Key Takeaways
- Prime Minister Mark Carney’s Productivity Mega Deduction expands tax deduction eligibility to over 65% of asset categories, from 15% currently.
- Accelerated tax deductions could spur investments in capital-heavy mining and energy assets, analysts say.
- While investment could accelerate quickly, the economic benefits would likely play out over a period of years.
Prime Minister Mark Carney’s plan to expand the range of depreciable business assets could boost investment in the mining, energy, and technology sectors, analysts say, but it could be years before the benefits show up in the economy.
On Sept. 15, 2026, Carney unveiled the government’s new tax policy, dubbed the Productivity Mega Deduction, which will allow firms to expense 100% of their new investment costs in the same year they are incurred, rather than spreading them over a number of years. The accelerated deduction rule, previously limited to manufacturing and green tech, now applies to assets in capital-heavy industries such as energy pipelines, Canadian-made cars, computer equipment, and aircraft.
Still, analysts say the effects of the well-intentioned move could take time to percolate through the broader economy.
“The proof will be in the pudding,” says Avery Shenfeld, chief economist at CIBC Capital Markets. “We need to see actual projects emerge, but this will change the calculus on some potential projects, and those that needed a bit of an extra push to get over the hump and an actual investment decision will be where we see the benefit.”
Doubling Down on Deductions
The initiative, announced at the inaugural Canada Investment Summit, builds on the previously announced Productivity Super-Deduction, which Carney introduced in last year’s budget, providing immediate write-offs for a narrow category of capital assets, including machinery, clean energy generation, and electric vehicles.
The Productivity Mega Deduction rule expands the amount of eligible assets to more than 65%, from 15% at present, including fiber-optic cable, mining property, oil and gas pipelines, computer equipment, software, rail track, bridges, and roads. By allowing businesses to expense their costs right away, and for a wider range of assets, the tax incentive aims to stimulate investment, a central part of the government’s plan to attract C$1 trillion in new investments over the next five years. The change will lower the marginal effective tax rate on new investments to 6.4% from 13.0%, the lowest among developed economies.
The new tax proposal, which requires legislative approval by parliament, would take effect retroactively on Sept. 15 and is set to be permanent. The change is expected to cost the government C$36 billion over the next five years, starting this year, and is estimated to generate from 1.4 to 3.0 times the federal cost in economic activity over a 10-year horizon.
Economic Impact of the Tax Break
While there will be a cost to taxpayers, Carney’s government sees economic benefits. According to a Department of Finance Canada estimate, over 10 years, spending C$8.5 billion a year on the new tax break will generate up to C$22 billion a year in additional economic activity. Based on that estimate, the potential lift to real gross domestic product could be almost 0.7% annually, according to a Scotiabank Economics projection.
Meanwhile, a stronger economic outlook will create a steadier labor market, adding up to 80,000 extra jobs each year a decade from now, according to a government estimate.
Analysts generally agree that the plan should boost economic growth.
Tu Nguyen, an economist at RSM Canada, expects the write-offs to result in a big jump in investments in “building more infrastructure, roads, railways, airports, and better internet connection.”
Economic Benefits Likely to Build Over Time
While analysts say the case for immediate write-offs as a means of stimulating investment is compelling, the resulting economic gains will likely unfold over several years. The impact is “going to take some time, which is why the government didn’t make this a one-year measure,” says CIBC’s Shenfeld. “Many of these projects still have long lead times and might not show up with shovels in the ground until 2028 or even 2029.”
RSM’s Nguyen estimates it could take over five years for full benefits to materialize. “The full impact of this policy is only going to be felt in the medium to long term because infrastructure projects, energy projects take time to build,” she says. “It’s not like you can put in fiber optics and build new bridges and airports in one or two months—that’s going to take many years.”
A Buffer Against Trade Turmoil
Carney’s new tax measure is also seen as a way to boost Canada’s resilience and competitiveness in the face of a tit-for-tat trade war with the US. “For businesses that are currently here but are being impacted by tariffs, it might encourage them to stay and continue investing,” says RSM’s Nguyen.
Canada has a stable economy, a government where fiscal and monetary policies work together, and it’s safe, Nguyen says. But with a lower marginal effective tax rate at 6.4%, significantly lower than the 16.9% rate in the United States, “it’s also cheaper to invest” in Canada, she adds.
By bringing tax relief to a wider swath of the economy, policymakers are “now capturing the very industries that they’re hoping will grow and help offset the headwinds from trade issues with the US,” says CIBC’s Shenfeld.
Capital-Intensive Sectors Stand to Gain
A key element of the tax update is the expansion of eligible investments for deduction, analysts say.
The impact will be greatest in sectors requiring substantial investments before earning a return, says Ben Jang, portfolio manager at Nicola Wealth. He cites telecom networks, pipeline infrastructure, rail, as well as mining and energy development, as examples of capital-intensive industries.
“These businesses can spend heavily on assets that generate revenue for decades, so receiving the tax deduction sooner can make a meaningful difference to the economics of an investment,” Jang says.
Within these sectors, the businesses that are on the fence about an investment decision would be the quickest to respond, he adds.
“I would expect the greatest change in behavior where a commercially sound investment is close to meeting a company’s required return,” Jang says. “The incentive could help that project proceed, expand its scope, or make Canada a more attractive location.”
