Business Tax

Immediate Expensing for Manufacturing Buildings

By May 19, 2026 No Comments
immediate expensing manufacturing buildings Canadaimmediate expensing manufacturing buildings Canada
This article is for informational purposes only and does not constitute tax or financial advice. Consult a qualified accounting professional before making any tax or financial decisions.

Quick Answer

Possibly — but not yet with certainty, because this is a proposed measure, not enacted law. Under draft legislation released by the Department of Finance on January 29, 2026, a Canadian business may be able to deduct 100% of the cost of an eligible manufacturing or processing (M&P) building in the first year it is used, instead of writing it off slowly under the normal capital cost allowance rules. To qualify, the building generally must be acquired on or after November 4, 2025, be first used for M&P before 2030, and have at least 90% of its floor space used to manufacture or process goods for sale or lease. The full 100% rate phases down for buildings first used in 2030 and later, and a recapture rule can claw back the deduction if the building’s use changes within 10 years. Because the rules are still in draft form and the eligibility tests are strict, confirm your situation with a qualified Canadian accountant before relying on this deduction.

— Why Ontario Manufacturers Are Suddenly Asking About This

If you run a manufacturing or processing business, you may have heard that you can deduct the entire cost of a new factory building in a single year. One client put it plainly — “Can I really write off my whole new plant this year, or is that just talk?”

The honest answer: the federal government has proposed exactly that for eligible manufacturing buildings, but it is still a proposal with strict conditions. This guide covers what it does, who it is for, the tests that trip people up, and what to do now. For the bigger picture, see our overview of what Budget 2025 means for Canadian businesses.

100%First-year deduction if first used before 2030
90%Minimum floor space used for M&P
Nov 4, 2025Earliest eligible acquisition date
10 yrsRecapture monitoring window

— What “Immediate Expensing” Actually Means (In Plain English)

Immediate expensing means deducting the full cost of an eligible asset in the year it is first used, rather than spreading the deduction over many years. For manufacturing buildings, the proposed rule would allow a 100% first-year capital cost allowance deduction instead of the normal slow write-off.

Normally the Income Tax Act does not let you deduct a building’s full cost right away. You claim it gradually through capital cost allowance (CCA) — the tax system’s version of depreciation, deducting a set percentage of the remaining value each year. Most buildings sit in CCA Class 1 at 4% per year on a declining-balance basis; manufacturing buildings can reach 10% with a separate-class election, but fully deducting the cost still takes decades.

The proposed measure changes that for eligible manufacturing or processing (M&P) buildings — structures used to make or process goods for sale or lease. It would allow an immediate 100% first-year deduction and waive the usual “half-year rule” that limits a first-year claim. Ottawa brands this and related changes the “Productivity Super-Deduction.” It helps to know how Canadian corporate tax rates work to see how a large deduction affects your bill.

— Is This Actually Law Yet? The Honest Status

As of May 2026, immediate expensing for M&P buildings is proposed, not enacted. The Department of Finance released draft legislation on January 29, 2026 for public consultation. It was not included in Bill C-15, and the government has since confirmed its intention to proceed, but the rules could still change before they become law.

This matters for real decisions. The draft legislation went through a consultation period that closed in February 2026, and the measure was deliberately separated from Bill C-15, the bill that implemented many other Budget 2025 changes (including immediate expensing for manufacturing equipment). The government’s 2026 federal economic update reaffirmed its intention to proceed, but until a bill passes, the details are not final.

What this means for you: plan around the proposal, but do not treat the deduction as guaranteed when making an irreversible decision. Tracking this is the kind of thing in our roundup of what small businesses should watch in 2026.

— Quick Start: Pick Your Path

Not every business is in scope. Use this quick check to see where you likely stand:

Incorporated manufacturer
Owns and uses its building in an active business — you are the core audience; read every section carefully.
Sole proprietor / unincorporated
Eligibility and mechanics differ because the measure works through the CCA system and the separate-class election. See our guide on incorporated versus sole proprietor structures.
Holding company
Leases the building to an operating company — confirm the structure, because who claims the deduction and how the building is used both matter.
Buying land + building together
The cost must be reasonably split, since only the building portion can qualify — land never gets CCA.

A building that is mostly offices, retail, or warehousing likely fails the manufacturing-use tests, so immediate expensing generally would not apply.

ClearWealth Accounting Advisors
Five Conditions an M&P Building Generally Must Meet
Self-screen before calling an advisor — proposed rules, not yet enacted
Condition What it requires Common fail
Acquisition date Building acquired on or after November 4, 2025 Bought or contracted before Budget Day 2025
First use timing First used for M&P before 2030 for the full 100% rate Construction runs past 2029, triggering the phase-out
90% floor-space test At least 90% of floor space used to make or process goods for sale or lease Too much office, retail, or finished-goods storage space
Ownership & use Owned and used by the claiming corporation in an active business Held passively or in a structure that breaks the test
Property history Not previously owned by you or a non-arm’s-length person; not a tax-deferred rollover Acquired from a related party or via a rollover
Source: Department of Finance Canada, draft legislative proposals (Jan 29, 2026). Proposed measure, not enacted law — conditions may change. ClearWealth Accounting Advisors · clearwealth.tax · For informational purposes only

— Who Qualifies: The 90% Floor-Space Test and Eligible Property

To qualify under the proposed rules, an M&P building generally must be acquired on or after November 4, 2025, be first used for manufacturing or processing before 2030, and have at least 90% of its floor space used to manufacture or process goods for sale or lease. Eligible additions and alterations can also qualify.

The conditions are specific, and missing any one can disqualify the deduction. Based on the Department of Finance draft proposals, an eligible building generally must: be acquired on or after November 4, 2025 (Budget Day); be first used for M&P before 2030 for the full 100% rate; and have at least 90% of its floor space used to manufacture or process goods for sale or lease — which is why office, retail, and storage space can be a problem.

Eligible additions or alterations can also qualify, so an expansion is not automatically excluded. Used property generally only qualifies if it was not previously owned by you or a non-arm’s-length person and was not transferred on a tax-deferred rollover basis, and it must be owned and used by the claiming corporation in an active business.

ClearWealth Accounting Advisors
First-Year CCA Rate by Year the Building Is First Used for M&P
Proposed immediate expensing for eligible manufacturing & processing buildings, with a four-year phase-out
100%
First used before 2030
0%
No enhanced rate after 2033
Source: Department of Finance Canada, draft legislative proposals (Jan 29, 2026). Proposed measure, not enacted law. ClearWealth Accounting Advisors · clearwealth.tax · For informational purposes only

The 100% rate is time-limited. It applies in full only if the building is first used for M&P before 2030, then steps down: 75% for 2030 or 2031, 55% for 2032 or 2033, and no enhanced rate after 2033. The year your building actually becomes operational — not when you start planning — determines your rate.

— Old Rules vs Proposed Rules: What Changes for Your Return

The practical difference is about timing of the deduction, not the total amount you can eventually claim.

FeatureNormal CCA (Class 1 building)Proposed immediate expensing
First-year deductionTypically 4%, or up to 10% with a separate-class election100% if first used for M&P before 2030
Half-year ruleGenerally applies, reducing the first-year claimWaived for eligible buildings
Time to fully deductOften decades on a declining-balance basisEntire cost in year one (subject to phase-out)
Total lifetime deductionFull cost of the buildingSame full cost — only the timing changes
Legislative statusLong-standing lawProposed; draft legislation as of early 2026

Illustrative example only: a corporation builds a $4 million eligible processing plant operational in 2026. Under the proposal it could deduct the full $4 million that year. A deduction that large can create a non-capital loss, generally carried back 3 years or forward 20 years against other income. Actual outcomes depend on your facts, your tax rate, and the final legislation. For Ontario rate context, see the 2026 Ontario small business tax rate.

ClearWealth Accounting Advisors
Deducting a $4M M&P Building: Normal CCA vs Proposed Immediate Expensing
Cumulative deduction over 15 years — illustrative figures only
$4.0M
Deducted in year 1 (proposed)
~$0.2M
Year 1 under normal Class 1
Source: CRA, Capital cost allowance (Class 1, 10% with separate-class election, half-year rule); Finance Canada draft legislation (Jan 29, 2026). Illustrative only. ClearWealth Accounting Advisors · clearwealth.tax · For informational purposes only

— Step-by-Step: How the Deduction Would Be Claimed

If the measure is enacted broadly as drafted, claiming it would generally look like this:

  1. 1
    Confirm M&P useConfirm the building is genuinely used for manufacturing or processing and can meet the 90% floor-space test, ideally before you finalize the design or purchase.
  2. 2
    Allocate land vs buildingReasonably allocate the purchase price between land and building if bought together, since only the building portion can qualify.
  3. 3
    Check timingConfirm the acquisition date is on or after November 4, 2025, and project when the building becomes available for use, because that year sets your rate.
  4. 4
    File the election on timeFile the required separate-class CCA election on time. The CRA generally does not accept late-filed elections, and for corporations the window is often around six months after the tax year-end.
  5. 5
    Claim on the T2Claim the deduction on the corporate T2 return for the year the building becomes available for use, prorated for a short tax year. Our guide on prorating Ontario corporate tax for a short year explains how short years affect claims.
  6. 6
    Monitor for 10 yearsMonitor the building’s use for the next 10 calendar years, because a change in use can trigger recapture.

— Common Mistakes That Could Cost You the Deduction

  • →Treating the measure as settled law. It is currently a proposal, so basing an irreversible decision on it without advice is risky.
  • →Failing the 90% floor-space test because too much of the building is used for offices, sales, or storing finished goods.
  • →Missing the separate-class election deadline. A late election generally cannot be fixed, and the deduction can be lost entirely.
  • →Mis-allocating cost between land and building. Land never qualifies for CCA, so an unreasonable split can be challenged.
  • →Ignoring the recapture window and changing the building’s use within 10 years, which can pull part of the deduction back into income.
  • →Confusing this buildings measure with the separate immediate expensing for machinery and equipment, which has different rules and was handled in Bill C-15.
  • →Assuming an expansion does not count. Eligible additions and alterations can qualify, so check rather than assume. Manufacturers often miss stacking opportunities; see our piece on stacking SR&ED incentives for manufacturers.

— Frequently Asked Questions

Can I really deduct 100% of my new factory building this year?

Possibly, if your building meets the proposed eligibility tests and the measure is enacted as drafted. The proposal allows a 100% first-year deduction for an eligible M&P building first used before 2030. As draft legislation, treat it as likely but not guaranteed.

Is this immediate expensing rule actually law yet, or could it still change?

Not yet. The Department of Finance released draft legislation on January 29, 2026 for consultation, and the government has confirmed it intends to proceed. Until a bill passes Parliament, the rules could still be adjusted.

Does a renovation or addition to my existing plant qualify, or only a brand-new building?

Eligible additions or alterations can also qualify under the proposal, not only new construction. The same acquisition-date, use, and 90% conditions generally apply, so confirm the specifics before assuming an expansion is in or out.

What happens if I stop using the building for manufacturing after I claim the deduction?

A recapture rule may apply. If more than 10% of the floor space starts being used for income-earning purposes other than manufacturing within 10 calendar years, you may have to add part of the deduction back into income that year.

What’s the difference between this and the immediate expensing for manufacturing equipment?

They are separate measures. Immediate expensing for machinery and equipment was implemented through Bill C-15; the buildings measure is a separate proposal in draft legislation. The rules and status differ, so do not assume one from the other.

What happens to the deduction if my building isn’t ready until 2030 or later?

The full 100% rate applies only if the building is first used for M&P before 2030. After that the proposed rate steps down to 75% for 2030–2031, 55% for 2032–2033, and nil after 2033.

Planning to build, buy, or expand a manufacturing facility?

A short conversation now can save a costly mistake later. ClearWealth helps Ontario manufacturers assess eligibility, time decisions, and file elections correctly. You can also explore our services.

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This article is for informational purposes only and does not constitute tax or financial advice. Tax rules, rates, and legislative proposals can change. Consult a qualified accounting professional before making any tax or financial decisions.

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