Recently, the federal government announced the Productivity Mega Deduction, and the Department of Finance released draft legislation to implement it. In short, for most depreciable property acquired on or after Sept. 15, 2026, a business would be able to deduct the full cost in the year the asset becomes available for use, instead of writing it off over several years.

The government describes the measure as permanent, estimating it will cover about two‑thirds of business investment in capital assets, up from roughly 15% under last year’s Productivity Super‑Deduction. Here, we take an in‑depth look at what the new deduction proposal will entail. Please note the rules are not yet law and could change.

Key points

This new deduction regime brings a number of important considerations. These include:

• 100% deduction in year one for most new (and many used) depreciable assets acquired on or after Sept. 15, 2026, such as machinery, equipment, furniture, computers/software, tools, heavy freight trucks, trailers and leasehold improvements, among others.
• No dollar cap and no “small business” requirement. Unlike the temporary $1.5 million immediate expensing measure introduced in 2021, and since expired, this applies to businesses of any size, incorporated or not, on a permanent basis.
• Buildings in Classes 1 and 3, goodwill and many vehicles are excluded (details further below).
• Individuals, trusts and partnerships with an individual or trust as a partner cannot use it to create a loss; corporations can.
• It is a timing benefit, not a new deduction. You recover the same total cost, but sooner. If you later sell the asset, sale proceeds (up to original cost) reduce the capital cost allowance (CCA) pool and can be brought back into income as recapture.

How immediate expensing works

Today, the cost of most business assets is deducted gradually through CCA at a prescribed rate on a declining balance. Under the current Accelerated Investment Incentive, a $100,000 piece of general equipment (Class 8) allows a $30,000 deduction in year one, $14,000 in year two, and so on. Under the Productivity Mega Deduction, the entire $100,000 would be deductible in year one.

For a corporation paying Ontario’s 26.5% general corporate rate, that moves roughly $18,500 of tax from the first year into later years (about $7,800 at the 11.2% combined small business rate that applies to days after June 30, 2026, prorated for taxation years that straddle that date). The deduction is optional ⁠–⁠ you may claim anything from zero to 100% in the first year. The unclaimed balance stays in the CCA class and is depreciated at the normal rate in later years.

Qualifying assets

This new deduction regime applies to depreciable property acquired on or after Sept. 15, 2026, that becomes available for use, other than the exclusions listed further below. For a typical owner‑managed business, this covers:

• Manufacturing, processing, construction, agricultural, restaurant, medical/dental and office equipment
• Furniture, fixtures, shelving, signage and small tools
• Computers, servers, networking equipment and software (most of these are already fully deductible under last year’s Productivity Super‑Deduction; under the new proposals that treatment becomes permanent)
• Leasehold improvements to rented premises (Class 13) ⁠–⁠ the draft amends the leasehold‑interest rules in Schedule III of the Regulations to accommodate the new deduction
• Heavy freight trucks, trailers, forklifts, loaders, excavators, farm tractors and similar equipment
• Paving and parking areas (Class 17), fencing (Class 6) and patents (Class 44)
• Used property also qualifies if it was not previously owned by you or by a person or company you do not deal with at arm’s length (for example, a spouse, child, parent or related company), and did not come to you on a tax‑deferred rollover.

Ineligible assets

• Buildings and additions to buildings (Classes 1 and 3). Manufacturing and processing buildings keep the separate temporary immediate write‑off introduced in Budget 2025; other Class 1 and 3 buildings continue under the existing rules.
• Goodwill and limited‑life intangibles such as franchise rights and licences (Classes 14 and 14.1).
• Many cars, SUVs, vans and light trucks (see next section).
• Used assets previously owned by you or a non‑arm’s‑length person, or that come to you on a tax‑deferred rollover; for example, moving your personally owned truck or equipment into your corporation.
• Assets under construction or being built to order at Sept. 15, 2026 are subject to a special rule that can exclude costs incurred before that date from the immediate write‑off. Buying a finished asset on or after Sept. 15 from a supplier that held it as inventory is not affected by this rule.

Ineligible property continues to receive the existing Accelerated Investment Incentive (an enhanced first year CCA claim) where it applies today.

The fine print on vehicles

We anticipate this area to generate the most questions. The draft rules carve an “excluded vehicle” out of Classes 10 and 10.1. A vehicle is an excluded vehicle ⁠–⁠ and therefore receives no Mega Deduction ⁠–⁠ only if it meets BOTH of the following tests. (The general restrictions described above, such as those for used assets previously owned by a related person or transferred on a rollover, apply to vehicles as well.)

Test 1 – It is one of these types of vehicles:

• A car, SUV, minivan or similar motor vehicle designed or adapted primarily to carry individuals on highways and streets, with seating for no more than nine including the driver;
• A pickup truck, van or similar vehicle that falls outside the “automobile” definition because, in the year it is acquired, (a) it seats no more than the driver and two passengers and is used primarily to transport goods or equipment in the course of earning income, (b) its use is all or substantially all for transporting goods, equipment or passengers in the course of earning income, or (c) it is a pickup truck used primarily to transport goods, equipment or passengers in the course of earning income at remote work locations as defined in the tax rules;
• A vehicle acquired mainly for use as a taxi; or
• A vehicle acquired for sale, rental or leasing by a dealership, rental or leasing business (or for carrying passengers in a funeral business).

Test 2 – The vehicle is brand new and NOT assembled in Canada

• Vehicles in Class 10 or 10.1 not described in Test 1 are unaffected by the carve‑out. The test is where the vehicle was assembled, not the brand, and assembly location can vary by model and model year. The draft does not say how assembly location will be verified, so have your dealer confirm it in writing before you sign.

The existing rules on personal use are unchanged. Sole proprietors deduct only the business‑use portion of a vehicle’s CCA, and employees and shareholders who drive company vehicles personally continue to face taxable benefits.

Two added factors for passenger vehicles costing more than $39,000 (Class 10.1):

• The cap still applies. The deduction is limited to the prescribed amount ⁠–⁠ $39,000 before HST for vehicles acquired in 2026. The limit is reviewed annually, as it is today. On a new $70,000 Canadian‑assembled passenger vehicle, you write off $39,000 immediately; the excess is not deductible for CCA purposes.
• Recapture applies and you can opt out. Class 10.1 vehicles currently enjoy a special rule: no recapture when you sell (and no terminal loss). The draft removes the no‑recapture protection for Class 10.1 vehicles that were immediately expensed, so recapture can arise on a sale, and it extends to those vehicles the cost and proceeds‑of‑disposition rules in paragraph 13(7)(i) of the Act that currently apply to zero‑emission passenger vehicles costing more than their cap. To preserve traditional treatment, the draft allows an election, filed with the return for the year of purchase by its due date, to keep a Class 10.1 vehicle out of the Mega Deduction. Whether to elect will depend on your circumstances. We can model both options with you.

Who benefits and one important limit

Corporations receive the full benefit, including the ability to create or increase a loss. A corporation that generates a non‑capital loss through a large purchase can carry that loss back up to three years and recover tax already paid.

Sole proprietors, trusts and partnerships with an individual or trust as a partner (for example, a partnership of individual professionals) can claim the deduction only up to the income of the business or property in which the asset is used, calculated before CCA. The deduction cannot create or increase a loss; any unclaimed cost is depreciated normally in later years.

Timing and planning considerations

• Two critical dates. The asset must be acquired on or after Sept. 15, 2026, and available for use in the year (the tax rules set specific tests; broadly, an asset is available for use once delivered and capable of performing its intended function or is first used to earn income). An asset ordered now but not available for use until after your year‑end is deducted in the year it becomes available for use. If you ordered an asset before Sept. 15, but take delivery afterward, whether it was acquired on or after that date depends on the terms of your agreement and when ownership passed to you. We can help you determine this.
• Year‑end planning. If your corporation’s year‑end falls within the coming months, purchases you were already planning may be worth completing, with the asset delivered and available for use before then. Do not buy an unneeded asset simply for the deduction ⁠–⁠ it is a deferral and proceeds can come back into income as recapture upon sale of the asset.
• Ontario tax. Ontario corporate income tax is calculated on the same taxable income as federal tax, so a change to federal CCA also generally applies for Ontario purposes. The federal announcement does not address provincial tax specifically.
• Not yet law. These are draft legislative proposals and not yet law. When the 2021 immediate expensing measure was announced, the CRA stated it would not allow claims until the enabling legislation was introduced in Parliament, which happened about a year later. A similar approach is possible here.
• What’s already in place remains. The immediate write‑offs under the Productivity Super‑Deduction continue. This includes machinery, equipment and buildings used for manufacturing/processing, clean energy generation and energy conservation equipment, zero‑emission vehicles, patents, data network infrastructure and computers.

Next steps

Our advisors can help further explain and clarify the new deduction proposals, as well as outline how they may apply to your specific circumstances.

Expert guidance that never depreciates