Canada proposes halving business investment tax rate

The Canadian government on Monday proposed a sweeping new tax incentive called the Productivity Mega Deduction, which would permanently allow businesses to write off the full cost of most new capital investments in the year they are put to use. The measure, announced at the inaugural Canada Investment Summit in Toronto, would cut Canada's marginal effective tax rate on new business investment from 13.0 percent to 6.4 percent — well below the U.S. rate of 16.9 percent and the OECD average of 19.0 percent.miragenews

The deduction is a centerpiece of Prime Minister Mark Carney's push to catalyze $1 trillion in new investment over the next five years. About two-thirds of business capital asset investment would qualify for immediate expensing under the new measure, a substantial expansion from the Productivity Super-Deduction introduced in Budget 2025, which covered roughly 15 percent of capital assets.govtschemes+2

Scope and Cost

The government estimates the Productivity Mega Deduction will carry an incremental fiscal cost of $36 billion over five years beginning in 2026-27. Over a ten-year horizon, the $8.5 billion in average annual investment support could generate economic output of up to $22 billion annually and support as many as 80,000 additional jobs per year, according to the government's projections.miragenews

Eligible property includes most depreciable assets acquired on or after September 15, 2026, though certain categories are excluded — among them non-manufacturing buildings, franchises, goodwill, regulated natural gas pipelines, and certain vehicles. Liquefied natural gas facilities receive tailored treatment, with Class 47 liquefaction equipment eligible for a 100 percent write-off without meeting emissions intensity requirements previously proposed in the Spring Economic Update 2026.miragenews

Fast-Tracking Tax Rulings for Large Projects

In a related move announced the same day, Finance Minister François-Philippe Champagne said the Canada Revenue Agency will begin prioritizing advance income tax rulings for investments of CA$1 billion or more. The measure, effective immediately, allows investors to obtain a binding decision on how Canadian tax law applies to a proposed transaction before committing capital. According to Reuters, the move is intended to give large investors "the clarity and predictability they need to invest" in Canada.reuters+1

Investment Summit Context

The two-day Canada Investment Summit, held September 14-15 at the Four Seasons Hotel in Toronto, brought together roughly 100 global investors alongside Canadian CEOs and government officials. Carney has framed the event as part of a broader effort to reposition Canada as a top destination for foreign capital amid an ongoing trade war with the United States. The government says it has already secured more than $97 billion in foreign investment commitments over the past year.Wikimedia Foundation, Inc.+2

The Productivity Mega Deduction, if enacted, would mark a permanent shift in Canada's approach to business taxation — moving from incremental accelerated depreciation to broad-based immediate expensing for the majority of capital assets.