Canada has introduced a permanent Productivity Mega Deduction that expands immediate tax write-offs to more than 65% of new capital investments, aiming to reduce investment costs, attract foreign capital, and strengthen the country’s competitiveness.
Canada’s Prime Minister Mark Carney announced a new tax measure on 15 August 2026 aimed at strengthening Canada’s economy and drawing foreign investors to the country.
The initiative, called the Productivity Mega Deduction, expands a previous tax incentive introduced in Budget 2025 and makes it permanent.
Canada’s Budget 2025 introduces a Productivity Mega Deduction combining accelerated investment incentives and immediate expensing for productivity-enhancing assets, manufacturing equipment and buildings, clean-energy technologies, and eligible R&D expenditures. The measures are intended to reduce investment costs, encourage private investment, and lower Canada’s marginal effective tax rate on new business investment to 13.2%.
How the new tax break works
The Mega Deduction allows businesses to immediately write off the cost of most new capital investments for tax purposes. The measure broadens eligible assets from roughly 15% to more than 65%, including fibre-optic cable, mining property, oil and gas pipelines, software, research and development, computer equipment, aircraft, vehicles, patents, rail track, bridges, and roads.
The effect is immediate. Canada’s marginal effective tax rate on new business investment will drop from approximately 13% to 6.4%. This becomes the lowest rate among major economies worldwide and less than half the rate in the US, according to government statements.
Investment targets and competition
Carney has set a goal to attract CAD 1 trillion in new investment over five years through the tax incentive and other measures. The announcement came at the first Canada Investment Summit, which drew senior investors and executives from BlackRock, Blackstone, Apollo, JPMorgan, and sovereign wealth funds from Norway, Singapore, Qatar, and China.
The Canadian Association of Petroleum Producers said the measure closes a significant competitive gap with the US on capital expense deductions. CEO Lisa Baiton stated that the move positions Canada as one of the best places in the world to invest in energy.
Other competitive changes
The government is also streamlining regulatory processes for major projects. Carney emphasised that high standards do not require slow decision-making processes.
The government announced plans to seek private investment through long-term concessions to operate Canada’s four largest airports in Toronto, Montreal, Calgary, and Vancouver, while retaining ownership of underlying land and assets.
The policy marks a shift from the priorities of Carney’s predecessor, Justin Trudeau, who emphasised climate change, human rights, and Indigenous issues. Canadian labour groups have expressed opposition to airport privatisation, citing concerns about rising travel costs.
