EXCLUSIVE: Federal budget to include plan for businesses to write off capital costs more aggressively: sources

OTTAWA — The upcoming federal budget will feature a broad new strategy to boost the performance of Canadian business, including measures to allow companies to write off their new machinery and other capital costs more aggressively, National Post has learned.

Government sources confirmed that the budget, to be unveiled next week, will take aim at Canada’s lagging productivity and competitiveness, while reducing the risk and uncertainty of corporate investment.

The new strategy, largely a response to Canada’s tariff battles with the United States and China, will include changes to the provisions for capital cost allowance (CCA). The CCA changes will allow businesses to be more aggressive in accounting for the depreciation of capital costs, such as the purchases of buildings, machinery, vehicles and other equipment.

Capital expenses affect many businesses and the budget changes will allow them to lower their costs and to improve competitiveness against foreign rivals, making Canada a better place to invest.

“A lot of what you’ll see in the budget speaks to that imperative,” a government source said. “You want to make Canada a destination for investment.”

The risk profile of many types of Canadian investments has changed since U.S. President Donald Trump launched a tariff war earlier this year against Canada and many other countries. Canada is also facing export tariffs from China and a slowing global economy.

Canadian business has been under even more competitive pressure since Trump’s so-called “one big, beautiful bill” introduced a number of provisions to reduce the costs of U.S. companies. Those changes included an “immediate expensing” provision that allows some capital investments to be depreciated immediately, instead of over a number of years.

Dan Kelly, the chief executive officer of the Canadian Federation of Independent Business (CFIB), said improving business productivity through accounting changes is important because it helps companies of all sizes in virtually all sectors without picking winners.

It’s also efficient, Kelly said, because it doesn’t add to the size of government. “It’s exactly what the doctor ordered.”

The federal budget’s efforts to reduce investment risk and improve competitiveness also marks another stark contrast between the Carney government and that of his predecessor, Justin Trudeau, who was widely viewed as unfriendly to Canadian business.

In the wake of the Trump tariffs, Carney’s responses have also included emphasizing trade diversification, using public procurement of housing, defence hardware and other purchases to buy Canadian, tax cuts, and major infrastructure projects designed to help Canadian companies export.

In what was billed as a pre-budget speech, Carney told a University of Ottawa audience last week that the government’s budget strategy will be “to catalyze unprecedented investments in Canada” over the next five years.

Canada’s “economic strategy needs to change dramatically” because the U.S. has changed its trade policies, he said, while adding that the government will make “generational investments” with the goal of building a stronger economy.

“Now is not the time to be cautious because fortune favours the bold.”

Tim Sargent, head of domestic policy at the Macdonald-Laurier Institute think tank and a former high-ranking executive at the Department of Finance, said he suspects the government’s budget efforts to improve productivity through business accounting changes would include suspending scheduled changes to the Accelerated Investment Incentive (AII). Those scheduled changes, announced in 2018, would make Canadian businesses’ purchases of machinery, property and other capital goods more expensive because they wouldn’t be eligible to be written off as aggressively.

The upcoming budget, to be unveiled on Nov. 4, is expected to be one of the most important in recent decades. Carney’s emphasis on bold strategies and his lengthy list of priorities suggest that the government will make a series of expensive, long-term investments designed to set the Canadian economy up for future growth. The budget is also expected to forecast one of the largest deficits in Canadian history.

This budget will also be politically important beyond the fact that it will set out the government’s plans for what’s left of this fiscal year. The governing Liberals are three seats short of the 172 needed to form a majority. That means the government’s budget bill will need either support from three opposition MPs, or for at least five MPs to abstain.

If neither of those things happen, the bill would fall, likely prompting another federal election. Budget bills are considered matters of confidence, which means that the government has lost Parliament’s confidence if they are not passed.

Government House Leader Steven MacKinnon has confirmed that the Carney government would fall if the budget bill is not passed.

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