What the Productivity Mega Deduction changes in an asset sale
A buyer of your equipment can now write off what it paid in the first year. The split of the price between equipment and goodwill becomes a harder negotiation, and it belongs in the letter of intent.
Under the Productivity Mega Deduction proposed on September 15, 2026, an arm’s length buyer in an asset sale can deduct the full price allocated to equipment in the first year. Goodwill and buildings are excluded. The seller’s corporation pays full income tax on recapture, so the split of the price becomes a harder negotiation.
Why buyers already preferred assets
When a buyer purchases the shares of your corporation, the corporation keeps the tax values it already had. Equipment you wrote down years ago leaves the new owner very little to deduct.
When the buyer purchases the assets instead, each one comes in at the price paid for it, and the buyer deducts that price against future profit. That fresh deduction is the main reason buyers push for an asset sale over a share sale.
What the Mega Deduction adds
Until now the fresh deduction arrived slowly: part of an asset’s cost in the first year and the rest over the years that followed. Under the draft rules Finance Canada released on September 15, 2026, most depreciable property acquired from that day can be written off in full in the year it becomes available for use. The explainer on the Productivity Mega Deduction lists which assets qualify.
Used property counts on two conditions. The buyer, and anyone the buyer deals with at less than arm’s length, such as a related company, must be owning it for the first time. It must also arrive by an ordinary purchase, since a tax deferred rollover is excluded. An unrelated buyer taking over your fleet and your machines meets both, and so does one buying the lifts in an auto repair shop or the kitchen of a restaurant.
The total deduction over the life of the assets is the same. What changes is when it arrives. For a buyer who has just borrowed to close, a smaller tax bill in the first year is worth more than the same saving spread over a decade. The rates by industry show the gain is largest where businesses spend most on equipment and vehicles, as in trucking and farming.
Each part of the price, taxed two ways
An asset sale price is split across what is being sold, and each part is treated differently on each side of the table. The seller’s column is tax in your corporation, before any money reaches you. The second layer, paid when the money leaves the corporation, is in the overview of tax on a business sale.
| Part of the price | Buyer deducts | Seller is taxed on |
|---|---|---|
| Equipment, machinery, computers, software | The full amount in the first year | Recapture as income, up to original cost |
| Work trucks and trailers | The full amount in the first year; used passenger vehicles are excluded | Recapture as income, up to original cost |
| Buildings | A small share each year, as before | Recapture, then a capital gain above cost |
| Goodwill and customer lists | A small share each year, as before | Mostly a capital gain |
| Inventory | Its cost, as it is sold | Income |
| Land | Zero; its cost waits until the land is resold | A capital gain |
Recapture is the part of the price that reverses deductions your corporation already claimed. It is taxed in full as income. On a capital gain, only half is taxable.
Where the two sides pull harder
The buyer wants as much of the price as possible on equipment, which is now deductible at once. You want as much as possible on goodwill, taxed mainly as a capital gain, and as little as possible on equipment.
On equipment, every dollar above its undepreciated capital cost, the tax value left after past deductions, is taxed as income up to what the equipment originally cost.
That tension existed before September 15. The Mega Deduction makes each dollar on equipment worth more to the buyer, so the buyer now has more reason to argue for it.
The split has to be reasonable. The Canada Revenue Agency can revisit an allocation that strays from what the assets are worth, and an independent appraisal of the equipment is the usual anchor for the number.
A worked example
The figures here are an illustration. Take a $2 million asset sale where $600,000 of the price is agreed for equipment and $1.4 million for goodwill. The buyer is a corporation paying about 27 percent, the combined federal and British Columbia general rate.
Under the draft rules the buyer deducts the full $600,000 in the first year and pays roughly $160,000 less tax that year. Before, the same equipment would have produced only part of that deduction in year one.
On your side, say the equipment originally cost more than $600,000 and has an undepreciated capital cost of $100,000. Your corporation reports $500,000 of recapture as income. Every $100,000 the buyer moves from goodwill to equipment turns $50,000 of taxable capital gain into $100,000 of taxable income.
In a share sale, the old tax values carry over
In a share sale the buyer acquires the corporation, which keeps its equipment at the old tax values. The Mega Deduction reaches only property the buyer itself acquires, so a share purchase leaves the buyer with the deductions the corporation already had.
The gap between buying your shares and buying your assets is now wider for a buyer, and a buyer asked for a share sale will price that gap.
Your side of the comparison is where it was. A share sale of qualifying shares keeps the lifetime capital gains exemption, $1,275,000 in 2026, available to you. The exemption belongs to individuals selling shares, and in an asset sale the seller is your corporation.
The deduction also stops at family. If the business passes to your children’s corporation, the route covered in selling a business to your children, or to any company you deal with at less than arm’s length, the equipment was owned by a related person and is excluded.
What to do with this
- Ask your accountant for the original cost and the undepreciated capital cost of your equipment, class by class, before any buyer asks. Those two figures tell you what each dollar allocated to equipment costs you.
- Settle the allocation in the letter of intent. Left to the purchase agreement, it is negotiated after exclusivity, when this buyer is the only one still negotiating.
- Compare offers after tax, with the allocation written in. Two asset offers at the same price can leave you with different amounts, which is what comparing an offer is for.
- If a buyer offers more for assets than for shares, weigh the extra against what the structure costs you in tax. The Mega Deduction gives buyers more room to pay it.
Questions owners ask
- Does the Productivity Mega Deduction apply to used equipment bought in an asset purchase?
- Under the draft rules it applies when the buyer, and anyone the buyer deals with at less than arm’s length, is owning the equipment for the first time and it arrives by an ordinary purchase, since a tax deferred rollover is excluded. An unrelated buyer purchasing a business’s equipment meets both conditions. A buyer related to the seller is excluded.
- Does the Productivity Mega Deduction apply to goodwill?
- Goodwill and customer lists in capital cost allowance class 14.1 are excluded, along with franchises and licences in class 14 and buildings in classes 1 and 3. A buyer continues to deduct those over time.
- How is recapture taxed when a business sells its equipment?
- Recapture is taxed in full as income of the corporation. It is the part of the price that reverses capital cost allowance already claimed, and it applies up to the equipment’s original cost. Proceeds above original cost are a capital gain, of which half is taxable.