At a glance
- The proposed Productivity Mega Deduction covers most classes of depreciable capital property and is intended to be permanent.
- Eligible assets could be fully deducted in the year of acquisition, providing earlier tax savings.
- Businesses may see improved near-term cash flow, but lower capital cost allowance deductions in subsequent years.
- Assets with longer depreciation periods may offer greater benefits from immediate expensing.
- Immediate expensing may increase capital cost allowance recapture on asset sales and affect future taxes and reported earnings.
Businesses planning major capital investments may be able to claim substantially larger upfront tax deductions under the newly proposed Productivity Mega Deduction.
Prime Minister Mark Carney announced the Productivity Mega Deduction (PMD) at the first Canada Investment Summit. This is a program for depreciable capital expenditures made in Canada on or after Sept. 15, 2026, that will allow immediate expensing of a wide range of capital investments. For income tax purposes, this program would allow the cost of a depreciable capital asset to be fully deducted as capital cost allowance (CCA) in the year of acquisition rather than deducted over time as CCA.
References in this article to the year of acquisition assume that the asset becomes available for use in that year, as an asset must be available for use (a defined term) before CCA can be claimed.
At the time of writing, the PMD is proposed draft legislation that has not yet been passed into law.
How does the Productivity Mega Deduction differ from the Productivity Super Deduction?
The Productivity Mega Deduction significantly expands upon the earlier Productivity Super Deduction (PSD), announced in the 2025 federal budget.
The PSD contained incentives for faster write-offs of manufacturing assets, as well as an accelerated rate of first-year CCA for most other assets. However, the PSD program has a limited time frame in which accelerated write-offs are allowed, and favours manufacturing and clean technology assets. Any asset purchase that does not benefit from the PMD can access the PSD to the extent that it applies.
The proposed PMD is a game changer because:
- it covers most classes of depreciable capital property;
- it allows targeted depreciable capital assets to be fully written off in the year of acquisition; and
- it is intended to be permanent, rather than available for a limited period of time.
For most businesses, the effect of the PMD will be improved cash flow due to an increased first-year CCA deduction. The earlier availability of funds can also create a compounding benefit: investments made today may generate additional revenue or cost savings that can be reinvested in future growth.
How does the Productivity Mega Deduction work?
Example 1: Distribution centre investment
Consider Company A, which operates a chain of retail stores. It needs to move its distribution centre and main offices in early 2027 to newly leased premises.
The anticipated costs include:
Leasehold improvements for new office space: $750,000
New office furniture (chairs and desks): $75,000
Distribution centre shelving units (freestanding or modular shelving): $250,000
Distribution centre electric tow motors: $120,000
Total: $1,195,000
Under the CCA rules that were in place in 2026 prior to Sept. 15, 2026, the first-year CCA claim for these expenditures would have been approximately $292,500. However, under the proposed PMD, the business could claim a first-year CCA deduction for the entire investment. This would result in an increased CCA deduction of $902,500.
Assuming the business has sufficient taxable income to use the full deduction and assuming a corporate tax rate of 26.5%, the additional first-year deduction represents a tax saving in the year of acquisition of approximately $240,000.
It is important to recognize that the PMD is a tax deferral program. This means that any increased tax deduction in the first year will be accompanied by lower tax deductions in subsequent years. Therefore, the benefit will generally be greatest for assets that would otherwise be depreciated for tax purposes over a longer period.
Example 2: Parking lot improvements
The cost of paving a surface parking lot on land you own creates a depreciable property with a low CCA rate of 8% per year. A parking lot finished and available for use in June 2026 would be allowed a 12% write-off due to the accelerated investment incentive rules reinstated in 2025. The taxpayer would then be allowed an 8% CCA claim on a declining balance basis for the following years. It would take approximately 19 years for 80% of the original cost to be written off.
Under the PMD rules, a parking lot built and available for use on or after Sept. 15, 2026, could be fully written off in the first year, creating a much larger immediate tax deduction.
Investment is only one part of the productivity equation
Canada’s productivity challenge extends beyond how much organizations invest. Our Productivity Paradox 2026 report explores why productivity gains remain elusive and how leaders can rethink workflows to translate transformation into stronger organizational performance.
What assets are excluded from the Productivity Mega Deduction?
Notably excluded from the PMD are buildings. The proposed immediate expensing of buildings used in manufacturing and processing is a separate measure and is unchanged by this announcement. Other excluded assets include:
- goodwill;
- limited-life franchises or licenses;
- trademarks;
- quota;
- certain natural gas distribution pipelines;
- industrial mineral mines or rights;
- timber limits or rights; and
- certain passenger or motor vehicles that are not new or that were assembled outside of Canada.
While individuals and partnerships with members who are individuals can benefit from the PMD, they are restricted from creating or increasing a loss with an immediate expensing claim.
Generally, to be eligible for immediate expensing, the assets must either be new property or be acquired from an arm’s-length person.
How could CCA recapture affect assets claimed under the PMD?
Despite the economic advantages of an immediate write-off of depreciable capital property in the year of acquisition, the recapture rules should be kept in mind. Recapture is a required income inclusion where CCA has been claimed on an asset, and the asset is sold for more than the balance in its CCA class pool.
Recapture can be expected more often with immediate expensing. This is because immediately expensed asset purchases will not increase the remaining balances of the affected CCA classes.
How could the PMD affect financial reporting?
Immediate expensing for tax purposes does not mean that the asset will be expensed immediately for accounting purposes.
Businesses that prepare financial statements in accordance with Canadian generally accepted accounting principles and that use the future income taxes method will find a greater difference between CCA deductions for tax purposes and depreciation for accounting purposes. This may affect future taxes and reported earnings. Businesses should be aware of the possible effects of immediate expensing on financial reporting.
Planning your next steps for the Productivity Mega Deduction
The proposed Productivity Mega Deduction can provide significant opportunities for businesses to improve their cash flow and accelerate investment in key assets. To ensure you benefit fully from this program and to help you evaluate other available incentives, reach out to a BDO advisor for personalized guidance and support tailored to your specific situation.
The information in this publication is current as of Sept. 21, 2026.
This publication has been carefully prepared, but it has been written in general terms and should be seen as broad guidance only. The publication cannot be relied upon to cover specific situations and you should not act, or refrain from acting, upon the information contained therein without obtaining specific professional advice. Please contact BDO Canada LLP to discuss these matters in the context of your particular circumstances. BDO Canada LLP, its partners, employees and agents do not accept or assume any liability or duty of care for any loss arising from any action taken or not taken by anyone in reliance on the information in this publication or for any decision based on it.