Canada announced on September 15th that it will permanently allow businesses to immediately deduct the full cost of machinery, equipment, and patent rights, according to a report published by the Tax Foundation. The policy, dubbed the "Productivity Mega Deduction," reverses plans to phase out the tax break after 2029 and lifts Canada to fourth-best among all 38 OECD countries for capital cost recovery. The report describes the move as good news for capital investment since permanence gives investors reliable expectations of low costs and reduces tax bias against long-term projects.
Under the permanent policy, Canadian businesses can continue to deduct 84.1 percent of their capital investment costs across all asset types, instead of seeing that figure erode to 72.8 percent by 2034 under the old phase-out schedule. The Ministry of Finance claims the measure broadens full expensing from 15 percent to roughly two-thirds of private business capital investment. Manufacturing and processing buildings will still see their deductions shrink starting in 2030, dropping from 100 percent to 61.4 percent of purchase costs by 2034. For the years 2026 to 2029, before that building-focused phase-out begins, Canada will have the best capital cost recovery in the OECD alongside Estonia and Latvia. By 2030, Canada's regime would give businesses the best cost recovery among any large, developed economy at around 84.1 percent, compared to the current OECD average of 68.8 percent.
The report notes that Canada first adopted temporary immediate expensing for equipment and machinery in 2018 as a response to bonus depreciation provided by the 2017 Tax Cuts and Jobs Act in the United States. Those temporary policies initially began phasing out in 2024 but were reinstated in 2025 and were supposed to stay in effect until 2029, after which they would have gradually disappeared between 2030 and 2033. According to the report, the permanent policy would outperform large economies with broad full expensing regimes like the United States, the United Kingdom, and the European Union. The United States currently offers a broader expensing regime than Canada by including roughly 10 to 15 percent of all buildings and structures, but as US provisions for industrial buildings phase out between 2028 and 2030, Canadian allowances are on track to become more favorable.
The report explains that full expensing alleviates a bias in the tax code and gives companies incentive to invest more, which in the long run raises worker productivity, boosts wages, and creates more jobs. Permanence gives investors a reliable expectation of low cost of capital, the report finds, reducing uncertainty that can discourage long-term investments. Without the permanent policy, Canada's deduction for equipment and machinery would have decreased from 100 percent in 2025 to 93.5 percent in 2034 measured in net present value terms, and intangible assets would have experienced the second-lowest capital cost recovery in the OECD by the end of 2027 at just 43 percent. The Tax Foundation's International Tax Competitiveness Index shows the reform largely consolidates Canada's recently improved position—temporary provisions from the 2025 budget would have lifted Canada's corporate rank from 22nd to 14th among OECD countries, and making full expensing permanent would consolidate its position at 19th in 2030 and prevent it from falling back to 22nd.
The report concludes that future budgets can build on this step forward by extending permanence to full expensing for manufacturing and processing buildings and accelerated depreciation for other buildings and structures. The government's proposal keeps the cost of capital investment low across the economy, supporting private sector capital investment and long-term economic growth. By 2030, Canada will lead all major developed economies in allowing businesses to recover capital costs quickly, cementing a competitive advantage that was at risk of disappearing.