The Government of Canada plans to implement a new tax incentive that will allow businesses to immediately deduct the full cost of most new capital investments in the hopes of drawing in more foreign capital.
The news: Prime Minister Mark Carney announced the Productivity Mega Deduction on Tuesday at the first Canada Investment Summit in Toronto. The new measure increases the amount of assets covered from 15 to 65 percent, across software, computer equipment, fibre-optic cable, patents, research and development, and more. The feds are also making immediate expensing permanent to help firms recover these costs faster. The government claims these changes will slash Canada’s marginal effective tax rate on new business investment from 13 to 6.4 percent—the lowest among major economies and less than half that of the United States.
From the source: “Our goal is simple: to make Canada the most attractive place in the G7 to invest,” Carney said during his opening remarks. The Prime Minister generated a lot of laughs when he joked that the feds are calling this the Productivity Mega Deduction because they had already used “Super-Deduction” last year, in Budget 2025. “Put simply, your investment dollars will go a lot further in Canada than anywhere else in the advanced world.”
The context: This tax incentive was not the only new federal measure revealed this week to make Canada a more attractive environment for global investors. Carney said the feds are also working to make it faster to develop large projects domestically through its new Build Canada Strong Act. “Our standard will be simple: one project, one review, one year.” The Canada Revenue Agency will also begin prioritizing advance income tax ruling requests tied to $1-billion-plus investments.
The Government of Canada ultimately hopes to mobilize $1 trillion of investment in Canada over the next five years to support major nation- and sovereignty-building initiatives in tech, defence, energy, transportation, and other sectors. Carney said Canadians will retain a stake in the value created by associated investments through the Canada Strong Fund.
Final thought: Major Canadian players, from banks to pension funds, have already committed to playing a part in these capitalization efforts, promising to invest hundreds of billions of dollars in the country over the coming years. Federal moves to permit businesses to recoup a much larger share of their capital investments earlier and provide quicker decisions and income tax rulings on major projects could convince more of their global peers to follow suit.
Feature image courtesy Mark Carney via LinkedIn.