Immediate expensing turns permanent, widening eligible write-offs to two-thirds of capital assets
Ottawa will extend immediate expensing to roughly two-thirds of capital assets, up from about 15 percent, under the Productivity Mega Deduction unveiled September 15 at the first Canada Investment Summit in Toronto.
Canada's marginal effective tax rate on new business investment falls to 6.4 percent from roughly 13 percent as a result, the Prime Minister's Office said, calling the rate the lowest of any major economy and less than half the United States rate.
CBC News defines the marginal effective tax rate as a measure used to compare tax competitiveness between countries.
"The effect is straightforward. When you invest in Canada, you can deduct substantially more of that investment immediately," Prime Minister Mark Carney told the summit, according to Reuters.
Newly eligible property includes oil and gas pipelines, mining property, fibre-optic cable, software, research and development, computer equipment, aircraft and vehicles, patents, rail track, bridges, and roads.
Immediate expensing, which Ottawa is making permanent, allows the full cost of an asset to be written off in the year it becomes available for use, rather than deducted over years under the capital cost allowance system.
The Canadian Press, citing a government backgrounder, put the fiscal cost at $36bn over five years.
The Prime Minister's Office said the summit produced close to $500bn in new investment commitments.
Canada's largest banks accounted for about $325bn, including $150bn from TD Bank over five years and more than $100bn from Scotiabank.
Pension funds, insurers, and institutional investors committed nearly $100bn, comprising the $50bn Maple Fund launched by CPP Investments and Brookfield Asset Management, a $25bn increase in PSP Investments' Canadian holdings to $100bn, $10bn from the Ontario Teachers' Pension Plan by the end of 2027, and $5bn from Sun Life Financial.
All of the committed capital appears to be domestic, the Financial Post reported, with no major announcement from an international fund in attendance.
Investors from nearly 30 countries managing more than $100tn in assets attended, according to the Prime Minister's Office, following the summit's courting of global asset managers before the event.
Dilhan Pillay Sandrasegara, chief executive of Singapore's Temasek Holdings, said his fund may pursue direct Canadian investments only alongside a domestic partner.
"I don't see us competing with Canadian capital in Canada," he said at the summit, in remarks reported by the Financial Post.
BlackRock chief executive Larry Fink said his firm has historically struggled to find Canadian investment opportunities.
"I do believe what has been announced the last two days is going to be opening up the opportunities to bring forth more capital to Canada," Fink told the summit, per the Financial Post, while flagging concern about government debt levels and rising global competition for capital.
John Graham, president and chief executive of CPP Investments, told the summit the fund is not required to invest domestically and weighs Canadian opportunities against those in more than 50 countries.
The portfolio case rests on risk-adjusted returns, Graham said in his prepared remarks, and "It means Canada merits a weight heavier than market capitalization alone would suggest."
He added, "This summit is not a victory lap."
Charles St-Arnaud, chief economist at Servus Credit Union, questioned the scale of Ottawa's target in a note cited by the Financial Post.
"While $1 trillion in investment over the next five years sounds impressive, it will not be enough," he wrote, estimating $180bn to $200bn a year as the bare minimum to stop Canada falling further behind other OECD countries on capital per worker.
Royal Bank of Canada chief executive Dave McKay said a United States trade agreement remains necessary.
"We do need a trade agreement with the US because we are seeing a significant amount of investment pausing, waiting to see what the rules of the game are," he told a summit press conference, per the Financial Post.
Trade talks with Washington collapsed last month, with the United States imposing tariffs of up to 50 percent on Canadian exports and Canada retaliating in kind, Reuters reported.
The summit followed Ottawa's wider effort to reverse an outflow of roughly $1tn in Canadian capital.
