What’s Changed
Starting November 4, 2025, the Canadian government has proposed a major incentive: businesses may now immediately expense (i.e. fully deduct in the first year) eligible manufacturing or processing buildings, provided 90% or more of the floor space is used for manufacturing or processing purposes. (canada.ca) This “immediate expensing” is a significant expansion: formerly, only machinery, equipment or certain classes of clean energy property had similar enhanced first-year allowances. Now buildings themselves can potentially qualify. (canada.ca)
How the Rates Phase Down Over Time
| Time period | Rate for immediate expensing |
|---|---|
| Buildings first used for eligible purpose before 2030 | 100% deduction allowed (canada.ca) |
| First used in 2030–2031 | 75% rate (canada.ca) |
| First used in 2032–2033 | 55% rate (canada.ca) |
| First used after 2033 | No enhanced deduction; it falls away (canada.ca) |
Practical Examples
- Small manufacturer who builds a new facility acquired Dec 2025, first used for processing in 2026 → likely qualifies for 100% write-off in first taxation year. The building must satisfy floor-space test.
- Company acquiring a facility in 2031 that first qualifies then: deduction rate will be 75% rather than full 100%.
- Projects starting use after 2033: enhanced deduction won’t apply, so budget accordingly.
Actionable Steps to Take Now
- Evaluate your timeline: If acquisition and first use can occur before 2030, accelerate decisions to lock in full benefit.
- Check building design: Ensure at least 90% of floor space is or will be used for manufacturing or processing. If not, may still partially qualify or need different class.
- Separate eligible expenditures: Construction, additions, alterations that meet criteria should be tracked separately in records.
- Coordinate with your accountant or tax advisor to ensure proper classification under subsection 1100 and regulations; documentation will matter.
- Monitor proposed legislation: This measure is still coming via legislative proposals; watch for regulations and final rules. Consultation has been closed. (canada.ca)
Risks and Considerations
- If use shifts away from manufacturing/processing (below 90% test), may trigger recapture (deemed dispositions) penalties.
- Planning too late (after 2033) could reduce rate or lose incentive entirely.
- Provincial rules may differ; ensure both federal and provincial tax implications are considered.
Takeaway
This is one of the most powerful recent incentives for capital-intensive businesses in Canada. If you’re planning new infrastructure or substantial retrofits for manufacturing or processing, and you can meet the floor-space requirement, acting now gives you the maximum deduction. Even partial qualifications later still help but expect reduced benefits as the phase-down kicks in.