Federal Government Announces Productivity Mega Deduction – Improving Canada’s Competitiveness

The federal government has announced a new Productivity Mega Deduction intended to encourage business investment and improve Canada’s competitiveness.

 

The measure will allow businesses to immediately deduct the full cost of a broader range of eligible capital investments in the year the assets are put into use, rather than depreciating those costs over several years. Eligible investments are expected to include manufacturing and processing machinery, industrial production equipment, digital technologies, and electricity generation, grid and transmission infrastructure.

 

The government estimates the measure will reduce Canada’s marginal effective tax rate on new business investment from 13% to 6.4%, strengthening Canada’s position relative to other advanced economies.

 

For more information, read the Sussex Strategy Group memo.

 

 

EFC welcomes the Productivity Mega Deduction as an important measure to strengthen Canada’s investment environment. Its application to manufacturing equipment, productivity technologies and electricity infrastructure aligns well with the needs of Canada’s electrical and automation industry. The announcement aligns with the findings identified through EFC’s national Manufacturing Investment and Competitiveness Survey.

 

The survey results identified investment economics including capital incentives, corporate tax rates, land and building costs, and labour costs as significant Canadian weaknesses relative to the United States.

 

The Productivity Mega Deduction is a meaningful step toward addressing this competitiveness gap. Accelerating tax deductions for capital investments can improve project cash flow, shorten payback periods and strengthen the business case for companies considering Canadian manufacturing expansions, automation projects and productivity-enhancing technologies.

 

The measure also supports EFC’s message that, while many aspects of the Canada–U.S. trade relationship are outside Canada’s direct control, governments can take action to improve the domestic conditions influencing investment decisions.

 

 

EFC will continue advocating for policies that build on this measure and strengthen Canada’s capacity to manufacture the equipment needed for electrification and grid modernization. This includes establishing a targeted, refundable manufacturing investment tax credit for critical grid and electrification equipment.

 

EFC views these measures as complementary. Immediate expensing allows businesses to deduct eligible capital costs sooner, reducing taxable income and improving cash flow. A refundable investment tax credit provides a more direct benefit and can support companies undertaking major projects, including those with limited taxable income during the early stages of investment.

 

This distinction is particularly important for new manufacturing facilities, major expansions and investments with long development and payback periods.

 

The Productivity Mega Deduction represents meaningful progress toward improving Canada’s investment economics. EFC will continue working with the federal government to complement this broader tax advantage with targeted policies that attract investment, expand domestic manufacturing capacity and strengthen the resilience of Canada’s electrical supply chain.