Prime Minister Mark Carney’s government has unveiled its most sweeping change to business taxation in decades, expanding an immediate-expensing tax break for capital investment while drawing both applause from industry groups and skepticism from tax policy analysts about how much the move actually fixes Canada’s competitiveness problem.
At the first Canada Investment Summit in Toronto, Carney announced the Productivity Mega Deduction, which builds on the Productivity Super-Deduction introduced in Budget 2025. The earlier measure let businesses immediately deduct 100 percent of the cost of eligible new investments — machinery, equipment and technology — but covered only about 15 percent of capital assets and carried an expiry date. The new version expands coverage to more than 65 percent of assets, adding categories such as fibre-optic cable, mining property, oil and gas pipelines, software, research and development, computer equipment, aircraft and vehicles, patents, rail track, bridges and roads. Crucially, the government says immediate expensing will now be made permanent.
Ottawa says the change will lower Canada’s marginal effective tax rate (METR) on new business investment from roughly 13 percent to 6.4 percent — which it describes as the lowest in the G7 and less than half the rate in the United States, which sits at 16.9 percent, compared with an OECD average of 19.0 percent. “With the lowest marginal effective tax rate in the G7 by an order of magnitude, we are sending a clear message to the world: Canada is building big,” Carney said. Finance Minister François-Philippe Champagne called it “one of the most significant changes to Canada’s business tax system in half a century.”
Industry Reaction and the Price Tag
Business groups largely welcomed the announcement. Canadian Chamber of Commerce chief executive Candace Laing called it “a moment we’ve been waiting for,” saying its permanency would draw sustained investor interest. The Canadian Association of Petroleum Producers and the Calgary Chamber of Commerce also praised the move, with CAPP’s Lisa Baiton saying it closes “a significant competitive gap” with the United States for oil and gas investment. Brian Ernewein, senior adviser at KPMG Canada, described the change as largely a “timing difference” — effectively an interest-free loan to businesses, since it gives them deductions sooner than they’d otherwise receive them, with the most capital-intensive sectors, including resources, benefiting most.
The government pegs the fiscal cost of the expanded deduction at $36 billion over five years. It says the broader effort — including $280 billion in government capital investments and incentives — aims to catalyze more than $1 trillion in total investment from public, private and institutional partners over five years. Separately, Ottawa said investors committing $1 billion or more will now get priority access to the Advance Income Tax Rulings program at the Canada Revenue Agency, giving large investors faster certainty on how tax law applies before they commit capital.
Questions Over the Headline Number
Not everyone has accepted the 6.4 percent figure at face value. Writing in The Hub, columnist Trevor Tombe-adjacent analysis (citing tax policy expert Jack Mintz) noted that when a company can deduct 100 percent of an asset’s cost in year one and also deduct interest on borrowed money used to finance it, the effective tax rate on the underlying investment can turn negative. Finance Department estimates reportedly show negative effective tax rates for some sectors, including agriculture at -6.0 percent, manufacturing at -1.2 percent and transportation at -2.3 percent — suggesting the government is, in effect, subsidizing certain investments through the tax code rather than merely taxing them lightly.
Critics also argue the policy is mostly about timing rather than a reduction in overall tax burden: companies get deductions faster, not bigger, for already-eligible assets. At roughly $8.5 billion a year, the fiscal cost of the measure is comparable to cutting the federal general corporate tax rate by two points, since the Parliamentary Budget Officer estimates each one-point cut to that rate costs about $4 billion annually. Commentator Charles Lammam has argued the deduction does not address Canada’s broader competitiveness problems, including a federal corporate tax rate that remains higher than in the U.S. in many comparisons, or sector imbalances, since not every industry stands to benefit equally from accelerated write-offs focused on capital equipment.
A Separate Debate at the Municipal Level
While Ottawa focuses on federal investment incentives, cities are grappling with a related but distinct tax question: how to split property tax burdens between residential and commercial owners. Saskatoon city hall is launching a public survey this fall on its commercial-to-residential tax ratio, currently set at 1.71 — meaning non-residential property owners pay $1.71 in tax for every dollar paid by a homeowner on a similarly assessed property. That ratio is lower than in Calgary (4.63), Edmonton (3.26), Vancouver (3.53) and Surrey (2.54), though higher than in Winnipeg (1.44) and Regina (1.61). Keith Moen of the North Saskatoon Business Association said cities with lower ratios need that edge to attract business since they lack the amenities of larger centres, while a recent Canadian Federation of Independent Businesses study ranked Saskatoon second among 66 municipalities for small-business friendliness.
Together, the federal and municipal debates illustrate a broader tension in Canadian tax policy: attracting large-scale private investment through headline deductions and rulings certainty, while local governments wrestle with how the day-to-day cost of doing business is distributed between homeowners and local firms.
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