The federal government says a new Productivity Mega Deduction will allow Canadian businesses to immediately deduct the full cost of a broader range of investments, as it seeks to encourage companies to expand operations, adopt technology and create jobs.
Public Safety Minister Gary Anandasangaree highlighted the new tax measure at a recent event focused on federal efforts to encourage investment by businesses of all sizes. The government says the changes will reduce the cost of investing in Canada and provide businesses with greater certainty when making major investment decisions.
The Productivity Mega Deduction expands the share of business assets eligible for immediate expensing from roughly 15 per cent to more than 65 per cent. Eligible investments include fibre-optic cable, greenhouses, mining property, oil and gas pipelines, software, research and development, computer equipment, aircraft and vehicles, patents, rail track, bridges and roads.
The government is also making immediate expensing permanent. It says the measures will lower the marginal effective tax rate on new business investment from roughly 13 per cent to 6.4 per cent.
Government calls measure major tax change
Anandasangaree said the tax changes are intended to position Canada as a destination for investment as businesses face an uncertain global environment.
"In this period of global uncertainty, Canada has exceptional advantages: vast energy potential, unmatched human capital, and a strong fiscal outlook. We are turning those strengths into a competitive edge, creating the best environment in the world for businesses--Canadian firms and those from abroad--to invest and grow. With a marginal effective tax rate far below that of our G7 peers, we are demonstrating our commitment to ambitious economic growth."
The government says the new deduction is one of the most significant changes to Canada's business tax system in half a century and is intended to support investment in equipment, technology and expanded operations.
Finance and National Revenue Minister François-Philippe Champagne said the measure is designed to encourage companies to make larger investments in Canada.
"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. This is about unlocking investment at a scale we have not seen in generations, so businesses can build, expand, and grow in Canada – creating high-paying careers and building a stronger, more productive and more resilient economy."
Government outlines investment expectations
The federal government says its capital investments and incentives in support of third parties are expected to total about $280 billion over five years. It estimates those measures will enable more than $1 trillion in total investment from public, private and institutional partners.
The government also points to Canada's AAA credit rating, its lowest net debt-to-GDP ratio in the G7 and its ranking among G7 countries for banking stability as factors supporting investment.
It says Canada has the best tax treatment for new business investment in the G7. Under the existing capital cost allowance system, taxpayers generally deduct the cost of depreciable assets such as machinery and equipment over time.
Immediate expensing allows the full cost of an eligible investment to be deducted in the first year the asset becomes available for use. The government says expanding and making the measure permanent will give businesses longer-term certainty as they consider investments in Canada.