The Canadian government unveiled a significant tax reform during the Canada Investment Summit, introducing a new measure called the productivity mega-deduction. This reform allows businesses to immediately deduct the full cost of investments in various sectors such as machinery, equipment, clean energy, and zero-emission vehicles.
During the summit, Prime Minister Mark Carney expressed the government’s aim to position Canada as the most appealing destination for investment among G7 countries. This initiative builds upon the productivity super-deduction introduced in the previous year’s budget, which initially covered a limited range of investments. With the expansion of this program, now two-thirds of assets will qualify for the deduction, up from the initial 15 percent.
According to Randall Bartlett, Deputy Chief Economist at Desjardins, the previous practice in Canada involved companies recovering costs over a project’s lifespan. However, with the new program, businesses will receive immediate refunds, potentially enabling them to allocate more funds towards new ventures. Bartlett highlighted the program’s intent to spur rapid and substantial investment by offering compelling incentives.
The government’s projection indicates that this tax reform will reduce Canada’s marginal effective tax rate from 13 percent to 6.4 percent, positioning it as the G7 country with the lowest tax rate. This move is expected to enhance Canada’s competitiveness globally and encourage companies to remain in the country, especially amidst trade uncertainties.
While the tax reform is estimated to cost approximately $36 billion over five years, Bartlett noted that current high oil prices could offset this expenditure in the short term. However, he emphasized the importance of ensuring sustainable funding for the long-term implementation of the program.