If your business has been considering expanding production, upgrading equipment, or building new facilities, now may be the time to move forward. In the 2025 Federal Budget (“Budget 2025“), the Federal Government introduced a new measure that allows Canadian businesses to deduct 100% of the cost of eligible buildings and equipment in the first taxation year that eligible property is used for manufacturing or processing. This temporary immediate expensing measure is designed to make it easier for businesses to invest in modern facilities and equipment.

What is changing?

Under Budget 2025, businesses can now immediately deduct the full cost of eligible manufacturing and processing (“M&P“) buildings acquired on or after November 4, 2025 (“Budget Day 2025“), provided that the building is first used for M&P activities before 2030. To be deemed an eligible M&P building, at least 90% of the building’s floor space must be used to manufacture or process goods for sale or lease.

Under Canada’s tax system, most capital assets used in a business are not fully deductible in the year they are acquired. Instead, the cost of those assets is written off gradually over time through the capital cost allowance (“CCA“) system. The CCA regime groups assets into classes, each with its own prescribed depreciation rate. For example, most buildings used for manufacturing fall into Class 1 and can typically be depreciated at 4% per year on a declining-balance basis. This is the framework that Budget 2025 temporarily changes for certain M&P assets by allowing businesses to claim an immediate deduction in the year the property is put into use.

For instance, if a manufacturer builds a new $4 million processing plant that becomes operational in 2026, the company can deduct the entire amount that year, rather than taking 4% per year under CCA Class 1. At a combined Federal (15%) and Alberta (8%) tax rate of 23% for M&P business not eligible for the small business deduction, that is nearly $1 million in immediate tax savings.

When and how do these changes apply?

This measure applies to eligible property acquired after Budget Day 2025 and available for use before 2030. After that, the deduction gradually phases out:

  • 75% enhanced first-year CCA rate for property first used in 2030 or 2031;
  • 55% enhanced first-year CCA rate for property first used in 2032 or 2033; and
  • No enhanced CCA rate after 2033.

If the property’s use changes or if it is sold, recapture rules may apply, which means that some of the previously claimed expense may need to be re-included into income. The property must also be new and cannot have been already owned by the taxpayer or a non-arm’s length person, nor acquired by the taxpayer on a rollover basis.

Why does this matter?

The Federal Government’s goal is to stimulate private investment and strengthen Canada’s manufacturing base. Budget 2025 explains that accelerated depreciation “makes it more attractive to invest in machinery, equipment, technology, and other productivity-enhancing assets and improves Canada’s competitiveness for attracting investment.” The federal government expects that this will unlock billions in private investment and boost productivity across the sector.

With this measure in place, Canada’s marginal effective tax rate on new manufacturing investment is projected to fall more than 2%[1]. This will strengthen Canada’s competitiveness with the United States by improving the after-tax return on Canadian projects.

Planning opportunities

For manufacturers that have delayed expansion due to high costs, this change could now make new projects more viable. This ability to expense an entire building or major equipment up front improves short-term cash flow and may strengthen financing capacity.

Immediate expensing also gives flexibility in how profits are reinvested. Instead of timing purchases purely for tax reasons, businesses can make decisions based on operational needs, knowing that qualifying expenses will receive a full deduction when the building becomes operational.

Key considerations

  • Timing: Projects must be completed and be available for use before 2030 to qualify for the full deduction.
  • Eligibility: Only property used directly in M&P activities qualifies. Office or warehouse space may not qualify, unless it is integral to production.
  • Structure: The corporation claiming the deduction must own and use the property in an active business. Holding corporations that lease property to an operating corporation should confirm eligibility.
  • Financing: Immediate expensing will likely reduce net income substantially in the year it is claimed, which may affect loan covenants.
  • Recapture: If the property’s use changes or the property is sold before 2033, expect an income inclusion for the previously deducted amount.

Takeaways

For Canadian manufacturers, this new immediate expensing measure offers an opportunity to modernize operations, boost productivity, and improve competitiveness. With the full deduction only available until 2030, the next few years represent a valuable window to plan for capital investments that position your business for long-term growth.

If you have any questions about this new tax incentive or how it may affect your business, please contact a member of Miller Thomson’s Corporate Tax Group.

[1] Budget 2025 at page 86.