September 28, 2026
You may have heard that last week our Prime Minister announced a significant new tax proposal called Canada’s Productivity Mega Deduction, also referred to as “Immediate Expensing”. It’s been introduced as part of the package of measures intended to help Canadian businesses stay competitive in these challenging international times.
The way it’s been announced, you’d be forgiven for thinking it’s a silver bullet. We at Hawkins & Co. think it’s a positive move, but we’d like to provide a bit of context so everyone understands what this actually means—and so we don’t get more excited than necessary.
Tax 101 (Sorry!)
At its core, tax theory is simple: You pay tax on your income. And – for the most part – you’re allowed to claim a deduction (write-off) for all expenses you incur in earning that income. This means you only pay tax on your profit, not your total sales. So far, so sensible.
In most business cases (e.g., rent, insurance), you pay the expense and claim the deduction in that same tax year because there is no lasting future asset.
It’s a bit different when you buy equipment. Because that equipment helps you earn money for several years, tax rules don’t let you deduct the full cost right away. You still get the full deduction, but it is spread over the useful life of the asset to match the income it helps generate.
In tax terms, this is called Capital Cost Allowance (CCA). The CCA rate varies, but for most equipment, it averages about 20% per year on a declining balance—implying a 5-year useful life.
What Changed?
Immediate expensing is exactly what it sounds like: you get to deduct the full cost of an eligible asset in the year you buy it. This reduces your tax bill immediately, rather than spreading the tax benefit over 5 or more years.
This isn’t an entirely new concept—the federal government introduced a temporary version during COVID—but this new proposal is described as permanent and will cover a broader range of assets. (The most notable exclusions remain buildings and certain vehicles.)
Draft legislation is already out, and while we await the final enacted version, these changes are expected to be backdated to the announcement date.
What Does This Look Like In Practice?
Let’s look at a simple example:
Suppose your company has a marginal corporate tax rate of 26.5% (for context, the Ontario small business rate is 12.2% on the first $500k of profit, but bear with us for math’s sake) and you purchase a $100,000 piece of equipment.
- Under the Old Rules: You would eventually write off the full $100,000, saving $26,500 in total tax. However, that tax benefit was spread out over time:
- Year 1 Deduction: $20,000 (Tax savings: $5,300)
- Year 2 Deduction: $16,000 (Tax savings: $4,240)
- Year 3 Deduction: $12,800 (Tax savings: $3,392) … and so on.
- Under the New Rules: You deduct the full $100,000 in Year 1—realizing the full $26,500 tax savings upfront.
How Much Difference Will This Realistically Make?
We support this change. It improves cash flow and makes it easier to justify capital investments because you realize the tax savings much faster. If you are planning an upcoming equipment purchase near your fiscal year-end, timing it properly could offer a significant immediate benefit.
However, it’s worth addressing some media misconceptions, particularly claims that this cuts corporate tax rates. This measure does not lower your overall tax rate or increase your total tax savings. It simply accelerates when you receive the benefit.
From a broader economic perspective, it’s a good move. While it temporarily increases the federal deficit in the short term, it is fiscally neutral over the medium term, and if it successfully encourages business investment and growth, it could help reduce the deficit long-term.
The Bottom Line
Will this single-handedly transform your business? Probably not. But as part of a broader investment strategy, it is definitely a step in the right direction.
If you’re evaluating a major equipment purchase and want to know how the timing will affect your upcoming year-end, reach out to our team at [email protected]
-Jules Hawkins