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How to Navigate Canada’s New 100% First-Year Expensing for Manufacturing Buildings
A major shift in Canada’s tax code now allows for immediate expensing of eligible manufacturing & processing buildings acquired after November 4, 2025. Here’s how businesses can benefit and what to watch out for.
By NomadicTax Research Team • 5-8 min read • April 15, 2026
## 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](https://www.canada.ca/content/dam/fin/publications/taxexp-depfisc/2026/taxexp-depfisc-26-eng.pdf?utm_source=openai))
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](https://www.canada.ca/en/revenue-agency/services/tax/businesses/topics/corporations/whats-new-corporations.html?utm_source=openai))
## 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](https://www.canada.ca/content/dam/fin/publications/taxexp-depfisc/2026/taxexp-depfisc-26-eng.pdf?utm_source=openai)) |
| First used in **2030–2031** | **75%** rate ([canada.ca](https://www.canada.ca/content/dam/fin/publications/taxexp-depfisc/2026/taxexp-depfisc-26-eng.pdf?utm_source=openai)) |
| First used in **2032–2033** | **55%** rate ([canada.ca](https://www.canada.ca/content/dam/fin/publications/taxexp-depfisc/2026/taxexp-depfisc-26-eng.pdf?utm_source=openai)) |
| First used **after 2033** | No enhanced deduction; it falls away ([canada.ca](https://www.canada.ca/content/dam/fin/publications/taxexp-depfisc/2026/taxexp-depfisc-26-eng.pdf?utm_source=openai)) |
## 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
1. **Evaluate your timeline**: If acquisition and first use can occur before 2030, accelerate decisions to lock in full benefit.
2. **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.
3. **Separate eligible expenditures**: Construction, additions, alterations that meet criteria should be tracked separately in records.
4. **Coordinate with your accountant or tax advisor** to ensure proper classification under subsection 1100 and regulations; documentation will matter.
5. **Monitor proposed legislation**: This measure is still coming via legislative proposals; watch for regulations and final rules. Consultation has been closed. ([canada.ca](https://www.canada.ca/en/department-finance/programs/consultations/2026/consultation-on-draft-legislative-proposals-to-implement-certain-tax-measures-announced-in-budget-2025-or-earlier.html?utm_source=openai))
## 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.