If enacted, the Productivity Mega Deduction could materially improve the after-tax economics of developing and expanding mines in Canada. By allowing qualifying Canadian development expenses, including certain mine development expenditures, and a broad range of depreciable capital property to be deducted immediately, the proposal could help attract new mining investment and allow companies already operating in Canada to realize earlier tax benefits. The federal government has released draft legislation, but the measures are not yet law.
What Has Been Proposed
Announced at the Canada Investment Summit in Toronto on September 15, 2026, the Productivity Mega Deduction would substantially expand Canada’s immediate-expensing regime. According to the Department of Finance, approximately two-thirds of investment in capital assets would be eligible for immediate expensing, compared with about 15% under Budget 2025. The Department also estimates that Canada’s marginal effective tax rate on new business investment would decline from approximately 13% to 6.4%.
- A broad range of depreciable capital property acquired on or after September 15, 2026, may qualify, together with Canadian development expenses incurred on or after that date.
- For eligible property, the deduction would generally be available in the taxation year in which the property becomes available for use.
- Property that does not qualify for immediate expensing would generally continue to receive an enhanced first-year deduction under the Accelerated Investment Incentive, subject to the applicable rules.
The federal backgrounder identifies important qualifications, including exclusions for certain buildings, intangible property, specified vehicles, regulated natural gas distribution pipelines, and property depreciated under Schedules V and VI of the Income Tax Regulations. Restrictions may also apply to used property and to certain non-arm’s-length and rollover acquisitions. Eligibility should therefore be assessed against the draft legislation and the facts of each investment.
Why it Matters for Mining
For a billion-dollar mine construction project, the ability to accelerate significant tax deductions can materially affect financing requirements and project valuation, particularly during periods of elevated capital costs and interest rates.
For many mining projects, the proposal could materially accelerate deductions associated with mine development and construction. Many mining assets, including property included in CCA Classes 41 and 41.2, may be eligible for immediate expensing once available for use, subject to the applicable exclusions and restrictions. Depending on their classification, these assets may include certain mine structures, mills, machinery and processing equipment. Qualifying Canadian development expenses (CDE), including certain pre-production mine development expenditures, may also be fully deductible in the taxation year in which they are incurred, subject to the applicable restrictions.
The proposal generally accelerates the timing of deductions rather than increasing their total amount. Earlier deductions may improve after-tax net present value (NPV) and internal rate of return (IRR), and shorten after-tax payback periods, without changing pre-tax project economics. The actual benefit will depend on factors such as the taxpayer’s income profile, ownership and financing structure, and available tax attributes. For a pre-revenue company, some or all of the benefit may be deferred until deductions can be used.
Questions for Boards and Management Teams
- How would the proposals affect the project’s after-tax NPV, IRR, payback period and financing model?
- Which planned expenditures may qualify, and when is the relevant property expected to become available for use?
- Could the restrictions affect any used-property acquisitions, related-party transfers, partnership arrangements or rollovers?
- Should development schedules, procurement plans, flow-through financings or transaction models be revisited?
- Should technical reports, forecasts or public disclosure be reviewed to address the proposals and the risk that they may be amended or not enacted?
The Broader Investment Agenda
Federal materials describe the Summit as part of a broader plan to catalyze $1 trillion of investment over five years. They also indicate that the Major Projects Office is advancing 27 nation-building initiatives with a combined value of more than $192 billion.
Permitting remains critical: the proposal would not alter environmental assessment, regulatory approval or Indigenous consultation requirements. Those processes, together with financing and commercial arrangements, will continue to shape project timelines. Provincial income tax and mining tax treatment must also be modelled separately. Differences between the federal proposal and applicable provincial rules could materially affect the timing and value of the overall tax benefit.
Next Steps
Mining companies should assess the draft rules in their project models, identify potentially eligible expenditures, preserve appropriate flexibility in project and transaction documents, and monitor the legislation through enactment. Decisions about the timing of expenditures should be based on project-specific legal, tax, and commercial advice. This bulletin provides general information only and does not constitute legal or tax advice.
How Fasken Can Help
Fasken’s Mining & Natural Resources Group brings together lawyers across tax, Indigenous, environmental, project finance, and capital markets to provide integrated advice throughout the mining project lifecycle. We can help mining companies, investors, lenders, and sponsors identify how the proposals may affect project and financing models, assess implications for acquisitions and development plans, and navigate the related permitting, consultation, financing, and disclosure considerations.
