Canada proposes Productivity Mega Deduction to boost business investment

The Canadian government has announced the ‘Productivity Mega Deduction’, a policy designed to expand immediate tax write-offs for new business investments. Under the proposal, qualifying property acquired on or after September 15, 2026, may be fully deductible in the year it becomes available for use, rather than being written off gradually over several years through the Capital Cost Allowance system.

Finance Canada estimates the policy will increase the scope of qualifying capital investment from approximately 15% to two-thirds, covering assets such as machinery, manufacturing equipment, software, pipelines, fibre, and rail infrastructure. The measure is expected to reduce Canada’s marginal effective tax rate on new investment from roughly 13% to 6.4%. The government anticipates the policy will cost approximately $36 billion over five years, aiming to stimulate private investment by improving near-term cash flow for businesses.

Capital-intensive sectors, such as rail, are expected to be significant beneficiaries. For instance, Canadian Pacific Kansas City (CPKC), which operates a single-line network connecting Canada, the United States, and Mexico, is slated to invest approximately $2.7 billion in capital programs during 2026.