Deduct the whole cost in year one: what the Productivity Mega Deduction would do

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What it would change

Normally a business cannot deduct the full cost of an asset in the year it buys it. It deducts a percentage each year under capital cost allowance (CCA), at a rate set by the asset’s class, and the half-year rule cuts the first year’s percentage again. At ordinary rates, with no accelerated incentive, a $10,000 desk in a 20% class deducts $1,000 in the first year and the rest over many years. Temporary incentives have raised the first-year amount at times, but the cost still comes off over years.

Immediate expensing lets you deduct the whole cost in the year the asset becomes available for use. The Department of Finance says the proposal would be permanent, and would widen the share of business investment in capital assets that qualifies from roughly 15% to more than 65%. It replaces much of the narrower “productivity super-deduction” set out in Budget 2025.

The 11% is the 2026 combined federal and BC small-business rate, used only to make the arithmetic concrete, and an accelerated incentive would narrow the gap in year 1. The point is timing: the total deduction is the same, and it arrives sooner. A corporation paying the higher general rate, or one that will earn more next year, would see a different picture.

What would qualify, and what would not

• Would qualify: capital property under the CCA rules acquired on or after 15 September 2026 and available for use, including computer equipment, software, office and shop equipment, patents and research spending
• Left out: most buildings and additions, in CCA classes 1 and 3, although separate rules exist for manufacturing and processing buildings and greenhouses
• Left out: franchises, licences and goodwill (classes 14 and 14.1), and property depreciated under Schedules V and VI of the regulations
• Vehicles: certain vehicles in classes 10 and 10.1 are excluded, so do not assume a passenger vehicle qualifies

Assets that do not qualify would keep an enhanced first-year deduction under the Accelerated Investment Incentive, which is a smaller step than deducting everything. The draft also includes rules to stop individuals, and partnerships with individual members, from using the deduction to create or increase a loss, the same approach the 2021 temporary measure took.

What to record so a claim can be made

The tax deduction and your books do not have to move together. A business can record the purchase as an asset and depreciate it in its financial statements while deducting it in full on the tax return. That is what makes the records matter: the tax return needs facts the books have to hold.

• Keep the invoice for every asset, showing the date acquired and the cost
• Record the date each asset became available for use, which can differ from the purchase date
• Keep an asset register that separates capital purchases from ordinary expenses
• Keep the GST and PST treatment on each invoice; the deduction does not change either
• Tell whoever prepares your return about every capital purchase, and when it started being used
• Do not buy or time a purchase for the deduction until the legislation is final

The date the asset is available for use decides the tax year, not the date you paid. Equipment bought in December but not installed until spring may fall into the following year, so ask before you count on a particular year.

The dated note on the announcement →

Vehicle and home-office records for the self-employed →

What to have ready at corporate year end →

Ask for a written quote →