New measure meant to speed up investment in new tech, expansion
The federal government has introduced the Productivity Mega Deduction, a proposed permanent tax measure that lets businesses write off the full cost of software, computers, vehicles, machinery and other assets in the year they are put to use.
The measure is meant to speed up investment in new technology and expansion – decisions that bring training, hiring and redeployment costs with them.
Under the capital cost allowance (CCA) system, businesses deduct asset costs over several years. According to the federal government, the new deduction lets them claim the full cost in year one for more than 65% of business assets, up from roughly 15%, and makes immediate expensing permanent.
Ottawa says this cuts the marginal effective tax rate (METR) – the tax on an additional dollar of investment – from about 13% to 6.4%. The measure is not yet law. Draft legislation would apply to eligible property acquired on or after Sept. 15, 2026, and most buildings are excluded.
"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," said François-Philippe Champagne, federal Minister of Finance and National Revenue.
Why is capital spending a workforce decision?
Software and computer equipment are on the eligible list, which may speed up rollouts of artificial intelligence (AI) tools. A 2024 Future Skills Centre survey found 44% of employed Canadians using AI at work had received no formal training, as HRD Canada noted in its look at whether Canadian workers are adopting new workplace technology fast enough.
Francis Fong, managing director and senior economist at TD Economics in Toronto, says the measure carries more weight alongside other federal efforts to reduce project risk. "In a way, immediate expensing is meaningful, but not game changing in isolation," he wrote. He pegs the cost at $36 billion over five years, adding $7.2 billion to a projected $63-billion deficit in fiscal 2027-28.
Marc Lee, senior economist at the Ottawa-based Canadian Centre for Policy Alternatives (CCPA), questions the timing of the revenue loss. "This hurts at a time when policymakers are, otherwise, telling us the cupboard is bare, and real public service cuts are underway in Ottawa and across Canada," he wrote. He notes AI data centres stand to gain despite employing few people.
Finance's own backgrounder, Lee says, shows the METR turning negative in agriculture and fishing, manufacturing and processing, and transportation and storage – in effect, a federal subsidy for new capital in those industries. He is skeptical of Finance's projection of up to $22 billion a year in added economic output a decade from now. "This is based on an economic multiplier effect of three, which contrasts with the Parliamentary Budget Office's much lower estimate of 0.5 for corporate tax cuts," he wrote.
What should employers should for?
Fong expects the benefits to start flowing in mid-to-late 2027, with a lift to real gross domestic product (GDP) growth in the lower-to-mid part of a 0.3% to 0.8% range. That gives people leaders time to join investment talks before jobs are redesigned around new equipment.
Practical steps include mapping affected roles, budgeting training alongside the asset and deciding early on redeployment, reskilling or reductions. Skipping that work risks paying for capacity staff cannot yet use, a problem HRD Canada examined in its analysis of why Canada's productivity malaise is now an HR emergency.
The widening AI skills gap among Canadian workers raises the stakes: cheaper technology still needs people ready to use it.
