Canada Looks to Lure Investment With Expensing Change That Promises to Give Country a Tax Edge

By Robb M. Stewart

Canada's government plans to make it more attractive for businesses to invest in the country with a change that would lower the effective tax rate by allowing for immediate expensing of money spent on most new assets.

The effort unveiled Tuesday by Prime Minister Mark Carney is aimed at strengthening Canada's tax competitiveness and encouraging investment at a time when Canada is confronted with toughened trade environment and tariffs on exports to the U.S. The proposed change will improve productivity and strengthen the economy with what his government describes as one of the most-significant changes to Canada's business tax system in half a century,

Dubbed the productivity mega deduction, the government said it will allow for immediate expensing for a broad-based range of depreciable property on a permanent basis. This would allow taxpayers to fully write off the cost of an investment in the year that it becomes available for use.

"Simply, your investment dollars will go a lot further in Canada than anywhere else in the advanced world," Carney told an audience at a summit in Toronto where he hopes to match some of the world's biggest investors with companies and development projects in the country.

The policy proposes covering more than four times the capital assets previously eligible for immediate expensing. It is a shift Carney said will make Canada the most tax-competitive advanced economy for new investment, with the lowest marginal effective tax rate among Group of Seven nations, less than half the U.S. rate, and roughly one-third of the average for Organization for Economic Co-operation and Development countries.

"We are making it cheaper to invest," the prime minister said.

The new deduction would permanently provide expensing to a much wider range of assets and expenses, with about two-thirds of investment in capital assets eligible. The push aims to lower the cost of capital, strengthen the business case for modernizing equipment, and encourage companies to spend and expand in Canada. Broadly, the amount of assets covered in the tax incentive will rise to more than 65% from about 15%, including fiber-optic cable, mining property, oil and gas pipelines, software, research and development, computer equipment, aircraft, and other assets.

The government estimates the incremental cost of the measure to be about 36 billion Canadian dollars, the equivalent of US$25.9 billion, over five years from the 2026-27 fiscal year. The expected economic returns project that over a 10-year period the C$8.5 billion in average annual investment support from the productivity mega deduction could generate an increase in economic activity of between 1.4 and 3 times the fiscal cost, which the government pegs at an average up to roughly C$22 billion annually.

Targeting new investment decisions is a central part of Ottawa's effort to catalyze an additional C$1 trillion in investment in Canada, an investment supercycle the government hopes spurs wide-ranging economic benefits. It builds on other capital-cost allowance measures introduced by the government, including adding the refundable tax credits on investments in clean energy production, incentives for scientific research and development, and scrapping a planned increase in Canada's capital gains inclusion rate.

"Canada has what the world wants. We're an energy superpower with the most-educated workforce in the world and rock-solid fiscal strength. We are capitalizing on these strengths and making Canada the best place in the world to invest," Carney said.

Write to Robb M. Stewart at robb.stewart@wsj.com

(END) Dow Jones Newswires

September 15, 2026 10:37 ET (14:37 GMT)