The Adjusting Entries
All articles
HomeArticlesAboutContact
Tax

Breaking news: the Mega Deduction has no dollar cap

GM Gurjot Mann, CPA  ·  Sep 16, 2026  ·  10 min read

Breaking news for anyone with December year-end clients: Ottawa just proposed permanent immediate expensing for most capital assets.

On September 15, 2026, the federal government announced the Productivity Mega Deduction. It lets businesses deduct the full cost of most depreciable property in the year it becomes available for use. Finance says it covers about two-thirds of capital investment, up from roughly 15% under Budget 2025.

Your clients will hear "write off everything" by Friday. That's not quite right. Buildings and goodwill are out. So are many passenger vehicles. It's still draft legislation, and timing rules can push a deduction into 2027.

Here's the part most coverage skips. There's no annual dollar cap. The $1.5 million limit from the 2021 rules doesn't carry over.

In this post, you'll learn what qualifies, which dates control, how the math works on a real T2, and what to tell clients before December 31.

What was announced on September 15

The short version

The Productivity Mega Deduction is a proposed permanent 100% first-year write-off. It applies to most depreciable property acquired on or after September 15, 2026.

Here's what Finance Canada put in its backgrounder:

The Prime Minister announced it at the Canada Investment Summit in Toronto. Finance Minister François-Philippe Champagne called it one of the most significant changes to Canada's business tax system in half a century.

It's not law yet

Finance released draft amendments to the Income Tax Act and Income Tax Regulations the same day. That's a proposal. A bill still has to pass, and details can change along the way.

The effective date is tied to announcement day. So property acquired from September 15 onward should be covered if the rules pass as drafted.

And don't call it backdated. It isn't. Property acquired before September 15 doesn't qualify, even if the client starts using it in October.

What qualifies and what doesn't

Property that qualifies

The starting point is broad. Almost everything subject to the CCA rules is in unless it's specifically excluded.

The government's own examples include software, computer equipment, fibre-optic cable, patents, aircraft, rail track, and mining property. For a typical owner-managed client, think production equipment, dental or medical equipment, furniture and fixtures, and computers.

The exclusion list

These stay out of the Mega Deduction:

Excluded property doesn't drop back to plain CCA. It keeps access to the Accelerated Investment Incentive. Under the current AII rules, eligible property acquired after 2024 and available for use before 2030 gets three times the normal first-year deduction if it's usually subject to the half-year rule.

Manufacturing and processing buildings are a special case. They sit in Class 1, so they're excluded here. But they still get temporary immediate expensing under Budget 2025 if acquired on or after November 4, 2025 and first used for manufacturing or processing before 2030.

The vehicle trap

This is where client questions will land first.

Osler's read of the draft rules is that the excluded vehicles are generally passenger and rental vehicles, taxis, and certain vans or pickups used to transport goods, equipment, or passengers. Those vehicles only qualify if they were assembled in Canada and never used before the taxpayer acquired them.

So a new pickup assembled in Ontario could qualify. The same model built in the US may not. Confirm where it was assembled before anyone promises a write-off.

No dollar cap, but read the loss rule

How this differs from the 2021 rules

If you prepared T2s in 2022 or 2023, you remember temporary immediate expensing. It capped the write-off at $1.5 million per taxation year, shared across an associated group. Unused room disappeared.

The Mega Deduction backgrounder sets out no dollar limit. A client that buys $4 million of qualifying equipment could, as drafted, deduct $4 million.

The exclusion lists are different too. Don't reuse your 2021 CCA class checklist. Test each asset against the new list.

Individuals and partnerships with individual members

Finance did borrow one piece from 2021: the loss restriction.

For individuals, and for partnerships with at least one individual member, the deduction is limited to income from the business or property where the asset is used. It can't create or increase a loss.

Here's a quick example. A sole proprietor has $60,000 of net business income and buys $90,000 of qualifying equipment. The immediate expensing claim tops out at $60,000. Under the 2021 rules, the rest stayed in the class for regular CCA. Check the draft provisions to confirm the same treatment.

Corporations aren't named in that restriction. Based on the backgrounder, a corporation could claim the full amount even if it creates a non-capital loss. That loss can be carried back three years or forward 20.

The dates that matter

Acquired on or after September 15, 2026

The trigger is acquisition, not the purchase order. CRA's general position is that property is acquired at the earlier of when title passes and when the buyer has possession, use, and risk.

So a contract signed September 10 for equipment delivered October 5 may still qualify. Read the purchase terms before you decide either way.

Available for use still controls the year

The deduction lands in the year the property becomes available for use. That's not always the year it was bought.

Generally, property is available for use when it's first used to earn income, or when it's delivered and capable of producing a saleable product or service. There's also a time-based backstop. The full rules are in subsections 13(26) to 13(32) of the Act.

Picture a client that orders a production line in November. It arrives December 20, but installation isn't done until February 2027. That deduction probably belongs in 2027, not 2026.

LNG equipment goes back to November 4, 2025

Not every date in the release is September 15. Class 47 liquefaction equipment gets an additional allowance that brings its rate to 100%. That piece applies to property acquired on or after November 4, 2025, which was Budget 2025 day.

There's a catch. The extra claim is limited to income from liquefying natural gas at that facility. Most of your clients won't go near this. But it's a good reminder to check the date on every piece of a release.

What it does to a December 31, 2026 T2

The numbers

Take Northfield Dental Group Ltd., an Ontario CCPC with a December 31 year-end. In October 2026 it buys $250,000 of new dental equipment and fixtures. They're Class 8 assets at a 20% rate, delivered and in use by November.

Here's the 2026 CCA under each approach:

The AII was the rule before September 15. So the Mega Deduction adds $175,000 of extra deduction in 2026.

If that income would be taxed at Ontario's combined small business rate of 12.2%, that's $21,350 less tax this year. If it's income above the small business limit, taxed at 26.5%, it's $46,375.

It's a deferral, not a permanent saving

Here's the thing. Immediate expensing doesn't create new deductions. It moves them forward.

Without the Mega Deduction, Northfield would still deduct the same $250,000. It would just take many years. With it, the whole claim happens now and later years get nothing for these assets.

The benefit is cash flow today. That's real. But it's not free money, and clients should hear that from you before they hear otherwise.

Should your client claim the full amount?

Under the regular rules, CCA is a maximum. You choose how much to claim. Confirm the Mega Deduction works the same way once you've read the draft provisions closely.

Small business rate income

A CCPC paying 12.2% on its active business income doesn't save much from a deduction that pushes that income lower. The same deduction used against income taxed at 26.5% is worth more than twice as much.

But there's a trade-off. Based on how the 2021 rules worked, whatever isn't expensed now likely goes back to regular CCA rates. It doesn't wait around as a 100% claim for a better year.

For a growing client near the small business limit, model a full claim and a partial claim. For a corporation that paid tax at the general rate in the last three years, also look at creating a loss and carrying it back.

Recapture down the road

Expensing drops the undepreciated capital cost to zero. When the asset is sold, proceeds up to the original cost come back into income as recapture, unless other additions to the class absorb them.

Say a client expenses a $120,000 machine in 2026 and sells it for $70,000 in 2029 with nothing else in the class. That's $70,000 of recapture in 2029. Plan for it, especially if the sale lines up with selling the business.

Don't forget the financial statements

Future income taxes under ASPE

Many owner-managed clients on ASPE use the taxes payable method. For them, the Mega Deduction simply lowers current income tax expense.

Clients using the future income taxes method under Section 3465 will see a bigger swing. Book amortization doesn't change, but tax UCC drops to zero. That creates a larger taxable temporary difference and a larger future income tax liability.

On a review engagement, check that the future tax balance moves in line with the year's additions. If it doesn't, ask why.

Substantively enacted isn't the same as announced

Under ASPE, you measure income taxes using laws that are enacted or substantively enacted at the balance sheet date. Draft legislation released for comment generally isn't there yet.

For a recent example, look at Bill C-15, which carried the AII reinstatement. EY's view was that its business tax measures became substantively enacted on February 26, 2026, when the bill passed third reading in the House of Commons, because the government was in a minority at that time.

So if the Mega Deduction bill hasn't reached that stage by your client's year-end, think carefully about how you reflect it in the tax provision. Talk to your tax group and document the call in the file.

Your year-end checklist

Use this for every December 31 file with capital additions:

The bottom line

This story is still moving. The draft rules will get a closer read from the tax community, and a bill still has to make it through Parliament. We'll track each step and break down what changes for your files. Come back to The Adjusting Entries next week for the next update.

← Back to all articles