Canada Unveils 'Productivity Mega Deduction' to Boost Business Investment
Prime Minister Mark Carney announced a new tax policy allowing businesses to immediately expense eligible capital investments acquired on or after September 15, aiming to address Canada's declining labour productivity relative to the U.S.
Prime Minister Mark Carney announced the "productivity mega deduction" on Tuesday, introducing a significant shift in Canadian tax policy designed to stimulate business investment. The measure allows companies to deduct the entire cost of eligible expenditures in the year the property becomes available for use, rather than spreading the deduction over several years.
The initiative targets capital property acquired on or after September 15. According to government estimates, approximately two-thirds of business investments in capital assets are now eligible for this immediate expensing. The expanded scope covers a wide range of items, including fibre-optic cable, mining property, oil and gas pipelines, software, research and development, computer equipment, aircraft, vehicles, patents, rail track, bridges, and roads.
This policy change comes amid concerns about Canada’s economic competitiveness. Statistics Canada estimated in March 2026 that Canadian labour productivity relative to the United States has fallen by 26 per cent since the late 1990s. To address this gap, the government projects that the marginal effective tax rate (METR) on eligible investment will drop to 6.4 per cent under the new rules. This is significantly lower than the comparable METR on business investment in the United States, which stands at 16.9 per cent.
Specific sectors will see notable changes. For instance, under current rules, only 30 per cent of most mine development costs could be deducted in the year incurred; the new measure allows for a 100 per cent deduction. The Department of Finance describes immediate expensing as representing "a sea-change in how Canada intends to stimulate business investment decisions."
The government anticipates substantial long-term benefits from the policy. It estimates that increased economic activity resulting from these measures will generate returns equivalent to 1.4 to three times the government's cost. Additionally, long-term employment increases are projected to reach up to 80,000 jobs annually ten years from now.