Productivity Mega Deduction: what qualifies and what it means for your equipment plans

Advisory. This page covers a budget tabled on November 5, 2026. Most measures are still proposals, and their downstream effects on provincial rules, program terms and intake are not yet known. This page was independently fact-checked against official documents, in a review separate from the drafting, and revised before publishing. Expect further revisions as legislation and official guidance arrive.

The Department of Finance announced the Productivity Mega Deduction on September 15, 2026, and Budget 2026 confirms it. It builds on the Productivity Super Deduction from Budget 2025. See our Federal Budget 2026 overview for the wider picture.

What the deduction does

Normally, a business deducts a capital asset over several years through capital cost allowance. Under this proposal, an eligible asset could be fully written off against taxable income in the year it becomes available for use.

Finance estimates that about two-thirds of capital investment would qualify, compared with about 15% previously. The measure would be permanent, and it is open to businesses of all sizes.

A simple illustration: a business buys a $200,000 eligible machine that is ready for use in 2027. Under the proposal, it could deduct the full $200,000 for 2027 instead of spreading the deduction over years. That is a timing benefit. It lowers taxable income sooner, but you still pay the vendor $200,000, and it only helps if you have taxable income to reduce.

What qualifies

Finance says eligible property includes all capital property subject to the CCA rules acquired on or after September 15, 2026, apart from the exclusions below.

The budget’s illustrative lists include:

• Construction: excavators, loaders, backhoes, concrete mixers, dump trucks
• Modular housing: laser-cutting equipment, welding equipment, assembly-line conveyors, quality-control scanners
• Health care: imaging equipment, sterilisation equipment, dental tools, office furniture
• Restaurants: ranges, refrigerators, point-of-sale hardware

The budget stresses that these lists are illustrative. Once legislation is tabled, the CRA will decide whether a specific asset qualifies based on the facts.

Limits apply. Used property qualifies only if neither you nor a non-arm’s-length person owned it before, and it did not reach you on a tax-deferred rollover. Rules would also restrict individuals, and partnerships with members who are individuals, from creating or increasing a loss.

What does not qualify

Finance lists these exclusions:

• buildings and additions to buildings in classes 1 and 3
• property in classes 14 and 14.1, such as franchises, licences and goodwill
• class 51, which includes regulated natural gas distribution pipelines
• certain vehicles in classes 10 and 10.1
• property depreciated under Schedules V and VI

Not all buildings are out. The budget’s examples include greenhouses, silos and certain frame, log or corrugated metal farm and fishing buildings. Finance says manufacturing and processing buildings are not eligible for the Mega Deduction but stay eligible for temporary immediate expensing announced in Budget 2025. Other excluded property stays eligible for the temporary Accelerated Investment Incentive.

What it means by sector

The budget publishes marginal effective tax rates on new investment. These are model estimates for a sector, not a forecast for your business.

How it interacts with grants

This is where sequence matters. Under subsection 13(7.1) of the Income Tax Act, government assistance received, or that you are entitled to receive, for a depreciable property generally reduces its capital cost. So a $50,000 grant on a $200,000 machine would generally leave a smaller amount to deduct. A grant can still be worth more than the deduction it reduces, because a grant is cash and a deduction only lowers taxable income. Your accountant should run the numbers for your case.

Also check program timing. Many grants require an application before you commit costs. Buying first to claim the deduction can close a grant door. Our manufacturing funding guide covers the common options.

Quebec

This is a federal proposal. As of November 5, 2026, we found no Quebec Finance bulletin confirming harmonization. A statement of intent during the fall 2026 campaign is not a Finance Québec decision. See our Quebec guide.

Accountants advising several clients can use our Budget 2026 checklist for accountants, sorted by effective date.

Status and next steps

Budget 2026 confirms the government’s intention to proceed with the September 15 proposals, with any modifications resulting from consultations. Until Parliament passes them, plan with care. Keep purchase dates and in-service dates documented, and ask your accountant before timing a purchase around the measure.

Want to see which grants could apply before you buy? Our free assessment reviews your project. It does not guarantee funding.

Canadian Funding Partners is an independent advisory firm, not affiliated with the Government of Canada, and does not administer these programs. This page is general information, not tax or legal advice. Confirm current terms on the official pages.