Budget 2026 introduces Productivity Mega Deduction and growth incentives for Canadian businesses

What was announced

Budget 2026 introduces the Productivity Mega Deduction, which allows Canadian businesses to immediately write off the full cost of a broader range of capital assets on a permanent basis. This expansion of the previous Productivity Super Deduction covers more than 65% of business investment, including machinery, equipment, and technology across multiple sectors.

The budget also launches the Canada Growth Incentive, a two-part measure designed to keep capital and talent in Canada by rewarding successful investors and entrepreneurs who reinvest their gains into new Canadian companies.

How the Productivity Mega Deduction works

The Productivity Mega Deduction reduces Canada's marginal effective tax rate on new business investment from 13% to 6.4%, making Canada more tax competitive than the United States across all major economic sectors. Lower effective tax rates increase the after-tax return on new investment, strengthening incentives for businesses to expand production and acquire new assets.

The deduction applies to a wide range of assets across many industries. Eligible assets include restaurant equipment such as ranges and refrigerators, construction machinery like excavators and cranes, farming equipment including tractors and harvesters, medical imaging devices, aircraft, and production equipment for modular housing, agri-food processing, and media production. The Canada Revenue Agency will determine whether specific assets qualify based on individual circumstances.

Limited exclusions apply, generally covering very long-lived assets, items with significant personal use, and property subject to regulated rates. These exclusions align with those under U.S. bonus depreciation rules.

The Canada Growth Incentive

To help Canadian high-growth startups attract investment and compete globally, Budget 2026 introduces a new tax exemption for Canadian investors on up to $15 million in capital gains earned from successful investments in eligible Canadian companies. This measure aims to level the playing field with the United States by allowing investors to keep more of their returns when a business succeeds.

The budget also enhances the small business rollover, allowing increased deferral of taxes on capital gains when proceeds are reinvested in another Canadian small business. Together, these measures are intended to mobilise domestic capital, encourage reinvestment in Canadian businesses, and help retain talented entrepreneurs.

Broader context and economic goals

The measures are part of a wider effort to establish Canada as the best place in the world to invest. Canada recorded the highest foreign direct investment per capita in the G7 since 2025 and has been ranked the most attractive country for infrastructure investment. The government reports that nearly $500 billion in new investment commitments were made at Canada's first Investment Summit in September 2026.

Budget 2026 also supports productivity through other initiatives, including changes to the Advance Income Tax Rulings program to fast-track Canada Revenue Agency rulings for investments of $1 billion or more, the International Talent Attraction Strategy to draw top researchers and talent, and national strategies for electricity, nuclear energy, and critical minerals development.