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The Productivity Mega Deduction is a proposal from Finance Canada, announced on 15 September 2026, to let businesses deduct the full cost of most depreciable property in the year it becomes available for use. It would apply to property acquired on or after that date and would be permanent. It is not law yet. Buildings in Classes 1 and 3, franchises and goodwill are excluded.
Status on 31 October 2026: Finance Canada has published a news release and draft legislative proposals for the Income Tax Act and the Income Tax Regulations. Parliament has not passed them, and we did not confirm which bill will carry them. The draft page shows no comment deadline.
What is the Productivity Mega Deduction?
Under today’s capital cost allowance (CCA) rules (CRA: capital cost allowance), you cannot deduct the cost of equipment all at once. You deduct part of it each year, at a rate set by the asset’s class. Class 8, for example, has a maximum rate of 20%. Immediate expensing lets you deduct the whole cost in the first year instead.
Finance Canada proposes to provide immediate expensing for a broad range of depreciable property on a permanent basis, and the release states no phase-out. It builds on the Productivity Super-Deduction from Budget 2025, which Finance describes as covering about 15% of investment in capital assets. Finance says the new measure would cover about two thirds. Total deductions over the life of an asset still equal its cost. What changes is when you get them.
Which assets would qualify?
The release says eligible property is all capital property subject to the CCA rules that is acquired on or after 15 September 2026, other than the exclusions below. The draft regulations call it immediate expensing property.
| Type of property | Treatment in the proposal |
|---|---|
| Machinery, equipment and other CCA property acquired on or after 15 September 2026 | Eligible unless excluded below |
| Buildings and additions in Classes 1 and 3 | Excluded |
| Manufacturing and processing buildings | Excluded from the Mega Deduction because they are in Class 1, but they stay eligible for the temporary immediate expensing announced in Budget 2025 |
| Classes 14 and 14.1 (franchises, licences, goodwill) | Excluded |
| Class 51 (for example regulated natural gas distribution pipelines) | Excluded |
| Certain vehicles in Classes 10 and 10.1 | Excluded; the draft regulations define which ones |
| Property depreciated under Schedules V and VI of the Income Tax Regulations | Excluded |
| Industrial mineral mines, timber limits and cutting rights, qualified liquefaction equipment | Also named as excluded in the draft regulations; liquefaction equipment has its own rule |
Used property qualifies only if neither you nor anyone you do not deal with at arm’s length owned it before, and it was not transferred to you on a tax-deferred rollover basis. Individuals and partnerships with individual members face limits on creating or increasing a loss with the deduction. The draft caps their first-year claim at the income from the business or property where the asset is used.
How is it different from the Accelerated Investment Incentive?
The Accelerated Investment Incentive (AII) gives a bigger first-year deduction, but not the full cost. The CRA page on the Accelerated Investment Incentive says that for property available for use in 2024 to 2027, property subject to the half-year rule gets two times the normal first-year deduction, and other property generally gets one and a quarter times. Finance says property outside the Mega Deduction would keep the AII.
| Feature | Normal CCA | AII (CRA page) | Mega Deduction (proposed) |
|---|---|---|---|
| First-year deduction | Class rate on half the cost under the half-year rule | Two times the normal first-year deduction for half-year-rule property | The full cost |
| Status | Law | Law | Proposal, not law |
| Covers | Property in CCA classes | Eligible property under the CRA rules | Most CCA property acquired on or after 15 September 2026, with exclusions |
The CRA’s AII page shows 21 July 2025 in its page details and does not mention later proposals. The CRA’s page on what is new for corporations (modified 12 June 2026) lists other proposed changes to the AII and immediate expensing. So ask your accountant which rules apply to a particular asset.
What would a $100,000 machine look like?
This is an illustration of a proposal, not a forecast. Assume a corporation buys a $100,000 machine in Class 8 (20% rate), it becomes available for use in 2026, and it qualifies under each method. We assume a combined tax rate of 25%. That rate is for illustration only, and yours depends on your province and type of income.
| Method | First-year deduction | Tax reduction at the assumed 25% |
|---|---|---|
| Normal CCA with the half-year rule | $10,000 | $2,500 |
| AII at two times the normal amount | $20,000 | $5,000 |
| Mega Deduction as proposed | $100,000 | $25,000 |
This is our calculation, not an official figure. In every row the deductions add up to $100,000 over the asset’s life, so the Mega Deduction moves the savings earlier. You also need enough taxable income to use the deduction. The machine still costs $100,000, and even in the best row only $25,000 comes back in tax, leaving $75,000 out of pocket.
What has to happen before it becomes law?
Parliament has to pass a bill with the measure in it, and the bill must receive Royal Assent. The draft legislative proposals are a first step, and the text can change on the way. If it is enacted as drafted, it would apply to property acquired on or after 15 September 2026, so a purchase made now would be covered once the bill passes. We have not confirmed which bill will carry it, and the Parliament of Canada site is the place to check.
What can a small business do now?
- Keep invoices, the date you acquired each asset and the date it became available for use.
- Note whether each asset is new or used, and who owned it before you.
- Ask an accountant which CCA class each asset falls into, especially vehicles and buildings, which the proposal excludes.
- Do not buy equipment only for the deduction, because it returns part of the cost, not all of it.
- Follow the Finance Canada draft legislation page and the CRA page on what is new for corporations.
Our articles on CCA, business write-offs and small business tax deductions explain the basics. You can estimate a corporate bill with our corporate tax calculator. This page gives information only and is not advice about a specific purchase.
What could change?
The draft text may be amended before it becomes law, including the list of excluded property and the date it applies from. The CRA’s AII page also says property must be available for use before 2028 to qualify, so timing matters for assets outside the new regime. Our 2027 tax questions page tracks what is confirmed and what is still open.
Where does this information come from?
Rules and figures come from the Department of Finance Canada news release of 15 September 2026 and its draft legislative proposals for the Income Tax Act and Income Tax Regulations. The CRA pages on the Accelerated Investment Incentive, capital cost allowance and what is new for corporations were also used. Checked on 31 October 2026. This is an independent information site: we provide no services, we do not represent the CRA or any organization, we collect information from open sources, and we do not guarantee that anything here is accurate or current. We accept no liability for decisions based on it. Check the official source before you rely on it. See the full disclaimer.
Frequently asked questions
What is the Productivity Mega Deduction?
It is a Finance Canada proposal for immediate expensing: deducting the full cost of most depreciable property in the year it becomes available for use. It would apply to property acquired on or after 15 September 2026, is described as permanent, and is not law yet.
Is the Productivity Mega Deduction law yet?
No. As of 31 October 2026, Finance Canada has released a news release and draft legislative proposals only. Parliament must pass a bill and it must receive Royal Assent. The draft text could change before then, so describe it as a proposal.
Does the Productivity Mega Deduction cover buildings and vehicles?
Buildings and additions in Classes 1 and 3 are excluded, as are certain vehicles in Classes 10 and 10.1. Manufacturing and processing buildings are in Class 1 but stay eligible for the temporary immediate expensing announced in Budget 2025. The draft regulations define the excluded vehicles.
How is the Mega Deduction different from the Accelerated Investment Incentive?
The Accelerated Investment Incentive enlarges the first-year deduction, for example to two times the normal amount for half-year-rule property available for use in 2024 to 2027 per the CRA page. The Mega Deduction would allow the full cost. Property outside the Mega Deduction keeps the incentive.
When would the Productivity Mega Deduction start?
The proposal applies to eligible property acquired on or after 15 September 2026. That date only matters if Parliament enacts the measure. Keep your purchase invoice and the date the asset became available for use, and ask an accountant to confirm.