Are you a Chamber member and you have a press release or news story about your business that you should like us to share? Email Kim Phair
The Government of Canada has announced a major proposed change to the federal business tax system that could materially reduce the after-tax cost of new equipment, technology and other capital investment.
The new Productivity Mega Deduction would allow businesses to immediately deduct the full cost of most eligible depreciable property acquired on or after September 15, 2026, rather than deducting the cost gradually over a number of years.
For London businesses considering new machinery, technology, vehicles, software, automation or other significant capital investments, the measure could affect both the timing and economics of investment decisions.
What is changing?
Under Canada's capital cost allowance system, businesses normally deduct the cost of capital assets over time.
The proposed Productivity Mega Deduction would extend immediate expensing to a much broader range of investments on a permanent basis.
The federal government estimates that approximately two-thirds of capital investment would become eligible for immediate expensing, compared with roughly 15 per cent under existing accelerated measures.
Examples of potentially eligible investments include:
- machinery and equipment;
- computers and other technology;
- software;
- data and telecommunications infrastructure;
- certain vehicles and aircraft;
- patents;
- research and development-related assets;
- greenhouses; and
- certain transportation and infrastructure assets.
The precise tax treatment will depend on the type of asset and the circumstances of the business.
What is not included?
Some important exclusions remain.
Most conventional commercial buildings in capital cost allowance Classes 1 and 3 would not qualify under the new measure. Franchises, licences and goodwill are also excluded, along with certain vehicles and several other classes of property.
Manufacturing and processing buildings are subject to separate temporary immediate-expensing rules announced previously by the federal government.
Why businesses should pay attention
Immediate expensing does not reduce the purchase price of an investment. It changes when the tax deduction can be taken.
Allowing the full deduction earlier can improve cash flow and reduce the after-tax cost of making an investment, particularly for businesses planning major capital expenditures.
The federal Department of Finance estimates that the broader package would reduce Canada's marginal effective tax rate on new business investment from approximately 13 per cent to 6.4 per cent.
For businesses already considering investments in productivity, automation, technology or expansion, the September 15 effective date means the proposed change should be factored into current capital planning.
What should businesses do now?
Businesses contemplating significant capital expenditures should speak with their accountant or tax adviser about:
- whether planned purchases are likely to qualify;
- the significance of the September 15, 2026 acquisition date;
- when an asset must be available for use to claim the deduction;
- whether existing accelerated capital cost allowance measures may apply instead; and
- whether the measure affects the preferred timing or structure of an investment.
The legislation implementing the measure has not yet completed the parliamentary process, so businesses should obtain professional advice before relying on the proposed tax treatment.
The Chamber's perspective
Measures that reduce the cost of productive investment can help London businesses modernize operations, improve productivity and compete for investment in an increasingly difficult international environment.
The London Chamber of Commerce will continue to monitor the legislation and will advise members of material changes as the measure moves toward implementation.
This Policy Alert is provided for general information and is not tax or legal advice. Businesses should obtain professional advice regarding their individual circumstances.
