On September 15, 2026, the federal government released draft legislation for what it is calling the Productivity Mega Deduction. If your business buys equipment, computers, software or vehicles used in the business, this is the most significant change to capital cost allowance (CCA) in years — and it already applies to property acquired on or after that date.
Here is what it actually does, and what it does not do.
From a depreciation schedule to a single deduction
Until now, most capital purchases were written off gradually over several years under the CCA rules. The Mega Deduction replaces that, for most asset types, with immediate expensing: the full cost is deducted in the taxation year the property becomes available for use.
Finance Canada estimates the measure covers roughly two-thirds of capital asset investment in Canada, up from about 15% under the temporary Productivity Super-Deduction announced in Budget 2025. The government projects a fiscal cost of $36 billion over five years and a fall in the marginal effective tax rate on new investment from 13.0% to 6.4%. Those are government projections, not outcomes — but unlike its predecessor, this measure is proposed as permanent.
What qualifies
Most depreciable capital property acquired on or after September 15, 2026, including:
- machinery and equipment, including manufacturing and processing equipment;
- computer hardware and technology infrastructure;
- software;
- operating and transportation equipment;
- furniture and fixtures;
- fibre-optic cable, mining property and certain pipelines.
What does not qualify
| Excluded | CCA class |
|---|---|
| Buildings and structural additions | 1, 3 |
| Franchises, licences, goodwill and other intangibles | 14, 14.1 |
| Natural gas distribution pipelines | 51 |
| Most passenger vehicles and certain commercial vehicles | 10, 10.1 |
| Mineral and timber resource property | Schedules V, VI |
Assets outside the Mega Deduction are not left with nothing: they can still fall under the Accelerated Investment Incentive.
Three things that catch people out
1. Buildings are excluded — but manufacturing buildings have their own rule
Classes 1 and 3 sit outside the Mega Deduction. Separately, a manufacturing or processing building first used after November 4, 2025 can be written off at 100% where at least 90% of its floor space is used for manufacturing or processing. That relief is temporary and steps down: 100% before 2030, 75% in 2030–2031, 55% in 2032–2033, and nil after 2033. If a facility project is on your horizon, the in-service date is now a tax decision, not just a construction one.
2. Used equipment is heavily restricted
Second-hand property qualifies only if neither you nor a person related to you previously owned it, and it did not come to you on a tax-deferred rollover. In practice this closes the door on most related-party and reorganization planning — including moving equipment between your own corporations to reset its cost.
3. Individuals and partnerships cannot create a loss with it
For unincorporated businesses and partnerships with individual members, the deduction cannot create or increase a business loss. The deduction is capped at the income the business actually earned. A corporation is in a different position — which is one more input into the incorporation question, not a reason to incorporate on its own.
What it does not change
Immediate expensing is a timing benefit, not a permanent tax saving. Writing an asset down to nil means there is nothing left to shelter the proceeds when you sell it: the disposition triggers recapture to the extent the proceeds exceed the undepreciated balance in the class. That is manageable if you plan for it, and unpleasant if you meet it by surprise three years from now. The same logic applies to the purchase itself — a deduction taken in a low-income year is worth less than the same deduction in a high-income year, and the CCA rules have never forced anyone to claim the maximum.
There is also a measure for Canadian development expenses incurred after September 15, 2026, relevant mainly to the resource sector and subject to its own successor and non-arm's-length restrictions.
One important caveat
This is draft legislation. It has been released for consultation and still requires enactment by Parliament, and the details can change before it becomes law. Treat it as a strong planning signal rather than settled law, and document your acquisition dates carefully.
What to do now
- List the capital purchases you were planning for the next twelve months and mark which fall inside the eligible classes.
- Check the available-for-use date, not just the invoice date. Equipment still sitting in a crate is not yet deductible.
- Before buying used, confirm the seller is at arm's length and that no rollover is involved.
- Run the deduction against your projected taxable income rather than claiming it reflexively.
- If a building project is planned, model the 2030 and 2032 step-downs before you set an occupancy date.
If you would like us to look at your specific list of planned purchases, we offer a free 15-minute consultation. We reply by the next business day.
Source: Department of Finance Canada — Government of Canada introduces new Productivity Mega Deduction.