On 15 September 2026, the Canadian government announced the introduction of a new productivity mega deduction for capital investments. This investment incentive was announced in connection with the Canada Investment Summit, which was hosted in Toronto from 14-15 September 2026. The new deduction is intended to reduce the after-tax cost of projects, accelerate productivity-enhancing capital spending and support investment across Canada.

As part of this announcement, the government also introduced changes to the previously proposed accelerated capital cost allowance (CCA) rules for low-carbon liquefied natural gas (LNG) facilities.

Although not specifically linked to the productivity mega deduction, the Canada Revenue Agency also announced on 14 September 2026 that, effective immediately, it will be prioritizing advance income tax ruling requests related to investments of CA$1b or more in Canada.

Productivity mega deduction

The productivity mega deduction would build on existing and previously announced accelerated CCA measures and resource deductions by extending immediate expensing to a broader range of capital assets and making the immediate deduction available on a permanent basis, effective for property acquired after 14 September 2026.

This new incentive is intended to provide immediate expensing to about two-thirds of capital asset investments, up from the approximately 15% that was covered by the existing productivity super-deduction,¹ including, for example, fiber-optic cable, mining property, oil and gas pipelines, software and computer equipment, patents, rail track, bridges and roads.

Immediate expensing property

A taxpayer (including a partnership) would be eligible to deduct the full cost of an immediate expensing property in the year the property becomes available for use by the taxpayer.

If the taxpayer is an individual, trust or a partnership with at least one direct or indirect non-corporate member, the amount that may be deducted for a tax year would be limited to the income earned for the year from a business or property in which the relevant immediate expensing property is used, so the deduction would not create or increase a loss.

Immediate expensing property would generally include all capital property acquired after 14 September 2026 that is included in a prescribed class for CCA purposes, other than the following excluded properties:

• Class 1 buildings and other structures (including additions and component parts), as well as building additions and alterations included in Class 3²
• Class 14 limited period patents, franchises, concessions or licences
• Class 14.1 intangible property (e.g., goodwill, customer lists)
• Class 51 property (e.g., pipelines, including control and monitoring devices, and valves used to distribute natural gas)
• Excluded vehicles (i.e., passenger and certain other vehicles that were either previously used or assembled in a foreign country)
• Class 10.1 vehicles for which an election is made not to be immediate expensing property
• Qualified liquefaction equipment (this equipment is eligible for separate immediate expensing rules, as described below)
• Industrial mineral mines or a right to remove industrial minerals from the mines
• Timber limits or a right to cut timber from a limit, other than a timber resource property

To qualify as immediate expensing property, the property generally must not have been previously owned or acquired by the taxpayer or by a non-arm's-length person or partnership, or acquired on a tax-deferred rollover basis. However, property acquired from a non-arm's-length person or partnership, or through a tax-deferred rollover, may still qualify if the property was not used before the taxpayer acquired it and no person or partnership, including the taxpayer, previously claimed CCA or a terminal loss in respect of the property.

Other special rules would prevent immediate expensing of certain property transferred from a non-arm's-length person if the capital expenditures related to the transferred property were made before 15 September 2026.

Immediate Canadian development expenses

The productivity mega deduction would also allow for an immediate deduction of certain resource expenses. Specifically, a taxpayer would be allowed an immediate deduction for any cost or expenses incurred during a tax year that qualifies as an immediate Canadian development expense.

To qualify, the cost or expense must be incurred after 14 September 2026 and must otherwise qualify as a Canadian development expense at the time it is incurred. Expenses for which the taxpayer is a successor would specifically be excluded from eligibility. Similarly, the cost of a Canadian resource property acquired from a non-arm's-length person or partnership would not be eligible.

Canadian development expenses renounced by a corporation to another person under a renunciation agreement would qualify as an immediate Canadian development expense provided the agreement was entered into after 14 September 2026.

Enhanced CCA measures for LNG facilities

The government also announced that it will enhance the previously proposed accelerated CCA incentive for qualified liquefaction equipment and qualified liquefaction buildings used in LNG facilities. The previously proposed accelerated CCA incentive was first announced in the 2025 federal budget and included in draft legislation released on 23 July 2026 (see EY Global Tax Alert, Canada Dept. of Finance releases draft legislative proposals for Budget 2025 and other previously announced measures, dated 29 July 2026).

Specifically, qualified liquefaction equipment (CCA Class 47 property) would now be eligible for immediate expensing on a permanent basis, rather than for an accelerated CCA rate of 50% on a temporary basis as previously proposed. In addition, the expected emissions intensity requirement that had to be met under the previously proposed legislation for both qualified liquefaction equipment and buildings to be eligible for accelerated CCA would be removed. These changes would apply to eligible property acquired on or after 4 November 2025 (consistent with the previously proposed application date).

It is important to note that qualified liquefaction buildings (CCA Class 1 property) would not be eligible for immediate expensing. Consistent with the 23 July 2026 draft legislation, qualified liquefaction buildings acquired after 3 November 2025, and before 2035, would be eligible for an accelerated CCA rate of 10%.

The amount that may be claimed in a tax year as an immediate deduction for the cost of qualified liquefaction equipment, or as accelerated CCA for a qualified liquefaction building, would be limited by the amount of income earned for the tax year from eligible liquefaction activities at an eligible LNG facility.