By Evelyn Jacks
In September, the Federal government has unveiled a Productivity Mega Deduction, which will provide immediate expensing under Capital Cost Allowance (CCA) provisions for a broad range of depreciable property acquired by businesses of all sorts. Importantly this is a permanent deduction, for acquisitions on or after September 15, 2026.
While a good start in addressing tax reforms to our very complex system, much more needs to be done, especially for small business owners and average taxpayers. The goal: to make Canada truly competitive across our tax base.
The backdrop. Canada’s Prime Minister has called the times we are in a “global rupture”. That’s scary for everyone, given the wars being waged today, using new weapons that include economy-punishing tariffs. That’s exactly why now is the right time for a significant personal and corporate tax reform to catalyze earnings and spending in Main Street Canada.
The Productivity Mega Deduction is not for everyone. The new PMD will allow for immediate expensing of assets acquired for use in business. That is, taxpayers who invest in eligible property will be able to fully deduct the costs in the year that the property becomes “available for use”.
But there are complicated restrictions especially for the one asset most small business owners acquire in business: their vehicles. To claim the new Mega Deduction, these can’t be used for any purpose before being acquired by the taxpayer. In addition, they cannot be assembled in a country other than Canada.
Specific rules will also restrict individuals, and partnerships with members who are individuals, to create or increase a loss using their Mega deduction.
Like other eligible properties, the following conditions must also be met:
• neither the taxpayer nor a related party can previously have owned the property; and
• the property cannot be transferred to the taxpayer on a tax-deferred “rollover” basis.
So, for individuals and small business owners, a great deal of complexity has again snuck into the Income Tax Act with the Productivity Mega Deduction.
The case for lower taxes. Lost in the announcements to date is meaningful help for the backbone of Canada’s economy. That’s the small business owner and the individual taxpayers transacting in it, who need a cash flow break, now.
Governments can help with as big and bold an initiative as the Productivity Mega Deduction: bring on a significant personal and corporate tax reform in the upcoming fall federal budget that reduces personal and corporate taxes before the end of the year.
High taxes make Canada a less attractive place to work and do business in, even with plenty of new capital investments. We can change that with a real commitment to recreate the ideals of a new tax system for a new economy: fairness, equity, simplicity and compliance all on the table for dissection and introspection.
When tax rates drop, cash flow increases for the consumer spending, so vitally needed by Canadian small businesses challenged to survive the trade war, pay off the debt they are challenged with, increase their margins for reinvestment and hire more staff, too.
Lower personal taxes can increase labor force productivity: people will want to work more hours or strive higher for the next promotion. That helps small businesses grow and encourages new entrepreneurship ventures, too.
Tax reform will also be very important for the average investor as well. More money in the pocket every two weeks, means more savings in RRSPs, TFSAs and other important tax-preferred investments that help Canadians position themselves for a prosperous and independent retirement. It’s important to give that investor a direct opportunity to invest in the new economy in Canada.
Pivot for prosperity – for all. One can’t avoid the messaging of the economic pain to come from the changing global trade rules. Mark Carney announced early this month that Canada needs to “pivot and prosper” in order to emerge “stronger and more resilient”.
We’ve had a good start with this new direction in corporate tax reform: bring on the Productivity Mega Deduction! It has the potential to make Canada a tax haven of sorts to attract new business investment both from within Canada and from afar. This in turn can create better jobs for those who may be laid off because of the tariff wars.
Together with announcements at the Canada Investment Summit, we are indeed focused on “what we can control” as we seek over $1 trillion in investment in Canada over the next five years. That’s putting Canada on the global map in a significant way and that’s good news.
As important however, is how the integration of the personal, corporate, trust and cross-border tax systems can catalyze the powerful potential of the backbone of the Canadian economy: the millions of small business owners and the people they employ. Putting money back into their pockets by reducing tax burdens can amplify the goal of strength and resilience!
Further, our tax system has become too complicated for taxpayers, their advisors and even the CRA. The technology driving the relationships taxpayers have with their tax department is also unwieldly, resulting in unacceptable processing delays. Sure to improve over time, this all contributes to economic pain felt by millions of hardworking people simply trying to comply.
It’s time to change that in this fall’s federal budget: Canada’s personal tax system urgently needs an overhaul to help the average taxpayer pivot and prosper, too. Afterall, they bear the responsibility and the burden of proof for the federal government’s largest revenue line item.
Evelyn Jacks is a best-selling Canadian financial author and podcaster. Listen to Real Tax News with Evelyn Jacks and Friends to understand your tax system better. Go to podcast.knowledgebureaureport.com