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Last updated October 8, 2026, against Finance Canada's draft legislation of September 15, 2026 · Status of the measure: proposed, not yet law
This article is general information, not tax advice for your specific situation. Confirm current figures against CRA/Ontario guidance or speak with a licensed professional.
TL;DR
• The Productivity Mega Deduction is a federal proposal, announced September 15, 2026, that would let a business deduct the full cost of most depreciable property (Finance Canada's wording) acquired on or after that date in the tax year the property becomes available for use. It exists in draft legislation only and has not passed Parliament.
• Under the draft rules, the deadline would be your own fiscal year-end, not December 31. The asset would need to be acquired on or after September 15, 2026 and be available for use (for equipment, usually in use or ready to produce) before your tax year closes.
• If the measure is enacted as drafted and Ontario follows the federal rule, each dollar deducted by an Ontario Canadian-controlled private corporation (CCPC) would save about 26.5 cents on income above the $500,000 small business limit and about 11.2 cents on income inside it (income taxed after June 30, 2026). The draft would let you claim less than the maximum, which can make sense when a full claim would only shelter low-rate income.
• In the illustrative example below, which assumes the measure is enacted as drafted, a $150,000 equipment purchase plus $19,500 HST would return about $59,250 in year one (input tax credit plus corporate tax saved) for a corporation earning above the small business limit. Buy because the business needs the asset; the deduction changes when tax is paid, and the final rules can still change.
Contents
• Where the Productivity Mega Deduction stands
• What qualifies and what does not
• Your window would close at your fiscal year-end, not December 31
• HST credit plus the deduction: what would come back in year one
• When claiming less than the full amount makes sense
• What a large deduction would do to your salary and dividend plan
• The records that prove "available for use"
• If the final legislation changes
• How this differs from the 2021 immediate expensing rules
• What not to spend money on
• Planning the purchase before your year-end
Where the Productivity Mega Deduction stands
As of October 8, 2026, the Productivity Mega Deduction is a proposal. Finance Canada's backgrounder says the government "proposes to implement" it, and the draft amendments to the Income Tax Regulations released the same day have not been passed. The next federal budget is expected this fall, but no date had been announced as of early October.
Under the ordinary capital cost allowance (CCA) rules, a business deducts a percentage of an asset's cost each year on a declining balance. In the year of purchase, CRA's general rule allows a claim on only half of the net additions to a class (the half-year rule), although the existing, temporary accelerated investment incentive currently enhances the first-year claim for many assets. The Mega Deduction would replace that slow start with immediate expensing: a deduction of up to the full cost in the tax year the asset becomes available for use. Finance Canada says the measure would be permanent and would cover about two-thirds of investment in capital assets, up from about 15% under the Productivity Super-Deduction announced in Budget 2025.
What qualifies and what does not
Eligible property, as proposed, would be capital property subject to the CCA rules and acquired on or after September 15, 2026. For a typical owner-managed business that would include machinery, tools, furniture, appliances, refrigeration equipment and office equipment, much of which sits in CCA Class 8 at a 20% rate today.
The proposal would exclude:
• buildings and additions to buildings in Classes 1 and 3
• Classes 14 and 14.1 (for example franchises, licences and goodwill) and Class 51
• passenger vehicles (and certain other vehicles, such as taxis) that were used before you bought them or were assembled outside Canada (the draft's "excluded vehicle" definition)
• property depreciated under Schedules V and VI of the Income Tax Regulations
Under the proposal, used equipment would qualify only if neither you nor anyone you don't deal with at arm's length owned it before, and it did not come to you on a tax-deferred rollover.
Finance Canada says property that falls outside the measure would continue to get the existing temporary accelerated investment incentive, an enhanced first-year CCA claim, and that manufacturing and processing buildings would continue to be eligible for the temporary immediate expensing announced in Budget 2025.
Two category notes matter for year-end shopping lists:
• Computers. CRA's current class guidance lists a 100% first-year deduction that may apply to new Class 50 (55%) computer hardware acquired after April 15, 2024 that becomes available for use before 2027. On that basis, a laptop bought this fall would gain little extra from the proposed Mega Deduction in 2026. The bigger change would be for slower classes like Class 8.
• Vehicles. Under the draft, some new, Canadian-assembled passenger vehicles could qualify, and the draft keeps separate cost limits for passenger vehicles. None of this changes the current rules unless and until the measure is enacted. GTA Accounting's guide to writing off a vehicle through your corporation explains how vehicles are treated today; check any vehicle purchase separately.
Neither the backgrounder nor the draft regulations set a dollar cap on the deduction.
Your window would close at your fiscal year-end, not December 31
The draft would allow the deduction for immediate expensing property "that became available for use by the taxpayer in the year." The year is your tax year, so the deadline would move with your corporation's year-end.
Under the draft, a corporation with a March or June year-end would have months longer than a calendar-year company to buy, install and start using equipment and still claim it in its current year. A September 30 corporation that missed the 16-day window in 2026 would not be shut out; its claim would land in the year ending September 30, 2027.
The draft relies on the existing "available for use" concept, which CRA describes this way: for property other than a building it is usually the earliest of the date you first use it to earn income, the time it is delivered or made available to you and is capable of producing a saleable product or service, the second tax year after the year you acquire it, and the time just before you dispose of it. Paying for an asset is not on that list. On CRA's usual reading, a machine invoiced on December 20 that is installed and commissioned on January 8 became available for use in January, which would move the proposed deduction for a December year-end company into the following year.
Sole proprietors and partnerships with individual members would face one more limit. The draft caps their deduction at the income from the business the asset is used in, so it could not create or increase a loss. Corporations would not be subject to that cap.
If your corporation is weighing a change of fiscal year-end for other reasons, GTA Accounting's article on changing a fiscal year-end covers what that involves.
HST credit plus the deduction: what would come back in year one
An HST registrant gets money back on a capital purchase through two separate claims on two separate returns. The 13% Ontario HST on equipment used more than 50% in commercial activities is generally recovered as an input tax credit (ITC) on the GST/HST return. CRA treats that ITC as government assistance and subtracts it from the capital cost, so any CCA claim, including the proposed deduction, would be based on the pre-HST price.
Worked example (illustrative only; assumes the measure is enacted as drafted):
Assumptions: the Mega Deduction is enacted as drafted and applies to this purchase; an Ontario CCPC with a December 31 year-end, registered for HST, buys new commercial kitchen and refrigeration equipment (Class 8) for its restaurant, used entirely in the business. It is delivered and running by December 15, 2026. Taxable income for 2026 before this deduction is $650,000, made up entirely of active business income, with the full $500,000 small business limit available. The example also assumes Ontario parallels the federal deduction for provincial corporate tax (see "If the final legislation changes").
Under the current rules, without immediate expensing, the same $150,000 would be written off over many years at Class 8's 20% declining-balance rate, with the first-year claim generally enhanced by the accelerated investment incentive.
Change one assumption and the answer changes. If the same corporation's income before the deduction were $500,000, the $150,000 deduction would shelter income taxed at the small business rate. Ontario's small business rate fell from 3.2% to 2.2% on July 1, 2026, so the combined federal and Ontario small business rate is 11.2% on income taxed after June 30, 2026. A calendar-2026 tax year is prorated, so the part of the year before July 1 still carries the earlier 12.2% combined rate, and the blended rate for 2026 lands between the two. The tax saving would drop to roughly 16,800–18,300, and year-one cash to roughly 36,300–37,800.
Timing differs too. The ITC can first be claimed on the GST/HST return for the period in which the tax was paid or became payable, so monthly and quarterly HST filers usually see it first; annual filers wait for their annual return. The income tax saving would arrive through lower instalments or a smaller balance owing for the year. A business that needs the equipment in December but is tight on cash should map both dates before signing.
When claiming less than the full amount makes sense
Under the draft, the deduction would be a ceiling: the draft regulation allows a deduction "not exceeding" the asset's undepreciated cost. That is consistent with how CCA already works, where CRA says you can claim any amount from zero up to the maximum for the year.
Two draft details shape the decision. If the immediate expensing deduction is available for an asset in a year, the draft says you could not also claim regular CCA on that asset for that year. CRA's existing rules say that claiming CCA reduces the class balance by the amount you claim, so any amount you don't claim stays in the balance. The draft's full write-off applies only in the tax year the property becomes available for use, so on the draft as written, the remaining balance would be deducted at the class's regular rate in later years. Check this again once the legislation is final.
A smaller claim is worth modelling when:
• Your income is already inside the small business band. A deduction that only shelters income taxed at about 11.2% is worth less than one that shelters income taxed at 26.5%. If you expect next year's income to exceed $500,000, part of the balance may be worth more later. The cost is speed: on the draft as written, the leftover would come off at Class 8's 20% a year, not all at once.
• A full claim would create a corporate loss. A corporation can generally carry a non-capital loss back 3 years or forward 20. A carry-back only recovers tax actually paid in those years, at the rate paid then. A loss carried back to a year taxed at 26.5% is worth more than one carried forward into years you expect to stay under the limit.
• Your income is uneven from year to year. Contractors, seasonal businesses and firms with one large contract can have a high year followed by a lower one. The deduction would do the most work in the high-rate year.
The test for each dollar of deduction is the same: which band of income does it remove, this year or a later one?
For the 2026 rates behind these bands, see Ontario's small business tax rate for 2026.
What a large deduction would do to your salary and dividend plan
Owner-managers usually set salary and dividends against the corporation's expected taxable income. A six-figure deduction would move that number, so the pay plan belongs in the same conversation as the purchase.
• The year-end bonus may no longer be needed to stay under the limit. Salary and bonuses are generally deductible to the corporation; dividends are paid out of after-tax corporate earnings and are not. If the plan was to pay a December bonus to bring corporate income down to $500,000, the proposed deduction, if enacted, may already do that job for the year.
• Salary still does things a dividend doesn't. RRSP room for 2027 is based partly on your 2026 earned income, which CRA builds from employment and self-employment earnings. Taxable dividends are not among the income items in CRA's RRSP earned-income calculation, so they do not add RRSP room. CPP contributions are based on pensionable earnings, which CRA describes as income from an office or employment such as salary and wages, so a salary carries CPP contributions and a dividend does not. Replacing salary with dividends because corporate income is already low can shrink next year's RRSP room.
• A salary paid into a corporate loss year can mismatch. If the proposed deduction already brings the corporation to zero or a loss, a large salary would be taxed personally now while the corporation's benefit would sit in a loss carry-forward or carry-back.
GTA Accounting's comparison of salary vs dividends in Canada covers the general trade-offs. If you are not yet incorporated, the business-income limit described earlier applies to you; incorporated vs self-employed covers the wider trade-offs of incorporating.
The records that prove "available for use"
Under the draft, the claim would turn on two dates: when you acquired the asset (on or after September 15, 2026) and when it became available for use (inside the tax year you claim it). Keep evidence of both, built while the purchase happens, not reconstructed at filing time:
• the purchase agreement or invoice, dated, showing the supplier, the HST charged and the supplier's GST/HST registration number (CRA requires it on the invoice to support an input tax credit on purchases of $100 or more)
• the delivery slip or bill of lading with the delivery date
• installation, set-up or commissioning sign-off, often the date equipment first becomes capable of producing
• proof of first use: the first job, sale or production run, or a dated photo of the equipment in service
• for used equipment, who sold it, confirmation that neither you nor a related person owned it before, and confirmation that it did not arrive on a rollover
• a fixed-asset register entry with the CCA class, the cost net of the ITC, the acquisition date, the available-for-use date and the business-use percentage
Much of this is bookkeeping work rather than tax work. A business whose books record the delivery and first-use dates as they happen has less to reconstruct at year-end. GTA Accounting's bookkeeping services can set up that kind of fixed-asset record.
If the final legislation changes
Draft legislation is released so it can be commented on and revised, and until it passes, the start date, the exclusions and the claim mechanics can all move. A purchase made now should hold up either way:
• Decide on business need. At 26.5%, a dollar of deduction would save about 26.5 cents. The other 73.5 cents is still spent.
• Keep the records above regardless. If the measure passes as drafted, they would support the claim. If it changes, the asset would still be eligible for regular CCA under the existing rules, using the same dates.
• Expect possible amendments. A return filed on the draft rules may need to be revised if the enacted rules differ.
• Watch two announcements. The first is Budget 2026, date not yet announced. The second is Ontario's position. The 2026 Ontario Budget, tabled in March, said the province intends to parallel federal measures that accelerate write-offs of depreciable assets once the federal legislation passes. That statement predates the Mega Deduction, so Ontario's treatment of this measure for provincial corporate tax still needs confirming. If Ontario did not parallel it, the federal saving alone would be 15% on income above the small business limit, and 9% inside it.
This article will be updated after Budget 2026 and when the legislation is final.
How this differs from the 2021 immediate expensing rules
If you searched for "immediate expensing CRA," much of what comes up describes an earlier, temporary measure that has ended.
The draft would also repeal the old "designated immediate expensing property" definition, so the two regimes should not be mixed when reading older guidance.
What not to spend money on
• An asset the business would not otherwise buy. The deduction lowers the after-tax cost; it does not make an unneeded asset pay for itself.
• A year-end invoice for equipment that won't be running until after year-end. Under the draft, the deduction would follow the available-for-use date, not the payment date.
• Used equipment from your own holding company, a family member's business or anyone you don't deal with at arm's length. The proposal would exclude it.
Planning the purchase before your year-end
The proposed Mega Deduction is a year-end planning question first and a filing question second. The purchase date, the HST return, the bookkeeping entry and the T2 claim need to agree on the same two dates, and the size of the claim should be set alongside the owner's pay for the year rather than after it.
Next step. If you are deciding on a purchase before your year-end, bring the quote, your year-to-date financials and your planned salary and dividends to a tax planning conversation, so the claim can be modelled at full and partial amounts before you buy. If enacted, the deduction would be claimed on the corporation's T2; see corporate tax return services in Toronto and small business accounting in Toronto. For other year-end items, the year-end tax checklist still applies.