On September 15, 2026, as part of the inaugural Canada Investment Summit, the federal government introduced the Productivity Mega Deduction, a new measure designed to encourage business investments, enhance Canada’s competitiveness and improve the productivity rate. The measure is part of a broader package of initiatives intended to support investments in major projects across the country.
If implemented as proposed, the Productivity Mega Deduction would provide permanent, immediate expensing for a broad range of depreciable property, with approximately two-thirds of investment in capital assets expected to qualify.
Conditions
To qualify for immediate expensing under the Productivity Mega Deduction, the draft legislation provides that the following conditions must be satisfied:
- The property must be property of a prescribed class, other than excluded property
- The property must be acquired on or after September 15, 2026
- The property must meet one of the following two conditions:
1. The property:
a. must not have been used for any purpose before it was acquired by the taxpayer
b. must not be a property in respect of which an amount has been deducted under paragraph 20(1)(a) of the Income Tax Act (Canada) (i.e., a prior capital cost allowance (CCA) deduction) or subsection 20(16) (i.e., a terminal loss) by any person or partnership for a taxation year ending before the time the property was acquired by the taxpayer
2. The property was not:
a. acquired in circumstances where:
i. the taxpayer was deemed to have been allowed or deducted an amount under paragraph 20(1)(a) in respect of the property for a previous taxation year
ii. the undepreciated capital cost of property of a prescribed class was reduced by an amount determined by reference to the amount by which the capital cost of the property exceeds its cost
b. previously owned or acquired by the taxpayer (or a non-arm’s length person or partnership)
“Excluded property” is proposed to be defined to include:
- Certain buildings (and certain additions and alterations to buildings) included in CCA classes 1 and 3; however, certain of these buildings may be eligible for the Productivity Super-Deduction, as noted below
- Property included in CCA classes 14 (e.g., franchises, licences) and 14.1 (e.g., goodwill)
- Property included in CCA class 51 (e.g., regulated natural gas distribution pipelines)
- Qualified liquefaction equipment
Canadian Development Expenses
Of particular importance to the energy and mining sectors, the Productivity Mega Deduction also provides for immediate expensing of a “Canadian development expense” (CDE) incurred on or after September 15, 2026.
CDE is a tax attribute that is ordinarily deductible at a rate of 30% of the cumulative CDE pool balance; however, previous measures introduced the “reaccelerated Canadian development expense,” which permits for an additional first-year CDE deduction for reaccelerated CDE.
CDE includes certain costs and expenses incurred to drill, convert or recomplete certain wells, bring a mineral resource into production (under certain circumstances) including bituminous sands deposits and oil shale deposits, and preserve rights in respect of such property.
Subsection 66.2(5) is proposed to be amended to add a definition of “immediate Canadian development expense,” defined to mean any cost or expense incurred by the taxpayer if such cost or expense:
- Qualifies as CDE at the time it is incurred other than successored CDE or a cost related to a Canadian resource property acquired by the taxpayer (or a partnership in which the taxpayer is a member) from a person or partnership with which the taxpayer does not deal at arm's length
- Is incurred on or after September 15, 2026
- In respect of flow-through shares, is an amount renounced under an agreement entered into on or after September 15, 2026
Impact on Businesses
The Government of Canada estimates that, with the Productivity Mega Deduction, Canada’s marginal effective tax rate on new business investments will be reduced to 6.4%, the lowest percentage among Canada’s key trading partners.
The Productivity Mega Deduction is therefore expected to have significant implications for taxpayers undertaking capital-intensive investments in Canada, including major projects. The expansion of immediate expensing could materially accelerate the timing of corporate tax deductions and improve the after-tax economics of qualifying investments, and be relevant to the timing and structuring of acquisitions and capital expenditures.
Concluding Remarks
This measure builds on previously announced initiatives aimed at strengthening Canada’s investment climate and support for productivity growth, including the Productivity Super-Deduction announced in Budget 2025 that provides immediate expensing for about 15% of investment in capital assets, including machinery, equipment and certain buildings. Furthermore, assets not eligible for immediate expensing may continue to receive an enhanced first-year deduction under the Accelerated Investment Incentive.
Blakes will continue to monitor proposals relating to the Productivity Mega Deduction, including its interaction with the Productivity Super-Deduction and any accelerated CCA measures (e.g., the Accelerated Investment Incentive).
The draft legislative proposals released on September 15, 2026, also include proposed legislation in respect of qualified liquefaction equipment and qualified liquefaction buildings, as previously announced in Budget 2025 and the Spring Economic Update 2026.
Lastly, on September 14, 2026, the Government of Canada also announced that it will be prioritizing Canada Revenue Agency Rulings relating to major projects with investments of C$1-billion or more in Canada.
For further reading on tax measures relating to Major Projects, see our June 2026 bulletin, Expanding Alberta’s Energy and Digital Infrastructure: Select Tax Considerations for Major Projects.
For more information or to discuss your particular circumstances, please contact the authors or any other member of our Tax group.
