The federal government has proposed a new Productivity Mega Deduction that would permanently allow immediate expensing for most depreciable property acquired on or after September 15, 2026.
If enacted, this measure could significantly accelerate tax deductions for many businesses by allowing the full eligible cost of qualifying property to be deducted in the year the property becomes available for use.
Under the regular capital cost allowance rules, businesses generally deduct the cost of depreciable property over time based on the prescribed CCA class. Immediate expensing changes the timing of that deduction by moving the tax benefit into the first year, which may improve cash flow and reduce the after-tax cost of new investment.
What property may qualify?
The proposal would generally apply to depreciable capital property acquired on or after September 15, 2026, but several important exclusions remain. In particular, the measure would not apply to buildings and additions in CCA classes 1 and 3; property in classes 14 and 14.1, such as franchises, licences and goodwill; class 51 property, such as certain regulated natural gas distribution pipelines; certain vehicles in classes 10 and 10.1; and property depreciated under Schedules V and VI of the Income Tax Regulations.
Vehicle eligibility will require particular attention. Certain vehicles may be excluded depending on their classification and use, including passenger vehicles and vehicles that are treated as passenger vehicles under the relevant rules. The vehicle must neither have been used for any purpose before it was acquired (i.e. must be a new vehicle) or have been assembled in a country other than Canada. The incentive focuses on newly constructed Canadian assembled vehicles.
The Appendix outlines CRA’s vehicle determination guidance and should be reviewed before assuming a vehicle qualifies.
Vehicles acquired to be sold, rented or leased in the course of carrying on a business of selling, renting or leasing motor vehicles would also be excluded from this incentive.
Other expenses and interaction with existing incentives
Immediate expensing would also be available for Canadian development expenses incurred on or after September 15, 2026. Manufacturing and processing buildings would not qualify under the Productivity Mega Deduction because Class 1 buildings are excluded, but they may continue to qualify for the temporary immediate-expensing measure announced in Budget 2025.
For property that does not qualify for immediate expensing, businesses should still consider whether the temporary Accelerated Investment Incentive or other existing CCA measures may apply.
Restrictions on used property
Used property may qualify, but restrictions exist. The taxpayer and any non-arm’s-length person must not have previously owned the property, and the property must not have been transferred to the taxpayer on a tax-deferred rollover basis.
Next steps
The Productivity Mega Deduction remains proposed legislation. Businesses considering significant capital expenditures should monitor the final rules and seek advice on how the measure may apply to their specific assets and investment plans.
Speak to your Welch LLP advisor to help assess whether you may benefit from this proposed incentive.
Appendix: Type of Vehicle – CRA
| Type of vehicle | Seating (includes driver) | Business use in year bought or leased | Vehicle definition |
| Coupe, sedan, station wagon, sports car, or luxury car | 1 to 9 | 1% to 100% | passenger |
| Pick-up truck used to transport goods or equipment | 1 to 3 | more than 50% | motor |
| Pick-up truck (other than above) | 1 to 3 | 1% to 100% | passenger |
| Pick-up truck with extended cab used to transport goods, equipment, or passengers | 4 to 9 | 90% or more | motor |
| Pick-up truck with extended cab (other than above) | 4 to 9 | 1% to 100% | passenger |
| Sport utility vehicle used to transport goods, equipment, or passengers | 4 to 9 | 90% or more | motor |
| Sport utility vehicle (other than above) | 4 to 9 | 1% to 100% | passenger |
| Van or minivan used to transport goods or equipment | 1 to 3 | more than 50% | motor |
| Van or minivan (other than above) | 1 to 3 | 1% to 100% | passenger |
| Van or minivan used to transport goods, equipment, or passengers | 4 to 9 | 90% or more | motor |
| Van or minivan (other than above) | 4 to 9 | 1% to 100% | passenger |
