Our Observations

The Productivity Mega Deduction and the updated AITR Program exemplify Canada’s recent use of broad tax measures to attract capital investment in Canada. This is a welcome signal for capital-intensive businesses operating or planning to operate in Canada.

Key takeaways for taxpayers:

The Productivity Mega Deduction will allow significant acceleration of the recovery of investment costs and improve internal rates of return particularly for capital-intensive projects.
The Productivity Mega Deduction will free up early-stage capital for ongoing operational growth, and ideally, fuel further investment.
Investors evaluating large-scale investments in Canada should consider the updated AITR Program, which aims to reduce tax uncertainty. However, the Program’s effectiveness will depend on how quickly the CRA can issue rulings.

It is expected that the Productivity Mega Deduction, coupled with other commitments announced at the Canada Investment Summit from the federal and provincial governments and industry, should increase business investment in Canada, particularly in capital intensive industries such as mining. However, these announcements do not address other significant concerns raised by economists and tax experts regarding Canada’s tax system. These concerns include growing compliance and disclosure requirements that add significant costs for investors and business, high non-income taxes, such as sales taxes, land transfer, payroll, property and resource taxes, and high personal tax rates. The Productivity Mega Deduction is also largely inapplicable to many Canadian businesses, particularly those in the services industries, which do not involve material capital expenditures that would benefit from the Productivity Mega Deduction. The federal government is expected to deliver the 2026 federal budget later this fall, and this is likely to be the next opportunity for the federal government to announce additional tax reform measures to address these remaining concerns.

The Productivity Mega Deduction remains subject to parliamentary approval. Given that the Liberal Party holds a majority in government, we expect this measure to advance, although its final form and timing remain to be confirmed. We will continue to monitor developments and provide updates on the Productivity Mega Deduction and other measures the federal government may announce in the coming weeks in connection with the 2026 budget.

1 Department of Finance (Canada), Draft Legislative Proposals to the Income Tax Act and the Income Tax Regulations, released September 15, 2026 [Mega Deduction Proposal].

New Tax Measures to Attract and Stimulate Investment in Canada

En cours de traduction.