The Productivity Mega Deduction: What Farms and Small Businesses Need to Know

Last updated: 2026-10-01 13:28:30 

On September 15, 2026, the federal government announced the Productivity Mega Deduction, a proposal that could change how and when Canadian businesses get tax relief on new equipment. If you’re planning to buy machinery, tools or technology, it’s worth understanding before your next purchase. 

What is the Productivity Mega Deduction? 

Today, most business equipment is written off gradually through capital cost allowance (CCA), a portion each year over many years. Under the proposal, businesses could generally deduct 100% of the cost of eligible assets in the year they become available for use. That means tax savings sooner and more cash in the business now, although the total amount you can deduct over the asset’s life stays the same. 

What does it mean for your businesses?

Earlier rules, including the Productivity Super-Deduction from Budget 2025, allowed immediate expensing for only about 15% of capital assets. The new proposal expands that to roughly 65% of business investment assets and would make it permanent. 

When does the Productivity Mega Deduction start?

The proposal would generally apply to eligible property acquired on or after September 15, 2026, provided the property meets the applicable requirements and becomes available for use. 

What equipment qualifies for the Productivity Mega Deduction?

Most things a business buys to do its work, and uses for years, are expected to qualify: 

• machinery and equipment 

• computers, software and data systems 

• some vehicles and aircraft 

• patents 

• infrastructure such as roads, bridges and rail 

• certain property used in resource industries 

What does not qualify for the Productivity Mega Deduction? 

Based on the draft legislation and commentary so far, notable exclusions include: 

• buildings, and additions to buildings 

• goodwill, franchises and licenses 

• most cars, trucks and other passenger vehicles 

Purchases that don’t qualify can still use the faster write-offs already available. 

Can farmers use the Productivity Mega Deduction?

Yes. Eligible farm equipment could qualify, subject to the detailed rules. Examples could include machinery and other equipment used in farming operations. 

Does the Productivity Mega Deduction apply to used equipment?

Buying used generally still works, but not if you, or someone closely connected to you such as a family member or related company, owned it before. It also won’t qualify if it was transferred to you in a tax-deferred transfer. 

Can the deduction create a tax loss?

For sole proprietors and partnerships with individual partners, the deduction generally cannot be used to create or increase a loss. Different rules apply to corporations. 

Does the Productivity Mega Deduction apply to buildings?

Buildings and additions to buildings are among the notable exclusions identified in the proposal. 

Is the Productivity Mega Deduction law yet?

No. It remains a proposal until the legislation passes, receives Royal Assent and the relevant rules are finalized.  

A farm example

A farm corporation buys a new grain dryer for $150,000 after September 15, 2026. It’s installed and running in October, and the farm earns $400,000 of taxable income that year. 

Under the usual rules, the farm could deduct only part of the dryer’s cost in 2026, with the rest written off over many years. Under the Productivity Mega Deduction, it could deduct the full $150,000 in 2026, bringing taxable income down to $250,000. At an illustrative 12% tax rate, that’s $18,000 less tax owing for 2026, money that stays in the business to help pay for the dryer or fund the next investment. 

Why timing matters

• It has to be in use. The dryer has to be installed and ready to use in 2026. Buying it in December but setting it up in spring pushes the deduction into the next year. 

• Sooner, not bigger. You can only deduct the cost of an asset once. Using the full deduction in 2026 leaves nothing to deduct for the dryer in 2027 or later, so taxable income in those years will be higher. 

• Selling later can bring tax back. If the farm sells the dryer in a few years for $60,000, that $60,000 would generally be added back to its income that year. This is called recapture. 

That’s why the deduction is usually most valuable in a high-income year, and why a purchase like this deserves a conversation before you buy. 

What to do next

If you’re considering a major equipment or technology purchase, talk to a tax professional first. FBC’s Tax Advisors have helped Canadian farms and small businesses plan purchases like these for more than 70 years. 

• FBC Members: book an Early Tax Call with your Tax Advisor. [Book your Early Tax Call] 

• Not an FBC Member yet? [Book a tax consultation] 

This is still a proposal. It isn’t law until the legislation passes, receives Royal Assent and the related regulations are finalized, and details could change before then.