{"id":56781,"date":"2026-10-06T11:34:25","date_gmt":"2026-10-06T15:34:25","guid":{"rendered":"https:\/\/www.millerthomson.com\/?p=56781"},"modified":"2026-10-06T11:55:05","modified_gmt":"2026-10-06T15:55:05","slug":"canadas-federal-government-walks-the-talk-with-newly-proposed-productivity-mega-deduction-what-mining-companies-need-to-know","status":"publish","type":"post","link":"https:\/\/www.millerthomson.com\/en\/insights\/mining\/canadas-federal-government-walks-the-talk-with-newly-proposed-productivity-mega-deduction-what-mining-companies-need-to-know\/","title":{"rendered":"Canada\u2019s federal government walks the talk with newly proposed Productivity Mega Deduction: What mining companies need to know"},"content":{"rendered":"\n<p class=\"wp-block-paragraph\">On September 15, 2026 (\u201c<strong>Announcement Day<\/strong>\u201d), the Canadian federal government\u2019s Department of Finance released draft legislative proposals to implement the \u201c<strong>Productivity Mega Deduction<\/strong>\u201d \u2014 permanent 100% first-year (\u201cimmediate\u201d) expensing for a wide range of new or used depreciable property and for Canadian development expenses (\u201c<strong>CDE<\/strong>\u201d) in the mining sector \u2014 together with immediate expensing and accelerated capital cost allowance (\u201c<strong>CCA<\/strong>\u201d) for liquefied natural gas (\u201c<strong>LNG<\/strong>\u201d) facilities.<a href=\"#_ftn1\" id=\"_ftnref1\">[1]<\/a><\/p>\n\n\n\n<p class=\"wp-block-paragraph\">This announcement follows Prime Minister Carney\u2019s major keynote speech at the World Economic Forum in Davos, Switzerland on January 20, 2026.&nbsp; His speech titled &#8220;<em>Principled and Pragmatic: Canada&#8217;s Path<\/em>,&#8221; outlined Canada&#8217;s strategy to bolster its own economic sovereignty, accelerate investments in energy, AI, and defense, and rely on &#8220;value-based realism&#8221; when building new foreign coalitions.&nbsp; The federal government had already announced in 2025 a \u201cProductivity Super-Deduction\u201d which would provide immediate expensing for roughly 15% of investment in capital assets; however, the newly proposed Productivity Mega Deduction would permanently extend immediate expensing to about two-thirds of such investment.<a href=\"#_ftn2\" id=\"_ftnref2\">[2]<\/a><\/p>\n\n\n\n<h2 class=\"wp-block-heading\">A new approach to capital investment<\/h2>\n\n\n\n<p class=\"wp-block-paragraph\">The Productivity Mega Deduction is intended to encourage business investment by accelerating the timing of tax deductions. Rather than claiming deductions over many years through the CCA system, businesses would generally be able to deduct the full cost of qualifying capital investments in the year the property becomes available for use.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">For the mining industry, the draft legislation contains two key measures:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>permanent 100% first-year expensing for a broad range of depreciable capital property acquired on or after September 15, 2026; and<\/li>\n\n\n\n<li>immediate expensing of qualifying CDEs incurred on or after September 15, 2026.<\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading\">Important restrictions and exclusions<\/h2>\n\n\n\n<p class=\"wp-block-paragraph\">Despite its broad scope, the Productivity Mega Deduction will not apply to every asset or expenditure. The draft legislation includes several exclusions and restrictions that mining companies should carefully review. Excluded property includes:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>most buildings;<\/li>\n\n\n\n<li>most intangible assets;<\/li>\n\n\n\n<li>certain vehicles; and<\/li>\n\n\n\n<li>mineral mines and mineral rights.<\/li>\n<\/ul>\n\n\n\n<p class=\"wp-block-paragraph\">The proposed rules also contain special provisions affecting successor amounts, rollover transactions, and certain flow-through share arrangements.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">Potential benefits for mining projects<\/h2>\n\n\n\n<p class=\"wp-block-paragraph\">Many mining assets may qualify for immediate expensing under the proposed rules. Depending on their classification and the specific facts, eligible property may include:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>mine development infrastructure;<\/li>\n\n\n\n<li>mills and processing facilities;<\/li>\n\n\n\n<li>extraction and production equipment;<\/li>\n\n\n\n<li>certain mine buildings and structures;<\/li>\n\n\n\n<li>processing machinery; and<\/li>\n\n\n\n<li>other depreciable assets commonly included in CCA Classes 41 and 41.2.<\/li>\n<\/ul>\n\n\n\n<p class=\"wp-block-paragraph\">In addition to being in a qualifying CCA asset class, the property must also be acquired on or after Announcement Day and:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>not have been used for any purpose before it was acquired by the taxpayer (e.g. an acquisition of new property); or<\/li>\n\n\n\n<li>if used property, the taxpayer was not deemed to have previously claimed CCA or deemed to have a reduction to the UCC on the property (e.g. previously leased or rented property) or acquired it from a non-arm\u2019s length person.<\/li>\n<\/ul>\n\n\n\n<p class=\"wp-block-paragraph\">The draft legislation does not require that the property be located in Canada.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">A major change to CDEs<\/h2>\n\n\n\n<p class=\"wp-block-paragraph\">The most significant aspect of the proposal for many mining companies is the treatment of CDEs.&nbsp; This is a category of expenses incurred to develop a Canadian-located resource property after the initial exploration stage has largely been completed. This proposal should broaden the scope of Canadian-located mining projects whose development can be financed with flow-through shares, since investors will be able to claim a deduction equal to 100% of their investment in the year rather than 30% under the current rules.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Canada\u2019s resource tax regime currently distinguishes between Canadian exploration expenses (\u201c<strong>CEE<\/strong>\u201d), CDEs and Canadian oil and gas property expenses (\u201c<strong>COGPE<\/strong>\u201d). Under existing rules, mining companies can flow 100% of CEE to investors under the flow-through share regime and deduct up to 30% of their cumulative CDE balance each year.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Many pre-production mine development costs are classified as CDEs, including certain expenditures related to mine access, underground development, and site preparation.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Under the proposed legislation, qualifying CDEs incurred on or after September 15, 2026 would become eligible for a new category known as an \u201cimmediate Canadian development expense.\u201d This change would effectively allow taxpayers to deduct eligible development expenditures at a 100% rate rather than recovering them gradually over time.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">More specifically, the proposed changes for CDE deductions are:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>The new defined term \u201cimmediate Canadian development expense\u201d would be a CDE incurred on or after Announcement Day, excluding (i) successor amounts under s. 66.7(4) and (ii) the cost of a Canadian resource property acquired from a non-arm\u2019s-length person or partnership. A special rule addresses flow-through renunciations under agreements entered into on or after Announcement Day.<\/li>\n\n\n\n<li>An additional deduction (an A \u2212 B formula) that effectively tops the deduction for qualifying CDE up to 100%.<\/li>\n\n\n\n<li>Reaccelerated CDE is wound down. The existing definition is amended so it covers expenses incurred after 2024 and before Announcement Day, dovetailing the existing enhanced regime with the new one. Expenses incurred before Announcement Day because of the flow-through share look-back rule are excluded. \u00a0Consistent with this deduction rate for reaccelerate CDE is to be fixed at 15%<a href=\"#_ftn3\" id=\"_ftnref3\">[3]<\/a>.<\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading\">Flow-through shares<\/h2>\n\n\n\n<p class=\"wp-block-paragraph\">The flow-through share regime allows certain corporations to renounce CDEs to investors (pursuant to subsection 66(12.62)). Under the current rules, where a CDE is renounced to an investor, the amount is added to the investor\u2019s Cumulative Canadian Development Expense Pool (\u201c<strong>CCDE Poo<\/strong>l\u201d).&nbsp; The amount the investor can deduct in a year is determined pursuant to a formula and generally amounts to a 30% declining balance deduction from the available CCDE pool.&nbsp; The new rule would allow for a deduction of 100% of a taxpayer\u2019s <strong><em>immediate Canadian development expenses<\/em><\/strong>, which under the draft legislation would include any CDE that has been renounced under a flow-through share agreement entered into on or after Announcement Day.\u2002<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Assuming $1,000 of CDE is renounced to a taxpayer in a year, the effect of this change would be as follows:<\/p>\n\n\n\n<figure class=\"wp-block-table\"><table class=\"has-fixed-layout\"><thead><tr><th><\/th><th>Before<\/th><th>After<\/th><\/tr><\/thead><tbody><tr><td><strong>CCDE pool<\/strong><\/td><td>$1,000<\/td><td>$1000<\/td><\/tr><tr><td><strong>Deduction Year 1<\/strong><\/td><td>$300<\/td><td>$1000<\/td><\/tr><tr><td><strong>Deduction Year 2<\/strong><\/td><td>$210<\/td><td>$0<\/td><\/tr><tr><td><strong>Deduction Year 3<\/strong><\/td><td>$147<\/td><td>$0<\/td><\/tr><\/tbody><\/table><figcaption class=\"wp-element-caption\">Column 1 states the applicable deduction year, column 2 states the deduction under the current rules, and column 3 states the deduction under the proposed rules. <\/figcaption><\/figure>\n\n\n\n<p class=\"wp-block-paragraph\">(This example is for illustrative purposes only and does not consider the other additions and subtractions to the deductible amount provided in paragraphs 66.2(2)(a)-(e).)<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">Strengthening Canada\u2019s competitiveness<\/h2>\n\n\n\n<p class=\"wp-block-paragraph\">The federal government has positioned the Productivity Mega Deduction as a key part of its strategy to stimulate productivity and attract investment.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">According to Finance Canada, the measure would substantially reduce Canada\u2019s marginal effective tax rate on new business investment, making Canada more competitive relative to the United States and many other OECD jurisdictions.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">Not yet law<\/h2>\n\n\n\n<p class=\"wp-block-paragraph\">Mining companies should remember that the Productivity Mega Deduction remains draft legislation. &nbsp;Before becoming law, the measures must be enacted through the legislative process and receive Royal Assent. The proposals may also be amended before final enactment.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">Key takeaways<\/h2>\n\n\n\n<p class=\"wp-block-paragraph\">If enacted substantially as proposed, the Productivity Mega Deduction could be one of the most important tax developments for Canada\u2019s mining industry in recent years.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">For mining companies (and investors) evaluating development projects, expansions, or major capital programs, now is an opportune time to assess how the proposed rules could affect project returns, financing requirements, and long-term investment strategies.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Contact our <a href=\"https:\/\/www.millerthomson.com\/en\/insights\/mining\/\" data-type=\"link\" data-id=\"https:\/\/www.millerthomson.com\/en\/insights\/mining\/\">Mining lawyers<\/a> if you have questions about how the proposed Productivity Mega Deduction could impact your business.<\/p>\n\n\n\n<hr class=\"wp-block-separator has-alpha-channel-opacity\"\/>\n\n\n\n<p class=\"wp-block-paragraph\"><a href=\"#_ftnref1\" id=\"_ftn1\">[1]<\/a><a href=\"https:\/\/www.canada.ca\/content\/dam\/fin\/corporate\/dr-leg\/2026\/09-itaitr-lirrir-eng.pdf\" data-type=\"link\" data-id=\"https:\/\/www.canada.ca\/content\/dam\/fin\/corporate\/dr-leg\/2026\/09-itaitr-lirrir-eng.pdf\">Department of Finance Canada, Draft Legislative Proposals Relating to the Income Tax Act and the Income Tax Regulations<\/a> (PDF) (released September 15, 2026), online.\u00a0 [\u201cDraft Legislative Proposals\u201d].\u00a0 Prime Minister of Canada, News Release, <a href=\"https:\/\/www.pm.gc.ca\/en\/news\/news-releases\/2026\/09\/15\/prime-minister-carney-introduces-new-productivity-mega-deduction\" data-type=\"link\" data-id=\"https:\/\/www.pm.gc.ca\/en\/news\/news-releases\/2026\/09\/15\/prime-minister-carney-introduces-new-productivity-mega-deduction\">&#8220;Prime Minister Carney introduces new Productivity Mega Deduction&#8221; <\/a>(September 15, 2026), online.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><a href=\"#_ftnref2\" id=\"_ftn2\">[2]<\/a> Department of Finance Canada, Backgrounder, <a href=\"https:\/\/www.canada.ca\/en\/department-finance\/news\/2026\/09\/government-of-canada-introduces-new-productivity-mega-deduction-to-boost-canadas-advantage-as-the-most-competitive-g7-country-for-new-business-inve.html\" data-type=\"link\" data-id=\"https:\/\/www.canada.ca\/en\/department-finance\/news\/2026\/09\/government-of-canada-introduces-new-productivity-mega-deduction-to-boost-canadas-advantage-as-the-most-competitive-g7-country-for-new-business-inve.html\">&#8220;Government of Canada introduces new Productivity Mega Deduction to boost Canada\u2019s advantage as the most competitive G7 country for new business investment&#8221;<\/a> (September 15, 2026), online.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><a href=\"#_ftnref3\" id=\"_ftn3\">[3]<\/a> Proposed paragraph 66.2(2)(e).<\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><\/p>\n","protected":false},"excerpt":{"rendered":"<p>On September 15, 2026 (\u201cAnnouncement Day\u201d), the Canadian federal government\u2019s Department of Finance released draft legislative proposals to implement the \u201cProductivity Mega Deduction\u201d \u2014 permanent 100% first-year (\u201cimmediate\u201d) expensing for a wide range of new or used depreciable property and for Canadian development expenses (\u201cCDE\u201d) in the mining sector \u2014 together with immediate expensing and [&hellip;]<\/p>\n","protected":false},"author":122,"featured_media":35642,"parent":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[565],"insight-format":[416],"class_list":["post-56781","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-mining"],"acf":[],"yoast_head":"<!-- This site is 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