Accelerated capital cost allowance and immediate expensing measures

Budget 2025 announced the Government’s intention to move forward with accelerated capital cost allowance (CCA) and immediate expensing measures introduced in Budget 2024 and the 2024 Fall Economic Statement (FES). Budget 2025 also introduced new accelerated CCA and immediate expensing measures.[^1] This note provides a cost estimate of the following:

• Measure 1 (Budget 2024): Introducing immediate expensing for productivity-enhancing assets[^2] acquired on or after April 16, 2024, and that become available for use before January 1, 2027. Property that becomes available for use after 2026 and before 2034 would benefit from the accelerated investment incentive (AII).

• Measure 2 (FES 2024): Reinstating the AII and the immediate expensing for eligible property acquired on or after January 1, 2025, and that becomes available for use before 2030. The AII and immediate expensing measures would be phased out over a four-year period starting in 2030.

  • The AII provides an enhanced first-year CCA for most depreciable capital property (except generally long-lived capital assets).

  • The immediate expensing allows businesses to write off the full cost of manufacturing and processing machinery and equipment, clean energy generation and energy conservation equipment, and zero-emission vehicles (ZEV).

• Measure 3 (Budget 2025): Introducing immediate expensing for manufacturing or processing buildings acquired on or after November 4, 2025, and that become available for use before 2030. This measure would be phased out over a four-year period starting in 2030.

• Measure 4 (Budget 2025): Reinstating the accelerated CCA for low carbon liquefied natural gas (LNG) equipment and related buildings expired at the end of 2024 and introducing new emissions performance requirements. To be eligible, property need to be acquired on or after November 4, 2025, and before 2035.

The accelerated CCA and immediate expensing measures permit faster depreciation of eligible property while leaving the total amount of CCA deductible over the asset’s lifespan unchanged. Accordingly, these measures are best characterized as a revenue deferral rather than a permanent reduction in revenue.

PBO estimates the total cost of the four measures to be $19.4 billion over five years, beginning in 2025-26.

• Measure 1 refers to the introduction of immediate expensing for productivity-enhancing assets. Measure 2 refers to the reinstatement of the AII and the immediate expensing. Measure 3 refers to the introduction of the immediate expensing for manufacturing or processing buildings. Measures 4 refers to the reinstatement of the accelerated CCA for low carbon LNG equipment and related buildings.

• Estimates are presented on an accrual basis as would appear in the budget and public accounts.

• A positive number implies a deterioration in the budgetary balance (lower revenues or higher spending). A negative number implies an improvement in the budgetary balance (higher revenues or lower spending).

• Totals may not add due to rounding.

Using administrative data from T2 corporation tax returns for reference years 2009 to 2014,[^3] we performed two microsimulations of federal tax payable by Canadian businesses.[^4] The first simulation was conducted under the tax legislation in effect since the 2018 Fall Economic Statement, which serves as the baseline for this cost estimate.[^5] The second simulation assumes that measures 1 to 4 come into force on March 1, 2026. The difference between these two simulations represents the estimated cost of the four measures.[^6]

Given the limited number of ZEV acquisitions between 2009 and 2014, we estimated their value using capital-assets acquisitions in CCA classes 10, 10.1, 16, 54, 55 and 56 and Transport Canada historical data on new motor-vehicle registrations. The distribution of new acquisitions by businesses between 2009 and 2014 was adjusted to reflect their distribution over the most recent years (2022 to 2024).

Microsimulation results were scaled up to the 2025-26 to 2029-30 fiscal years using PBO projections for investment in non-residential construction, machinery and equipment, and intellectual property products.

Increasing CCA deductions reduces taxable income and may result in non‑capital losses for certain businesses. These losses can be carried back three years or carried forward twenty years. Using T2 corporate tax data and estimates from the February 2023 PBO report, Corporate loss utilization, we estimated the amount of non-capital losses generated by the increase in CCA that would be applied against past or future taxable income, thereby reducing federal tax revenue. This cost was added to the total cost of the measures.

The historical and current distribution of capital-asset acquisitions may not reflect future investment patterns. To project the cost of the measures, we relied on PBO forecasts of gross fixed capital formation, which depend on an uncertain economic outlook, including the dampening effects of U.S. tariffs on investment. Behavioural impacts were not incorporated into this cost estimate.