for immediate expensing against income attributable to LNG operations.  

Although buildings don’t qualify for this measure, eligible manufacturing and processing buildings may still qualify for the proposed temporary immediate expensing in Bill C-31. See our tax alert for more details. 

Takeaways

The Productivity Mega Deduction may improve the after-tax cash flow associated with business expansion and investment decisions by allowing businesses to deduct the cost of qualifying investments immediately rather than over many years. For businesses already planning capital expenditures, the proposal may accelerate the tax benefit associated with those investments. However, businesses should continue to evaluate capital expenditures based on operational needs and expected returns rather than tax considerations alone.

The new rules may also affect business acquisition planning. Specifically, they may make an asset purchase more attractive from the purchaser’s perspective in certain cases. This may be particularly relevant where a significant portion of the purchase price can be allocated to assets eligible for immediate expensing rather than to non-qualifying assets such as goodwill and buildings.  

Taxpayers should also consider the potential impact of future recapture. A future sale of an immediately expensed property may result in the previously claimed deduction being brought back into income through the recapture rules.  

If you would like help evaluating how this measure may benefit your business, contact your local advisor or reach out to us.

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^Disclaimer

^{The information contained herein is general in nature and is based on proposals that are subject to change. It is not, and should not be construed as, accounting, legal or tax advice or an opinion provided by Doane Grant Thornton LLP to the reader. This material may not be applicable to, or suitable for, specific circumstances or needs and may require consideration of other factors not described herein.}