Ottawa — Muhammad Amanullah | September 16, 2026
The Canadian federal government has announced a major tax reform aimed at increasing business investment and accelerating economic activity, with Prime Minister Mark Carney unveiling a new Productivity Mega Deduction during the Canada Investment Summit.
Carney said the government’s goal is to make Canada one of the most attractive countries in the G7 for investment while encouraging businesses to expand their productive capacity.
New Tax Incentive for Businesses
Under the new programme, businesses will be able to immediately deduct the full cost of eligible new investments from their taxable income.
The measure covers investment in a wider range of areas, including machinery, equipment, clean energy, zero-emission vehicles and other eligible assets.
According to the government, the policy will allow companies to recover the tax value of their investments more quickly, potentially encouraging them to invest in additional projects.
Expansion of Existing Programme
The Productivity Mega Deduction is an expanded version of the Productivity Super Deduction introduced in the previous federal budget.
The original programme covered only a limited range of assets, particularly investments in machinery, equipment and technology.
As a result, only about 15 per cent of potential investment assets were eligible under the earlier programme.
According to Prime Minister Carney, the expanded measure could make approximately two-thirds of assets eligible for the tax incentive.
Greater Investment Flexibility
Speaking to the media, Carney said expanding the programme to more sectors would give business leaders greater freedom to decide where to invest based on their needs and expected returns.
The prime minister said the government is focusing not only on improving Canada’s investment environment but also on increasing productivity.
Productivity has remained a significant economic issue in Canada, and the government views increased business investment as one way to address the challenge.
Faster Tax Benefits for Businesses
Randall Bartlett, deputy chief economist at Desjardins, said Canadian companies previously received the tax benefit associated with an investment gradually over the useful life of a project.
Under the new system, the tax benefit associated with eligible investment costs can be realized much more quickly.
Bartlett said this could leave companies with more cash available in the short term, allowing them to redirect funds toward new projects and productive activities.
He said the main objective of the programme is to provide businesses with a significant incentive to increase investment and make those investments sooner.
Canada Seeks Greater G7 Tax Competitiveness
According to the Canadian government, the tax reforms could reduce Canada’s marginal effective tax rate from approximately 13 per cent to 6.4 per cent.
The marginal effective tax rate is commonly used to compare the tax competitiveness of business investment across jurisdictions.
The government says the change would give Canada the lowest marginal effective tax rate for business investment among G7 countries.
Tax Relief Comes During Canada-US Trade Tensions
Economist Randall Bartlett said the tax incentive could be particularly significant amid the current trade tensions between Canada and the United States.
He said the measure could encourage companies to maintain production in Canada and invest domestically rather than shifting operations to the United States.
Bartlett noted that some businesses have delayed investment because of economic uncertainty. The new tax incentive could encourage companies that have postponed investment decisions to move forward with new projects.
Programme Could Cost Government $36 Billion
The new tax policy will also have a significant fiscal cost for the federal government.
Estimates suggest the programme could result in approximately $36 billion in additional costs or foregone tax revenue over the next five years.
Bartlett said higher oil prices in the short term could provide the government with additional revenue, making it relatively easier to absorb the fiscal impact.
However, he said the government would need to ensure over the longer term that sufficient resources are available to sustain the programme and manage its costs.
Economists Offer Different Views
Economist Jim Stanford of the Centre for Future Work said the initiative is not entirely new but represents an expansion of an existing tax programme.
He noted, however, that its structure is different from a broad tax cut because the benefit is directly tied to new investment.
According to Stanford, if the government had simply reduced taxes for all businesses equally, there would have been no guarantee that companies would use the additional money to invest in Canada.
Under the new programme, businesses must make eligible investments to receive the associated tax benefit.
The government therefore expects the tax incentive to do more than reduce business taxes. It is designed to encourage investment in machinery, technology, clean energy and other areas while supporting employment and improving Canada’s productivity.
