The federal government is proposing a permanent tax measure that would let businesses write off the full cost of most new depreciable assets in the year the assets become available for use.

The Productivity Mega Deduction would apply to eligible property acquired on or after Sept. 15. It would expand immediate expensing from about 15 per cent of capital investment under earlier measures to about two-thirds of capital investment.

That change could affect the timing of machinery and equipment purchases by farms, energy companies, construction firms, transportation businesses and other rural employers. It does not provide an up-front grant or eliminate every tax consideration attached to an investment.

Immediate expensing changes when an eligible cost can be deducted. Under the usual capital cost allowance system, businesses deduct portions of an asset over several years. The proposal would allow a full first-year deduction once eligible property is available for use.

The Department of Finance estimates the expanded measure would cost the federal treasury an additional $36 billion over five years, beginning in 2026-27.

The government also estimates Canada’s marginal effective tax rate on new business investment would fall to 6.4 per cent from 13 per cent. That rate is a broad measure of the tax applied to an additional dollar of investment, not the income-tax rate shown on a company’s return.

Most property covered by the capital cost allowance rules would be included, but the proposal contains exclusions. These include many buildings, franchises, licences, goodwill, regulated natural gas distribution pipelines and certain vehicles.

Manufacturing and processing buildings would remain outside this new permanent measure, although the government says separate temporary immediate-expensing rules announced in Budget 2025 would continue to apply.

Canadian development expenses incurred on or after Sept. 15 would also become immediately deductible. That part of the proposal is particularly relevant to mining and oil and gas development.

Special rules would apply to liquefied natural gas equipment. An additional allowance would bring the capital cost allowance rate for qualifying liquefaction equipment to 100 per cent, but the deduction could only be claimed against income connected to liquefaction at that facility.

Used property could qualify in limited circumstances. Neither the taxpayer nor a related person could have owned it previously, and the property could not be transferred through a tax-deferred rollover.

Rules would also restrict individuals and partnerships with individual members from using the deduction to create or increase a loss.

The government released draft legislative proposals with the announcement. Businesses considering purchases should confirm the final law, the asset’s tax class, ownership history and available-for-use date with a qualified adviser before relying on the deduction.