THE PRODUCTIVITY MEGA DEDUCTION - Writing Off Business Purchases in Full

On September 15, 2026 the federal government announced the Productivity Mega Deduction. If your business buys equipment, technology, vehicles or most other capital assets, this changes the arithmetic of that purchase, and it takes effect immediately.

WHAT CHANGED

Until now, when you bought a capital asset you deducted its cost gradually over several years. Under the new rules you deduct the entire cost in the year the asset is put into service. A $400,000 machine bought and running this year produces a $400,000 deduction this year, not a deduction spread over the next decade.

This is not a new subsidy or a credit. It is the same total deduction you would have received anyway, moved forward — the benefit is cash flow and the time value of that money, which for most businesses is substantial. The measure is permanent, and covers roughly two-thirds of business capital spending.

WHAT YOU CAN NOW WRITE OFF IN FULL

Most of what a business actually buys: machinery and equipment, computers and software, patents, clean energy equipment, fibre-optic cable and data network infrastructure, aircraft, and most vehicles. Resource businesses get the same treatment for Canadian development expense.

The asset has to be acquired on or after September 15, 2026 and must be available for use before you can claim. Ordering it, paying a deposit, or taking delivery of something not yet installed is not enough — the test is when it is ready to do its job.

WHAT IS STILL EXCLUDED

Buildings do not qualify, and neither does goodwill. Both continue to be deducted slowly, as before. If you are buying a business, the portion of the price allocated to equipment is now deductible immediately while the portion allocated to goodwill is deducted at 5 per cent a year. If you have a purchase agreement in negotiation, the allocation clause is worth revisiting before you sign. Assets that do not qualify still get the enhanced first-year deduction that already existed, so nothing is worse off than before.

BUYING A VEHICLE — CHECK WHERE IT WAS BUILT

This is the rule most likely to catch people, and it has no precedent in Canadian tax law. A new passenger vehicle qualifies for the immediate write-off only if it was assembled in Canada. The identical model assembled elsewhere does not. Used vehicles do not qualify either, wherever they were built.

Nothing in a normal vehicle purchase would prompt anyone to ask where it was assembled. Ask the dealer, and get the answer in writing, before you sign. The usual cap on how much of a passenger vehicle's cost can be deducted still applies — the new rules change the timing, not the ceiling. Commercial vehicles, work vans and pickups used to carry goods and equipment are generally not caught by this restriction.

THE TRAPS

Buying from a related company does not work. If you move equipment from one company you own into another, or transfer it as part of a reorganization, there is no immediate write-off — the rules are written to prevent exactly that. The asset generally has to be new to you and bought at arm's length.

Projects underway on September 15, 2026 need review. If you are part-way through a build, fabricating equipment, or paying progress draws, costs incurred before that date may not count toward the new deduction. Do not assume the whole project qualifies.

Unincorporated businesses face a limit. If you operate as a proprietorship, or through a partnership with any individual partner, the deduction cannot exceed the income of that business and cannot be used to create a loss. Corporations do not. If you are unincorporated and spending heavily on equipment, that is worth revisiting.

WHAT TO DO NOW

• If you have equipment or vehicles on order, tell us before delivery — timing may matter more than you expect.

• If you are buying or selling a business, revisit how the price is allocated between equipment, buildings and goodwill.

• If you are planning a reorganization or an intercompany transfer, speak to us first — a structure that made sense in August may not be right now.

• If you are buying a vehicle, confirm the country of assembly in writing.

ONE CAUTION

These rules were released as draft legislation. They are expected to apply from September 15, 2026, but have not yet been passed by Parliament and the details can still change. We will let you know if anything material shifts.

If you have a purchase or transaction in progress, contact our office before you commit. It is far easier to structure this correctly at the outset than to fix it afterwards.

This memorandum is intended for the use of the named recipient only. It constitutes general information and does not constitute legal advice. The tax rules described herein are current as of the date of this memorandum and are subject to change. Please contact our office before taking any action in reliance on this memorandum