— October 13, 2026 —

A practical briefing for CPAs on the proposed immediate-expensing rules, eligibility limits and planning considerations.

The proposed Productivity Mega Deduction (PMD) will alter how CPAs advise clients about capital purchases and the timing of investment decisions. It is not enacted law, however, and its potential application will depend on the final legislation and several fact-specific eligibility rules.

For CPAs in public practice, the immediate questions are practical:

  • Is the proposed measure available yet?
  • What types of property could qualify?
  • When must the property be acquired and become available for use?
  • Do the rules differ for new and used property, vehicles, individuals, corporations and partnerships?
  • What exclusions or existing CCA measures may apply instead?

The short answer is that Canada has proposed these changes to the tax treatment of business capital investment. If enacted as proposed, the Productivity Mega Deduction could allow Canadian businesses to immediately expense the full eligible capital cost of many depreciable properties acquired on or after September 15, 2026, subject to the proposed rules, including the available-for-use requirement and specified exclusions.

That does not necessarily mean that every qualifying acquisition will produce a full deduction in the year of purchase. The property generally must become available for use, and restrictions may apply based on the taxpayer, the source of income, the property’s ownership history and its CCA class.

First things first: this is proposed legislation

The Department of Finance released draft legislative proposals on September 15, 2026.

The Productivity Mega Deduction is not yet enacted law.

That distinction should be made clear in discussions with clients who are already asking about the deduction or contemplating transactions on the assumption that it will be available.

The proposals are nevertheless sufficiently significant that practitioners should understand them now and consider their potential application when advising clients about planned capital expenditures.

Clients should not be told that they can claim the deduction with certainty until the legislation is enacted and the final rules are known.

What exactly is the “Mega Deduction”?

Despite its name, this isn’t a new tax credit, grant or government payment. It is principally an acceleration of capital cost allowance (CCA).

Under the normal CCA system, the cost of depreciable capital property is generally deducted over time at the prescribed rate for the applicable CCA class.

The Productivity Mega Deduction would allow the eligible cost of a much broader range of depreciable property to be deducted immediately, subject to the proposed limitations.

Does the equipment have to be made in Canada?

This is an important point because the government’s announcement repeatedly discusses encouraging investment in Canada. That does not mean that the equipment itself must be manufactured in Canada.

The proposed rules broadly extend immediate expensing to eligible capital property subject to the CCA rules, subject to specified exclusions and eligibility requirements. There is no blanket requirement in the proposed immediate-expensing rules that ordinary machinery, equipment or computers be manufactured or assembled in Canada.

The government’s reference to encouraging investment in Canada should therefore not be confused with a general requirement to purchase Canadian-made products. There is, however, an important exception.

Vehicles are different

Certain vehicles falling within Classes 10 and 10.1 are excluded from the proposed standard immediate-expensing regime. However, Finance has specifically provided an exception for certain new vehicles assembled in Canada.

PwC describes the proposed rule this way: certain passenger and rental vehicles, taxis and specified delivery vans or pickup trucks are excluded, although new vehicles of those types assembled in Canada may qualify.

That Canadian-assembly requirement is therefore a specific vehicle rule, not a general requirement applying to property eligible for the Productivity Mega Deduction.

For practitioners, the distinction is worth remembering:

A new computer? Where it was manufactured typically isn’t the issue.

A Class 10 or 10.1 vehicle? Where it was assembled may be very important, and other vehicle-specific conditions may also need to be satisfied.

What property would qualify?

Finance Canada’s starting point is broad, but not unlimited. The government proposes permanent immediate expensing for many depreciable properties acquired on or after September 15, 2026, subject to the detailed legislation and the available-for-use requirement.

The proposed exclusions include:

  • buildings and additions included in CCA Classes 1 and 3;
  • Classes 14 and 14.1 property, including certain franchises, licences and goodwill;
  • Class 51 property, including 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, including certain industrial mineral and timber properties.

Expanded list of qualifying property

Qualifying property acquired on or after September 15, 2026, is now intended to include:

  • Fibre-optic cables and data network infrastructure;
  • Mining property and equipment;
  • Oil and gas pipelines;
  • Computer software and data processing equipment;
  • Research and development (R&D) assets;
  • Aircraft and various vehicles;
  • Patents and rights to use patented information; and
  • Infrastructure such as rail tracks, bridges, and roads.

Manufacturing and processing buildings are outside the permanent Mega Deduction because of the Class 1 building exclusion.

However, qualifying manufacturing and processing buildings may continue to benefit from the separate temporary immediate-expensing measure announced in Budget 2025, if the applicable conditions are met.

And property that doesn’t qualify for immediate expensing under the Mega Deduction may still be eligible for the Accelerated Investment Incentive or another special CCA measure.

So, the analysis shouldn’t simply be: Does it qualify for the Mega Deduction—yes or no?

It should be: What is the best CCA treatment available for this particular asset under the proposed rules and the other measures that may apply?

Immediate deduction for Canadian development expenses (CDE)

The PMD is not limited to depreciable capital property subject to Capital Cost Allowance (CCA). It is proposed to also provide immediate expensing for Canadian development expenses (CDE) incurred on or after September 15, 2026.

  • Restriction on Non-Arm’s Length Acquisitions: This deduction is unavailable for the cost of Canadian resource property acquired from a person or partnership with whom the taxpayer does not deal at arm’s length.
  • Flow-Through Shares: For resource issuers, CDE renounced under a flow-through share agreement will only qualify for the PMD if the underlying agreement was entered into on or after September 15, 2026.

Don’t forget “available for use”

The draft legislation includes a significant modification for Class 47 liquefaction equipment used in LNG facilities.

Retroactive Eligibility: Unlike the general PMD effective date, immediate expensing for Class 47 LNG equipment is available for eligible assets acquired on or after November 4, 2025.

Waiver of Intensity Requirements: Notably, LNG facilities are not required to meet the “expected emissions intensity” requirement of 0.20 or less to qualify for this 100% allowance or the accelerated 10% rate for Class 1 buildings supporting the facility.

Income Restriction: This 100% deduction can only be claimed against the taxpayer’s income that is specifically attributable to the liquefaction of natural gas at that specific facility.

Another potentially important planning point is timing. The acquisition date matters, but so does the available-for-use date. The proposed deduction generally applies when qualifying property becomes available for use, not simply when it is ordered, paid for or delivered.

Consequently:

  • signing a purchase agreement may not be enough;
  • paying a deposit may not be enough;
  • taking delivery may not necessarily be enough; and
  • equipment awaiting installation or commissioning may not yet satisfy the available-for-use rules.

For a simple computer purchase, this may not present much difficulty, although the facts still matter.

For a $2 million production line requiring months of installation and commissioning, it could be critical.

That means CPAs advising clients on significant projects may need to understand not only when the client acquired the asset, but also when it will actually become available for use under the applicable tax rules. Clients calling about whether to buy now or wait should therefore be cautioned that the purchase date alone may not determine the year in which the deduction becomes available.

Used equipment can potentially qualify

Another point clients may not appreciate is that qualifying property doesn’t necessarily have to be brand new. Previously used property can potentially qualify, but the proposed rules contain restrictions that may prevent certain acquisitions from qualifying.

  • Finance has proposed restrictions intended, among other things, to prevent existing assets from simply being moved between related parties to generate an immediate deduction.
  • Where eligible property has previously been used, it generally would qualify only where:

neither the taxpayer nor a non-arm’s-length person previously owned the property; and

the property was not transferred to the taxpayer on a tax-deferred rollover basis.

The detailed legislation should be reviewed carefully, particularly where the vendor is related or the property has passed through a series of transactions.

  • For practitioners, this suggests some additional due diligence when clients acquire significant used property.
  • Who previously owned it?
  • Is the vendor related or otherwise non-arm’s-length?
  • Was a rollover involved?
  • Those questions may become part of the standard capital-asset review.

Who is claiming the deduction also matters

There is another important distinction hidden beneath the 100% headline. Finance proposes restrictions on the ability of individuals and partnerships with individual members to use immediate expensing to create or increase a loss from the relevant business or property source. The precise application of those restrictions depends on the taxpayer, the source of income and the final legislation. They should not be treated as a general rule that applies identically to corporations, individuals and all partnerships.

So two clients purchasing essentially identical pieces of equipment may not necessarily obtain identical immediate tax results.

Entity structure matters. Income from the particular source can matter. Partnership composition and the allocation of income and deductions can matter.

So practitioners should not interpret “100% immediate expensing” as meaning that every taxpayer can necessarily deduct 100% of every qualifying acquisition against any income they choose.

A walk-through of the tax logic in Income Tax Regulation (ITR) 1100(0.1) and the proposed PMD rules should be performed.

Step 1: Determine the taxpayer’s legal form

  • Corporations: A corporation (other than a life insurance corporation) can generally use the PMD to create or increase a non-capital loss.
  • Individuals, Trusts, and Partnerships: If an individual or a partnership with an individual member is claiming the deduction, the PMD is subject to a statutory income threshold.

Step 2: Apply the income threshold

Per ITR 1100(0.1)(c), if the person is not a Canadian-controlled private corporation (CCPC), the deduction is capped at the amount of income earned from the business or property source (computed before the CCA deduction) in which the relevant asset is used.

Tax Logic Example: An individual in a retail business acquires $100,000 of qualifying software. The business earns $60,000 in net income for 2026. The PMD claim is restricted to $60,000 to prevent a loss. The remaining $40,000 stays in the Undepreciated Capital Cost (UCC) pool to be claimed in future years under ordinary CCA rules.

Is claiming 100% always the right answer?

There is another planning issue worth considering. CCA is generally discretionary. A taxpayer doesn’t necessarily have to claim the maximum deduction available simply because immediate expensing is available. Depending on the circumstances, a taxpayer may choose to claim less. That raises a planning question that could become increasingly relevant: Not merely “How much can we deduct?” but “How much should we deduct this year?”

However, practitioners should also understand what happens to an amount that isn’t immediately expensed. It does not remain available as a separate Mega Deduction that can simply be carried forward and claimed in full the following year. Instead, the unclaimed capital cost generally remains in the applicable UCC pool and becomes subject to the ordinary CCA rules, subject to any other applicable measures.

That makes the decision whether to claim the immediate deduction a potentially important part of year-end tax planning.

What about the existing accelerated CCA rules?

Interaction with restored SR&ED capital expenditures

Practitioners must note that the 2024 Fall Economic Statement proposed to restore the eligibility of capital expenditures for the Scientific Research and Experimental Development (SR&ED) program for property acquired on or after December 16, 2024.

Bifurcated Benefit: R&D equipment may now qualify for both an immediate 100% deduction under ITA 37(1)(b) and a 35% enhanced investment tax credit (ITC) for eligible corporations.

Exclusion: While equipment qualifies, capital expenditures for the acquisition of a building (other than a prescribed special-purpose building) remain ineligible for R&D deductions.

The Mega Deduction doesn’t exist in isolation

Canada has accumulated several accelerated CCA measures in recent years, including measures applying to manufacturing and processing equipment, clean-energy equipment, zero-emission vehicles, computers and other productivity-enhancing assets.

Finance says the Mega Deduction would substantially broaden permanent immediate expensing, while property that does not qualify would continue to potentially benefit from the existing Accelerated Investment Incentive and other applicable rules.

Practitioners will therefore need to consider the interaction of:

  • the proposed Productivity Mega Deduction;
  • the Accelerated Investment Incentive;
  • existing immediate-expensing measures;
  • special CCA classes and rates; and
  • other applicable investment incentives.

The interaction may depend on the property’s class, acquisition date, available-for-use date, taxpayer type and the specific statutory provisions. The proposed measure should not be assumed to replace or automatically override every existing CCA rule.

This is one reason the CCA classification remains important even in a world in which a great deal of property may suddenly qualify for a 100% first-year deduction.

What should CPAs do now?

Clients may already be asking questions. A practical response is to avoid giving a simple yes-or-no answer before gathering the facts.

For each proposed acquisition, confirm:

  • what property the client plans to acquire;
  • the expected cost;
  • the proposed acquisition date;
  • when the property is expected to become available for use;
  • whether the property is new or used;
  • the identity and relationship of the vendor;
  • the applicable CCA class;
  • whether the property falls within an exclusion;
  • whether the client is a corporation, individual or partnership;
  • whether partnership composition or source-of-income restrictions may apply;
  • whether the client has sufficient income to use the deduction; and
  • what other accelerated CCA or investment incentives may apply.

It may also be appropriate to explain that the rules are proposed, not enacted, and that the final legislation could differ.

Where the purchase is material, prepare more than one scenario:

  • the result if the Mega Deduction is enacted as proposed;
  • the result under the existing CCA and accelerated-investment rules; and
  • the result if the asset is acquired or becomes available for use in a different taxation year.

That approach gives the client useful decision-making information without overstating the certainty of the proposed measure.

One final caution: don’t let the name do the analysis

“Productivity Mega Deduction” is a memorable name. But it is not a substitute for reading the rules. The proposal does not mean that every capital expenditure is immediately deductible. It does not mean that an expenditure must generally be for Canadian-made equipment.

It does not eliminate:

  • CCA classifications;
  • the available-for-use rules;
  • special rules for used property, related-party transactions, vehicles or partnerships.

It does not mean that the deduction is already available under enacted law.

And it does not necessarily mean that claiming the maximum available deduction will always produce the best tax-planning result.

Change of use of property that qualified for immediate expensing

Manufacturing Buildings: For buildings that qualified for temporary 100% expensing under Budget 2025, a recapture event is triggered if the floor space used for manufacturing or processing falls below 90% within 10 years of acquisition.

Consequence: In such an event, the taxpayer is deemed to have disposed of the property for proceeds equal to the UCC that would have existed if maximum ordinary CCA had been claimed instead of immediate expensing.

Sources and further reading

Primary authority

Department of Finance Canada, September 15, 2026 — “Government of Canada introduces new Productivity Mega Deduction to boost Canada’s advantage as the most competitive G7 country for new business investment.”

Finance’s official backgrounder describes the proposed immediate-expensing regime, qualifying property, exclusions, used-property restrictions, Canadian-assembled vehicle treatment, CDE changes and interaction with the Accelerated Investment Incentive.

Department of Finance Canada — Draft legislative proposals released September 15, 2026.

The draft amendments to the Income Tax Regulations and related legislation are the primary technical authority for determining how the proposed rules are intended to operate.

Independent technical commentary

PwC Canada, Tax Insights 2026-36, September 16, 2026 — “Federal tax measures to boost investments in Canada — permanent immediate expensing and faster rulings.”

PwC summarizes the draft legislation, including qualifying property, exclusions, used-property restrictions, the special treatment of Canadian-assembled vehicles and restrictions applicable to individuals and certain partnerships.

EY Canada, Tax Alert 2026 No. 47, September 16, 2026 — “Finance Canada announces new productivity mega deduction for capital investments.”

EY’s analysis specifically states that its summary is based on the draft legislation released by Finance on September 15.

KPMG Canada, September 16, 2026 — “New investment deduction expands immediate expensing.”

KPMG independently confirms that Canadian businesses would generally be able to immediately expense the full eligible cost of many depreciable properties acquired on or after September 15, 2026, subject to the proposed rules.

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Disclaimer

This article provides general information only and is not intended to constitute tax, accounting or legal advice. The Productivity Mega Deduction discussed above is based on draft legislative proposals released by the Department of Finance Canada on September 15, 2026. The proposals have not yet been enacted and may be amended before enactment. The application of the proposed rules will depend on the taxpayer’s particular circumstances, the nature and classification of the property, the acquisition and available-for-use dates, the property’s ownership history, the taxpayer’s legal form and the final legislation. Professional advice should be obtained before undertaking or modifying a transaction in reliance on the proposed measures.