Business Brief: The future of corporate taxation

Good morning. Last month, Prime Minister Mark Carney unveiled the biggest corporate tax change in two decades: the productivity mega deduction, which allows companies to deduct the cost of many capital investments up front. The move has corporate Canada buzzing. But there are also calls for Ottawa to go further with a comprehensive reform of the corporate tax system. More on that below.

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In the news

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Data: Investors are growing concerned about debt levels related to the AI build-out that are weighing on the shares of several companies in the sector.

Steel: Stelco owner Cleveland-Cliffs is playing a classic game of chicken with the federal government, Rita Trichur writes.

In focus

A ‘mega’ step forward, but what’s next?

Hi, I’m Mark Rendell, economics reporter for The Globe and Mail.

When my colleague James Bradshaw and I started looking at business taxation in the summer as part of a Globe series, there was a broad sense that the Carney government hadn’t taken any big swings on corporate tax competitiveness. The “productivity super-deduction” announced in last year’s budget was essentially a reheated package of measures former finance minister Chrystia Freeland announced in 2024. Despite going big on other reforms aimed at improving the country’s investment climate in the midst of a trade war, Carney and Finance Minister François-Philippe Champagne appeared to be treading cautiously when it came to taxes.

That changed last month, when Carney announced the “productivity mega deduction” in front of an audience of global financiers gathered in Toronto.

Goofy name aside, this is a major tax policy change. The new rule expands immediate expensing to around 65 per cent of capital asset classes, up from around 15 per cent under its “super” predecessor, and makes the change permanent. This will allow companies to deduct the cost of new assets up front, with the goal of boosting anemic investment in machinery, equipment and other productivity enhancing assets.

The price tag: a hefty $36-billion in foregone tax revenue over the next five years.

The mega deduction has been cheered by business groups across the country. My personal favourite accolade came from the Tourism Industry Association of Alberta, which called it a “win for ski country” for reducing the cost of snow machines and ski lifts.

But it’s also raised the question: Is that it? In their 2025 election platform, the Liberals promised a “comprehensive review of the corporate tax system.” The mega deduction is a big deal. But it ain’t comprehensive tax reform.

The biggest criticism you hear about the mega deduction is that it does nothing to address the many distortions in the tax system that make it more attractive to invest in some industries over others – a recipe for capital misallocation, and ultimately weaker economic growth and productivity. You’re better off, the argument goes, to cut the headline corporate tax rate, which applies to all corporate income equally, regardless of industry or how an investment was funded.

Not so fast, others say. A cut to the headline corporate tax rate is an awfully expensive way to encourage investment, as it applies to all income even if it’s earned from assets installed years ago. By contrast, with immediate expensing rules, like the mega deduction, a company only gets a tax break if it puts new money to work.

While economists debate the pros and cons of different corporate tax systems, tax lawyers and accountants are looking for tweaks that could reduce nuisances for businesses and improve how the Canada Revenue Agency applies the rules. We heard a lot of different ideas – from minor changes, like streamlining the system for claiming investment tax credits, to major politically fraught moves, like scrapping the small business deduction.

It’s clear that there’s a desire in the business community for Ottawa to make a bigger push on tax reform, and many think there’s a window of opportunity, with Canadians seeming to rally around Carney’s more pro-business agenda. That said, I’m not sure I’d bet on a new Royal Commission on Taxation.

As Champagne told one of my Ottawa colleagues over the summer: “Come to me with practical examples … I know what the issues are. I’m a man of action.”

Ultimately, the key question is how much political capital Carney and Champagne want to spend wrangling with an unwieldy tax system and fighting with various interest groups. That will determine whether the mega deduction is the start line for corporate tax reform, or the finish.

Charted

International student enrolment at universities in Atlantic Canada has plunged at a steeper rate than Ottawa intended when it began to cap study permits. East Coast schools that used to rely on this as a tuition source continue to struggle, new data show.

Quoted

The Canadian market share of U.S.-made vehicles fell by 20 per cent in the first half of 2026 from a year earlier, as the trade war pushed automakers to shift supply lines or halt exports, Eric Atkins reports.

Up next

More files we’re following

Energy: Ottawa is committing $100-million toward development of a Nova Scotia offshore wind project with the potential to power homes and businesses in nearby Quebec, Ontario and New England.

Reporting: We expect the release of Canadian housing starts data for September, along with earnings from The Travelers Companies and Truist Financial Corp.

Morning update

Global markets steadied after heavy selling in the previous session when investors dumped tech shares as questions about cloud ​company CoreWeave’s debt pile fuelled worries about the financing driving the ‌AI boom.

Wall Street futures were mixed with the Nasdaq lower, while TSX futures pointed higher.

Overseas, the pan-European STOXX 600 was up 0.47 per cent in morning trading. Britain’s FTSE 100 edged up 0.04 per cent, Germany’s DAX rose 0.85 per cent and France’s CAC 40 advanced 0.16 per cent.

In Asia, Japan’s Nikkei closed 1.39 per cent higher, while Hong Kong’s Hang Seng rose 0.52 per cent.

The Canadian dollar traded at 70.67 U.S. cents.