Carney government introduces mega-deduction tax measure to spur more investment in Canada

The government announced a major tax reform at the Canada Investment Summit that will allow businesses to write off investments.

The productivity mega-deduction will allow companies to expense the total cost of new investments across a number of sectors, including machinery, equipment, clean energy, zero-emission vehicles and more.

"Our goal is simple — to make Canada the most attractive place in the G7 to invest," Prime Minister Mark Carney said at the summit.

The program is an expansion of the government's earlier productivity super-deduction outlined in last year's budget, which initially extended to a limited selection of investments in things like equipment, machinery and technology. That meant only about 15 per cent of possible investments were covered initially, but the prime minister said the expansion means two-thirds of assets will now be eligible.

Carney added during a media scrum that the expansion to more sectors would give business leaders the freedom to invest wherever they saw the most value. He also saw it as one of the best ways to boost productivity — an area where the country has long lagged.

In the past, Canadian companies have been able to recoup costs over the lifetime of a project, said Randall Bartlett, deputy chief economist at Desjardins. But this program gives that money back immediately, which could free up investors to put more money into new projects.

"This is meant to provide significant incentives for companies to invest and invest very quickly," Bartlett said.

He said that makes Canada very competitive on the tax front compared to other countries. The government says the change would slash Canada's marginal effective tax rate — a measure of tax on businesses used to compare tax competitiveness between nations — from 13 per cent down to 6.4 per cent, making it the lowest of any country in the G7.

And that could be a big help especially amid the trade war, Bartlett said. It could give companies a reason to stay in Canada, rather than moving production south of the border, and help them make investments they've been holding off on due to uncertainty.

But it will also cost an estimated $36 billion over five years. Bartlett said revenue brought in from high oil prices means the extra government spending isn't too much of an issue in the short run, but the government will have to make sure it has the coffers to sustain that kind of spending long-term.

Jim Stanford, economist and director at the Centre for Future Work, says the plan isn't so new, since its an expansion of an old program.

But he says it seems like a better framework than an across-the-board corporate tax cut, which wouldn't require businesses to reinvest those savings, and may not lead to results.

"In this case ... you have to pay to play. If you're not investing in new capital in Canada, then the deduction is worthless," Stanford said.

That’s not quite the whole story, though.

You’re right; from 2015 to 2024 Canada was losing inward investment.

Two large German car manufacturers were being schmoozed by the USA for the last seven or so years, Canada too, and that pre-2025 climate was always the problem for Canada.

I’m talking about Audi and Volkswagen.

The USA literally had the best arguments. So, deals were in the works between the German companies and the USA.

Then along came Trump’s three-way tariffs against the EU, Mexico, and Canada. Trump’s favorite word, tariffs! Ignoring literally every lesson from history, about what actually happens if a country *abuses* tariffs.

Trump literally sabotaged his own stated aim of inducing said companies to grow their presence in the USA, by punishing the companies he was trying to woo.

The cost to Audi and Volkswagen of doing the deals with the USA skyrocketed, and the ambition of creating jobs and growing the market in the USA was outweighed by the risks. In effect they were going to end up millions (if not billions) out of profit UP FRONT while building the capacity in the USA, at the same time that tariffs would create inflation across the USA making high-end expensive German brand cars a lot harder to sell.

Punishing the companies that you want to invest, and creating an inflation pressure that’d suppress the buyer market, at the same time, was literally the antithesis of “art of the deal”.

A great deal is one where both sides are getting a benefit from the deal. A crap deal is where both sides end up saddled with big headaches. Trump’s tariff obsession turned a no-brainer into a turd sandwich. The only person who would’ve benefited if the deal had gone ahead would’ve been the negotiator - who could brag about how he got the signatures on paper even if everyone else thinks the deal is a total turd sandwich.

To paraphrase one commentator, the switch from USA to Canada, from the VW perspective, wasn’t even a question of diplomacy or politics, it was basic arithmetic.

Trump’s aggressive tariffs meant the math simply didn’t work in the USA’s favor. Carney, not Trump, mastered the “art of the deal” by making the math around switching to Ontario look fantastic by comparison.

So, instead of massively boosting its American production base, Volkswagen has committed $7 billion to build a massive gigafactory - an electric vehicle battery plant through its subsidiary PowerCo in St. Thomas, Ontario.

Art of the Deal. Carney’s got it, Trump’s lost it.

I guess he finds President Trump's methods very desirable way to attract business. What he's missing is that when you manufacture in Canada there is not enough market there to sell your stuff. So, you have to ship it to a country that has a way bigger market for your product. So the most obvious place to sell your product and the least expensive transportation of it out of Canada is the good ol' USA. At that point you have President Trump and his MAGA system. If your product starts an issue with manufacturers in the USA you'll find so many blockades to moving it across the border that it will no longer be a profitable venture. Your only access to other markets would be via air or ocean, much more costly than a 40' tractor trailer rig into the USA.

All that being said major manufacturing in Canada simply isn't a good way to go. You'd get the same perks from President Trump if you located in the USA. If Canada tries any tariff business on USA goods then you don't loose much of a market at all.

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