Canada’s federal government is proposing one of the more significant changes to business tax planning in recent years. On September 15, 2026, the Department of Finance announced the proposed Productivity Mega Deduction (PMD), a measure that would allow many businesses to immediately deduct 100% of the cost of eligible capital investments, rather than claiming that deduction gradually over several years under the existing Capital Cost Allowance (CCA) system.
For businesses planning to invest in equipment, technology, software, or leasehold improvements, this proposal could meaningfully alter the timing and value of upcoming corporate tax-planning decisions. But the PMD is still a proposal, not enacted legislation, and the details matter.
We break down what the measure would do, which assets may qualify, what’s excluded, and what businesses should be discussing with their accountant or advisor before year-end.
How Does Immediate Expensing Work?
Normally, when a business purchases a capital asset, the cost is deducted for tax purposes gradually over time through the Capital Cost Allowance (CCA) system. Under the proposed PMD, many qualifying assets could instead be fully deducted in the year they become available for use.
For example, if a business purchases $500,000 of qualifying equipment and that equipment becomes available for use during the taxation year, the business could potentially claim the entire $500,000 as a CCA deduction in that same year, rather than spreading the deduction across several years as under current rules.
It’s important to be clear about what this measure is and isn’t. The PMD accelerates a deduction to which the business is already entitled. It is not a $500,000 tax credit, and it does not create a deduction larger than the cost of the asset itself.
What Type of Capital Assets May Qualify?
The proposed rules are broad and may provide immediate expensing for many common business investments, including:
Machinery and equipment, computers and computer equipment, qualifying software, certain commercial trucks and equipment vehicles, leasehold improvements, and other qualifying depreciable capital property.
Leasehold improvements could be particularly significant. Based on the initial Department of Finance announcement, Class 13 property does not appear among the excluded classes. This could potentially allow businesses to make substantial improvements to leased offices, restaurants, clinics, retail locations, and similar premises to immediately expense qualifying costs.
This treatment should be confirmed once detailed legislation is released
See More: Canada’s Proposed Capital Gains Tax Changes
What’s Excluded From The Proposed Deduction?
The proposed PMD does not apply to every capital asset. Notable exclusions include ordinary Class 1 and Class 3 commercial buildings, goodwill, and certain franchises and licences. Special restrictions also apply to certain vehicles.
Businesses purchasing vehicles should not assume that a vehicle acquired after September 15, 2026 automatically qualifies for a 100% deduction. The applicable CCA class, passenger-vehicle rules, and cost limitations will still need to be considered
Building and Construction Projects Require Additional Planning
Although ordinary commercial buildings remain excluded from the PMD, a construction or renovation project may still include individual assets that qualify. For example, a project could include computers, machinery, equipment, shelving, or other assets that fall into eligible CCA classes.
Properly identifying and allocating project costs according to the nature of each asset will therefore become increasingly important.
Manufacturing and processing buildings may also continue to benefit from the separate temporary immediate-expensing measure previously announced in the Spring Economic Update 2026.
Timing Matters
Simply purchasing an asset before year-end may not be enough to claim the deduction. The asset must generally be available for use before immediate expensing can be claimed.
Businesses considering year-end capital purchases should pay attention to both the purchase date and the date the asset is installed, delivered, or otherwise becomes available for use under the applicable tax rules.
What About Used Equipment?
Used property may potentially qualify, but additional restrictions apply, particularly where assets are purchased from related parties or transferred as part of a tax-deferred reorganization.
These transactions should be reviewed carefully before assuming the immediate deduction is available.
What Should Businesses Consider Now?
Businesses planning significant capital expenditures should review upcoming purchases with their tax advisor before year-end. Important considerations include the acquisition date, available-for-use date, applicable CCA class, vehicle restrictions, related-party transactions, and whether claiming the maximum deduction in the current year makes sense.
Businesses should also consider how the PMD may interact with other available tax incentives.
How Gallo LLP Can Help You Navigate the Productivity Mega Deduction
The proposed Productivity Mega Deduction represents one of the most significant potential shifts in business tax planning in years, but it’s still exactly that: a proposal. Detailed implementing legislation has not yet been enacted, and the final rules may differ from the framework announced by the Department of Finance.
That uncertainty is exactly why working with an experienced advisor matters right now. Gallo LLP’s corporate tax team helps Edmonton and Sherwood Park businesses assess which planned purchases might qualify, confirm that acquisition and available-for-use dates align, and avoid costly missteps related to vehicle restrictions, related-party transactions, and cost allocation on larger projects.
If you’re planning significant capital expenditures before year-end, or want to understand how the PMD could affect your tax strategy once the legislation is finalized, our team is ready to walk through your specific situation.