Canada's New Productivity Mega Deduction Targets Capital Investment

The Government of Canada introduced the Productivity Mega Deduction (PMD) at the Canada Investment Summit in Toronto on Tuesday (September 15).

The measure lets eligible businesses deduct 100 percent of the cost of depreciable property in the year it becomes available for use, instead of gradually through the capital cost allowance system. In many ways, it expands the productivity super-deduction (PSD) introduced in the October 2025 budget.

Under the PSD, roughly 15 percent of capital investments were eligible, targeting expenditures on machinery, equipment, and buildings in the manufacturing, clean energy, EV, and technology sectors.

The new PMD increases the eligible assets covered to 65 percent and includes mining property, fibre optic cables, oil and gas pipelines, and transportation infrastructure.

The deductions will effectively reduce the marginal effective tax rate for new business investments to 6.4 percent from 13 percent, the lowest rate in the G7 and half of the equivalent tax in the United States.

Prime Minister Mark Carney and the Minister of Finance and National Revenue François-Philippe Champagne said the PMD was introduced to make Canada more competitive and stimulate investment in the Canadian economy.

“This is one of the most significant changes to Canada’s business tax system in half a century, and a game changer for investment in this country. With the Productivity Mega Deduction, we are reinforcing Canada’s position as the most competitive country in the G7 for new business investment and setting the conditions for an investment supercycle,” said Champagne.

In reaction to the announcement, the Mining Association of Canada (MAC) welcomed the PMD.

The association noted that deductions would allow mining companies to make capital expenses to build, operate, modernize or expand mining, processing and smelting operations.

It stated that all expenses incurred on or after September 15 would be immediately deductible, including development and mining costs.

For the mining sector, the MAC said lower tax costs would improve cash flow, net present value and overall costs, allowing some projects to meet investment thresholds and provide greater long-term certainty.

"Today's announcement by Prime Minister Carney is transformative. With these announced new measures, Canada will become one of, if not the most, competitive mining tax jurisdictions in the world," said Pierre Gratton, President and CEO of MAC. He added that he expects the new measures to take effect in the near to medium term.

The PMD announcement came one day after the Government of Canada introduced another tax measure meant to provide more certainty for large investors in Canada, the Advance Income Tax Rulings (AITR) program.

Through the AITR, the Canada Revenue Agency will prioritize advanced tax ruling requests on investments of over C$1 billion.

Although the program isn’t specifically related to Canada’s resource sector, it will nonetheless play a role in how companies direct their capital, and ultimately in making final investment decisions related to project development. It allows investors to receive a binding ruling prior to committing to capital expenditures.

"When investors are considering major projects, certainty matters. By prioritizing advance tax rulings for investments of $1 billion or more, we are giving them the clarity and predictability they need to invest with confidence, create opportunities and help build Canada’s economic future,” said Champagne

The initiative was introduced ahead of the Investment Summit to support large investors considering contributions to Canadian industries.

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Securities Disclosure: I, Dean Belder, hold no direct investment interest in any company mentioned in this article.