Canadian businesses are navigating a mixed credit and investment landscape this fall, as the federal government rolls out sweeping new tax incentives aimed at spurring capital investment even as the Bank of Canada keeps borrowing costs steady and small business owners report cautious confidence heading into 2026.
At the first Canada Investment Summit, Prime Minister Mark Carney announced a new “Productivity Mega Deduction,” an expansion of the Productivity Super-Deduction introduced in Budget 2025. The policy allows businesses to immediately deduct 100% of the cost of eligible new investments, and the Mega Deduction widens the share of assets covered from roughly 15% to more than 65%, including fibre-optic cable, mining property, oil and gas pipelines, software, research and development, aircraft, vehicles, patents, and infrastructure such as bridges and roads. The government is also making immediate expensing permanent.
“This is one of the most significant changes to Canada’s business tax system in half a century, and a game changer for investment in this country,” said Finance Minister François-Philippe Champagne, adding that the measure is meant to “unlock investment at a scale we have not seen in generations.”
Lower Effective Tax Rate on New Investment
According to the government, the changes will push Canada’s marginal effective tax rate on new business investment down from roughly 13% to 6.4% — described as the lowest among major economies and less than half the rate in the United States. Ottawa says the capital investments and incentives behind this push, totalling about $280 billion over five years, are expected to catalyse more than $1 trillion in total investment from public, private and institutional partners, including CPP Investments and PSP Investments, which co-hosted the summit.
Carney framed the push as part of a broader competitiveness strategy, citing Canada’s AAA credit rating, the lowest net debt-to-GDP ratio in the G7, and a number one ranking among G7 countries for banking stability. “Canada has what the world wants,” Carney said. “We’re an energy superpower with the most educated workforce in the world and rock-solid fiscal strength… we are sending a clear message to the world: Canada is building big.”
Borrowing Costs Still a Factor for Businesses and Households
While Ottawa is leaning on tax policy to encourage investment, broader credit conditions remain shaped by the Bank of Canada’s rate decisions and bond markets. The central bank held its overnight rate at 2.25% in its September 2 announcement, the seventh consecutive hold, according to Ratehub.ca. The bank is weighing inflation running near 3% — driven by higher energy prices and tariffs — against the risk that a prolonged trade conflict could weigh on consumer spending, employment and business activity.
That holding pattern has kept variable mortgage and lending rates stable, with the lowest available variable rate cited at 3.4% as of October 9, 2026, while the lowest high-ratio five-year fixed rate stood at 4.34%, according to Ratehub.ca. Fixed rates, which are tied to five-year Government of Canada bond yields rather than the overnight rate, could face further volatility if bond yields respond to persistent inflation concerns or ongoing U.S. trade uncertainty, the site noted. Ratehub also pointed out that lenders price in a spread over bond yields to account for credit risk and capital requirements, and that spread can widen during periods of tighter credit conditions, keeping fixed rates elevated even if bond yields stabilize.
Snapshot of Canadian Credit and Investment Conditions
Small Business Confidence Holding Steady Amid Uncertainty
Against this backdrop of policy change and rate stability, many small business owners appear focused on fundamentals rather than new technology or major shifts in strategy. A 2026 Zensurance Small Business Confidence Index, based on a national survey of 1,000 Canadian small business owners, entrepreneurs and self-employed professionals, found 49% remain confident about the months ahead.
The survey, released by small-business insurer Zensurance, found owners are prioritizing stability over experimentation. Asked how they would use a hypothetical $10,000 business grant, 26% said they would set it aside for cash flow and 20% said they would pay down debt — more than those who said they’d invest in tools, equipment, or new technology. “Small business owners are constantly weighing where to invest their limited time and resources,” said Danish Yusuf, CEO and Founder of Zensurance. “This year’s findings show they are prioritizing stability, operational strength and resilience.”
Yusuf also noted that small business confidence is at a three-year low by the survey’s measure, even as nearly half of respondents said they remain confident about the near-term outlook — a reflection, he said, of owners with limited bandwidth to experiment given current conditions. Taken together, the data suggests Canadian businesses are operating in an environment where new federal tax incentives aim to unlock large-scale investment, even as day-to-day credit costs and cautious sentiment continue to shape decisions on the ground for smaller firms.
This article is for informational purposes only and does not constitute financial, investment, or legal advice. Consult a licensed financial advisor before making investment decisions.
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