Prime Minister Mark Carney has announced a tax incentive to boost business investment in Canada that will cost the federal government tens of billions of dollars in the coming years.
The new measure, dubbed the “productivity mega deduction,” was unveiled on the second day of the inaugural Investment Summit, where Carney also revealed he would start allowing private investments in Canadian airports.
The productivity mega deduction expands the range of capital assets eligible for immediate expensing, which allows businesses to fully write off the cost of an investment in its first year.
The announcement comes as Carney has vowed to attract $1 trillion in new investment to Canada over the next five years.
“We announced new measures to make Canada the best place in the world to build big by far,” Carney said Tuesday during a press conference at the summit.
“The result is that Canada’s effective (tax) rate on new investment will be the lowest of any major economy in the world, less than one-half the rate in the United States.”
‘Mega deduction’ targets nation-building projects
Through the mega deduction, the government is increasing the share of assets eligible for immediate expensing from 15 per cent to 65 per cent. It builds on a previous policy initiated by the federal government that targeted sectors such as advanced manufacturing, clean tech and production of zero-emission vehicles.
“Now, with the Major Projects Office, it’s really about critical minerals, it’s about mining, it’s (about) oil and gas,” said Francis Fong, economist at TD Bank, referring to government office responsible for overseeing the development of nation-building projects.
“The expanded mega deduction really provides or expands support to those.”
The new policy will also make immediate expensing, which was introduced in the 2025 budget, permanent so firms can recover costs sooner.
According to a press release from the Prime Minister’s Office, Canada’s effective tax rate on new business will fall from 13 per cent to 6.4 per cent as a result.
The release said that the expected incremental fiscal cost of the measure is $36 billion over five years, beginning in 2026-27.
But the government also estimates that the new policy could generate $22 billion in economic output annually and lead to creation of up to 80,000 jobs yearly a decade from now.
“It will raise Canadian prosperity,” said Walid Hejazi, a professor of economic analysis and policy at the Rotman School of Management.
“The average worker out there will be better off as a result of the policies that Carney’s putting forward.”
More changes needed to unlock investment, expert says
Candace Laing, CEO of the Canadian Chamber of Commerce, welcomed the news of the mega deduction.
“This announcement is a launchpad to make Canada globally tax competitive,” Laing said in an emailed statement. “The permanency of this deduction at these levels will draw the attention and interest of investors in Canada for longer than any summit could last.”
Fong, from TD, is optimistic but said that further changes to the Canadian tax and regulatory framework are needed to unlock more capital investment.
“This does move the dial significantly for a lot of firms and their investment decisions,” said Fong. “We likely need see more action from the government (to make us) more competitive on a broader set of issues.”
The announcement also raised concerns from environmentalists for including gas distribution pipelines in assets eligible for immediate expensing.
“The new tax breaks for fossil fuel megaprojects alongside the gutting of environmental protections to fast-track their construction is an act of climate vandalism that will have global impacts,” Keith Stewart, senior energy strategist at Greenpeace Canada, said in a written statement.
“Carney wants us to believe the climate can wait, but every new billion invested in oil and gas costs us much more in wildfires, floods and crazy weather that destroy homes and lives.”
With files from Sadeen Mohsen
