New tax deduction aims to encourage investment in agriculture and agribusiness

The federal government has announced changes to Canada’s business tax system that it says will make it easier for companies to invest in equipment, infrastructure and technology, including the agriculture sector.

Minister of Agriculture and Agri-Food Canada (AAFC), Heath MacDonald, highlighted the new Productivity Mega Deduction while visiting Allan Equipment Manufacturing Ltd. in Charlottetown, P.E.I. on October 2.

The measure would allow businesses to immediately deduct the full cost of a much broader range of investments in the year they are purchased, rather than claiming those costs over several years through the existing capital cost allowance system.

The federal government says the change expands the share of business assets eligible for immediate expensing from roughly 15 per cent to more than 65 per cent.

Assets eligible or the deduction would include farm-related investments such as machinery, greenhouses, software, and research and development. Other eligible assets include computer equipment, patents, vehicles, fibre-optic infrastructure and transportation-related projects.

The government is also making immediate expensing a permanent part of the tax system, a move intended to provide businesses with more certainty when making long-term investment decisions.

For agriculture, the changes could affect a range of operations, from farms purchasing equipment to agribusinesses investing in processing facilities, technology, or infrastructure upgrades.

Minister MacDonald said agriculture remains well-positioned for future growth and noted the importance of continued investment throughout the sector.

“From farming and farm equipment to food processing and ag-tech, we are turning these strengths into a competitive edge,” he said.

Finance Minister François-Philippe Champagne described the Productivity Mega Deduction as one of the largest changes to Canada’s business tax system in decades, aimed at encouraging businesses to expand and invest in new projects.

According to the federal government, the tax changes would lower the marginal effective tax rate on new business investment from around 13 per cent to 6.4 per cent.

The announcement is part of a broader federal strategy to encourage private sector investment. The government estimates that approximately $280 billion in public capital investments and incentives over the next five years could help support more than $1 trillion in investment from public, private, and institutional partners.