Prime Minister Mark Carney, left, and Finance Minister Francois-Philippe present Budget 2026 on Parliament Hill in Ottawa Thursday. (Dave Chan/AFP via Getty Images)
Prime Minister Mark Carney’s second budget is promising a suite of tax breaks and investment incentives that it hopes will kickstart an “investment supercycle” in Canada as part of the country’s plans to strengthen productivity, support economic growth and boost economic sovereignty amidst the trade war with the United States.
The supercycle is one of three main pillars of Budget 2026, which was tabled late Thursday afternoon.
“We’ll see the benefit of that in the months to come, and certainly for a long time,” Finance Minister François-Philippe Champagne said at a news conference before the budget was tabled.
Budget items of interest to the business community included more details on the productivity mega deduction, which will allow businesses to immediately write off the full cost of eligible capital assets on a permanent basis.
The tax break cuts Canada’s marginal effective tax rate on new business investment from 13 per cent to 6.4 per cent, which the federal government claims will make Canada more tax competitive than the U.S.
Eligible assets include refrigerators, overhead bridge cranes, hotel beds and other furniture, medical imaging equipment and aircraft, among others.
All told, the deduction will cost around $36 billion over the next five years, with around $2 billion earmarked for the 2026-2027 fiscal year and $8.87 billion for the 2027-2028 fiscal year.
Andrew Hencic, a senior economist with TD Economics, said the tax break is designed to make investment more attractive. If companies have the confidence to invest, workers could have more tools to work with, which could improve productivity through capital deepening.
The deduction could also potentially lift real gross domestic product growth by 0.3 per cent to 0.8 per cent during the uptake period.
“There is certainly some upside here to growth if there’s uptake on this, not just in the coming years but longer term if we get that capital deepening,” he said in an interview.
“The key thing to remember is it’ll rely on businesses having the confidence to make the investments and to take advantage of the tax deduction.”
The budget also introduced the development of a Canada Growth Incentive capital gains exemption which would allow a qualifying individual to claim a tax exemption on capital gains from the sale or transfer of certain shares from qualifying corporations of up to $15 million.
For example, a founder with a $15 million capital gain would retain nearly 96 per cent of the value when they exit, according to Budget 2026 documents.
The incentive will provide around $715 million in tax relief over four years, starting in the 2027-2028 fiscal year.
Officials said the incentive, when combined with the productivity mega deduction, would mean that it would be more attractive to entrepreneurs to start a company in Canada, and their employees would also see some benefits by accepting equity as part of their compensation. The investor will also get a larger potential after-tax return for backing a Canadian start up.
“(The federal government) wants companies to grow from being small to medium-sized to large in Canada. We have a lot of small companies in Canada, and oftentimes they aren’t necessarily scaling, becoming more productive and generating the benefits here,” Hencic said.
“The incentive is such that keeping a company in Canada, scaling here, becomes a little bit more attractive to business people and now to some of their employees.”
Budget 2026 also promised to invest $181.4 million over four years to expand Invest in Canada, the federal agency that works to attract global investment to Canada, to expand its presence in “key global markets” to bring in capital from major investors and multinational corporations and to deliver future investment summits.
The goal is to turn these new investments into thousands of new jobs for skilled Canadian workers, and to build a stronger, more independent Canadian economy.
The announcement came after Carney hosted the inaugural Canada Investment Summit in September, which welcomed hundreds of foreign investors from 30 different countries with nearly $100 trillion in assets.
Notably missing from the budget, however, was a detailed breakdown on how the federal government plans to support small- and medium-sized businesses that have been affected by the U.S. tariffs.
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The federal government said it would “provide flexibility for regional development agencies to tailor support for small businesses and organizations across Canada,” but didn’t expand beyond that.
U.S. President Donald Trump implemented Section 338 tariffs in late August after trade talks with Canada broke down, which imposed 50 per cent levies on $27.6-billion worth of Canadian goods including auto, dairy and alcohol.
The Canadian Federation of Independent Businesses previously said current federal support programs for businesses affected by tariffs are largely failing small and medium-sized businesses because of high revenue thresholds, a cumbersome application process and high debt loads.
“There isn’t a lot of information in (the budget) about how those the supports are going to work, and certainly they’re not giving what small businesses have asked for,” Askari said.
“Small businesses are not part of the (federal government’s) priorities. At least it doesn’t look like it.”