Full write-off for buildings used for manufacturing & processing
The most significant new incentive included in the Productivity Super Deduction is the proposal to allow businesses to fully write off the cost of manufacturing and processing (M&P) buildings, including significant additions or renovations to existing buildings, acquired on or after Nov. 4, 2025, provided these buildings are used for M&P activities before 2030. This measure is designed to stimulate investment in new or improved M&P facilities.
There will be a four-year phase-out period from 2030 to 2033, during which the first-year write-off is reduced to 75% for eligible buildings acquired in 2030 and 2031, and to 55% for those acquired in 2032 or 2033. Used buildings may be eligible, but only if they are purchased from an arm’s length party and not acquired on a tax-deferred rollover basis.
Notably, at least 90% of the building’s square footage must be used for M&P activities to qualify.
What is M&P?
The Income Tax Act (the Act) does not define M&P, and so these terms are taken at their common meaning. However, the Act lists specific activities or processes that are not considered M&P, such as farming, fishing, mining, and processing of ore. In addition, historical jurisprudence related to a former reduction in federal taxes for M&P profits provides a substantial body of case law that defines M&P in the context of the Act.
The Income Tax Regulations (ITR) provide a list of qualifying activities when performed in support of M&P, and a list of activities that would not be qualifying activities.
In the absence of any further definition for the purposes of the proposed Productivity Super Deduction, it may be reasonable to assume that the qualifying activities and non-qualifying activities listed in the ITR would also apply for purposes of the 90% test of building space as noted above.
The list of qualifying activities is non-exhaustive and includes:
- engineering design of products and production facilities,
- receiving and storing of raw materials,
- producing, assembling and handling of goods in process,
- inspecting and packaging of finished goods,
- line supervision,
- production support activities including security, cleaning, heating and factory maintenance,
- quality and production control,
- repair of production facilities, and
- pollution control.
It also includes qualifying Scientific Research and Experimental Development (SR&ED) carried on in Canada.
However, non-qualifying activities are defined as:
- storing, shipping, selling and leasing of finished goods,
- purchasing of raw materials,
- administration, including clerical and personnel activities,
- purchase and resale operations,
- data processing, and
- providing facilities for employees, including cafeterias, clinics and recreational facilities.
This means that care will be needed to ensure that non-qualifying activities do not take up more than 10% of the square footage of the new building on a combined basis. As warehousing of finished goods can take up a lot of space, as can employee facilities, it may be worth considering moving some non-qualifying activities to a separate building.
As no draft legislation has yet been released for this part of the Productivity Super Deduction, businesses that began the construction of an M&P building before Nov. 4, 2025 that will not be available for use until after that date will be interested to see how their investment can benefit from this new measure when legislation is released.
Reinstatement of the accelerated investment incentive
The accelerated investment incentive (AII) program, which provides an enhanced first-year capital cost allowance (CCA) for eligible property, has been available since 2018 and entered an initial phase-out period in 2024. As announced in the 2024 fall economic update and confirmed as part of the Productivity Super Deduction, the program is reinstated for qualifying property acquired on or after Jan. 1, 2025 and available for use before 2034. This new program is called the reaccelerated investment incentive (RII) and works in essentially the same manner as AII.
Under the RII, the first-year CCA is enhanced for eligible properties and is available for many asset classes. The enhanced CCA rate depends on when the eligible property becomes available for use.
For eligible property acquired on or after Jan. 1, 2025 that becomes available for use before 2030, the enhanced first-year CCA is generally three times the normal rate. For example, if you acquire furniture in 2025 that would be included in Class 8 with a CCA rate of 20%, the normal first-year CCA rate would be 10% due to the half-year rule. Under the RII rules, this first-year CCA rate would be increased to three times the normal rate, or 30%.
For eligible property that becomes available for use after 2029 and before 2034, the enhanced first-year CCA rate is generally reduced to two times the normal rate during the phase-out period.
Extension of immediate expensing to certain assets
Businesses considering investing in certain business assets—such as clean energy equipment (Classes 43.1 and 43.2), M&P machinery and equipment (Class 53), or zero-emission vehicles (Classes 54, 55, and 56), can also benefit from enhanced first-year CCA.
For eligible property acquired on or after Jan. 1, 2025, and available for use before 2030, 100% of the cost can be deducted in the first year, with no half-year rule to limit the claim. For property available for use in 2030 or 2031, the first-year deduction drops to 75%, and if it becomes available for use in 2032 or 2033, it will be 55%.
Full write-off of productivity-enhancing assets
As announced in the 2024 federal budget, businesses that purchase productivity-enhancing assets—such as patents (Class 44), data network equipment (Class 46), or general electronic data-processing equipment (Class 50)—may fully deduct their investment in the first year, provided that the acquisition is made on or after April 16, 2024, and put into use before 2027. This means you may deduct 100% of the cost immediately. Note that this enhanced deduction is not subject to a phase-out period.
Restoring capital expenditures for SR&ED
The government is bringing back a rule that allows businesses to include qualifying capital expenditures in their SR&ED pool—a provision that was removed for expenditures made after 2013. This means that qualifying capital expenditures can be deducted all in one year, similar to the previous rule. This proposed change will apply for expenditures made on or after Dec. 16, 2024.
How BDO can help
The recent changes that allow for enhanced tax write-offs present significant opportunities for businesses to optimize their cash flow position and accelerate investment in key assets. To ensure you benefit fully from these incentives and navigate any complexities, 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 December 8, 2025.
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.