A liquid natural gas carrier ship docked at LNG Canada's export facility on Canada's Pacific coast in Kitimat, B.C. One of two new ‘super-deduction’ tax measures in the budget restores accelerated capital cost allowances for LNG equipment and buildings that expired in 2024.Jesse Winter/Reuters
Ottawa is aiming to spur hundreds of billions of dollars of new private investment with a suite of expanded tax incentives to help Canada compete with the United States, as well as new money to build large infrastructure projects.
The federal government’s signature corporate tax change announced in Tuesday’s federal budget combines old and new incentives that let businesses write off the costs of new capital investments sooner, or in some cases right away.
Those incentives are grouped together as a “productivity super-deduction.” Only two of the seven tax breaks that fall under that umbrella are new: speeding up deductions for manufacturing and processing buildings, as well as for liquefied natural gas (LNG) facilities.
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They will cost the government an estimated $1.5-billion extra over five years, on top of existing commitments to roughly $17.5-billion of previously announced tax incentives by 2030.
The largest sectoral drop in tax rates from the immediate deductions measures will be in manufacturing and processing, but the incentives also cover clean energy, productivity and research investments.
Senior business leaders have urged Ottawa to push through big changes to improve the business and investment climate in Canada. Many chief executives expected Prime Minister Mark Carney to make tax policy and regulation more predictable, drive more investment to infrastructure and housing, and deliver corporate tax relief.
But the marginal accelerated deduction measures announced Tuesday may fall short of the major tax overhaul Bay Street executives had hoped for.
“Based on the new measures announced today, it seems fairly modest,” Brian Ernewein, senior adviser at KPMG Canada, said in an interview.
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The overarching target outlined in Tuesday’s budget is to spur $500-billion of new private-sector investments over the next five years, anchored by tax measures and infrastructure projects. That puts a firm target on Mr. Carney’s prebudget pledge to “catalyze unprecedented investments in Canada.”
The budget document says that the policy changes, anchored by the expanded super-deduction, will make Canada’s investing environment “more competitive than the U.S.”
The budget does not cut the general corporate tax rate. Instead, the government is expanding measures that provide benefits only after a company has invested its capital.
Accelerated depreciation on capital investments helps businesses lower their short-term tax bill by allowing larger deductions in the early years of an asset’s life, improving cash flow.
“That’s a good idea,” Mr. Ernewein said. “The more you can target spending or tax incentives to current investment, the more efficient that will be.”
The question is whether the proposed measures are enough to redirect meaningful investment to Canada.
Ottawa estimates its tax measures will draw significant private investment that could create up to $9-billion of annual economic output over a decade, according to the budget document.
“This is an investment budget,” Finance Minister François-Philippe Champagne told reporters on Tuesday. “I have confidence that if we put the right measures in place, capital will flow.”
The first of two new “super-deduction” tax measures lets companies immediately write off the full cost of manufacturing or processing buildings, provided the facilities are used before 2030.
A second restores accelerated capital cost allowances for LNG equipment and buildings that expired in 2024. But it narrows eligibility for those enhanced allowances to low-carbon LNG facilities.
The rest of the incentives that make up the super-deduction – and the lion’s share of its tax benefits to companies – were announced in last year’s fall economic statement and budget.
Mr. Carney’s government will follow through on an enhanced first-year writeoff for most capital assets. It is also keeping an immediate, 100-per-cent writeoff on the cost of a range of equipment and assets across manufacturing, clean-energy generation, zero-emission vehicles, data network infrastructure and computers.
The budget promises $10-billion in new money for the Canada Infrastructure Bank, boosting its total funding to $45-billion. And it will expand the CIB’s mandate so that it can invest in any infrastructure projects fast-tracked through a newly established Major Projects Office, regardless of sector or asset class.
That would let the CIB invest in critical minerals, pipelines and artificial-intelligence infrastructure, on top of existing priorities such as public transit, green infrastructure and broadband.
The budget earmarks $214-million over five years for the Major Projects Office, which launched in late August to co-ordinate public- and private-sector investment. Mr. Carney announced its first five initiatives in September.
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And for the first time, the federal government said it will “consider options” for the privatization of airports, while following through on a previous plan to boost investment on airport lands.
The leaders of Canada’s major pension funds have made a years-long pitch to governments to sell airports, as well as hydroelectric and transportation assets, to private investors to attract more investment.
The budget says Minister of Artificial Intelligence and Digital Innovation Evan Solomon will enter into memoranda of understanding with promising AI infrastructure projects. But it scraps a $15-billion commitment from last year’s fall economic statement to attract Canadian pension funds to invest in AI data centres.
Ottawa’s tax-focused efforts to improve Canada’s investment climate are a direct response to aggressive policies that the U.S. has put in place.
Those included upfront deductions on machinery and equipment in the One Big Beautiful Bill Act spearheaded by U.S. President Donald Trump, and hundreds of billions of dollars of tax credits in the Inflation Reduction Act passed under former president Joe Biden.
Mr. Champagne supported the budget’s claim that Canada will soon have a more competitive investment climate than the U.S. by noting that the super-deduction tax measures will drive Canada’s marginal effective tax rate (METR) 2.4 percentage points lower, to 13.2 per cent.
The U.S. METR is 17.6 per cent and the OECD average is 17.7 per cent, according to government data.