On Tuesday 4 November 2025, Canadian Federal Finance Minister, Francois-Philippe Champagne, delivered the Federal Budget 2025-2026 (“Budget 2025”): Building Canada Strong.
This was the first Federal Budget since Mark Carney became Prime Minister and contains announcements that could affect taxation in the Canadian Project Finance sector. Most notably, the changes to capital cost allowances (CCAs) and investment tax credits (ITCs).
Productivity Super Deduction
Budget 2025 re-confirmed the proposed introduction of a set of enhanced tax incentives covering all new capital expenditure that will allow businesses to write off the cost of investments immediately. Specifically, the measures include:-
- Reinstate the Accelerated Investment Incentive (AII) providing an enhanced first-year right-off for most capital assets;
- Immediate expensing (i.e. 100% first-year write-off) of manufacturing and processing (M&P) machinery and equipment;
- Immediate expensing of clean energy generation and energy conservation equipment, and zero-emissions vehicles;
- Immediate expensing of productivity-enhancing assets, including patents, data network infrastructure, and computers; and
- Immediate expensing of capital expenditure for scientific research and experimental development (SR&ED).
Immediate Expensing for Manufacturing and Processing Buildings and Accelerated CCAs for Low-Carbon Liquefied Natural Gas (LNG) Facilities
Budget 2025 proposes the introduction of immediate expensing for manufacturing or processing buildings that are acquired on or after Budget Day (4 November 2025) and that are used for manufacturing or processing before 2030. This measure would be phased out over a four-year period between 2030 and 2033.
The accelerated CCAs for LNG equipment and related buildings expired at the end of 2024. Budget 2025 increases the CCA rate for liquefaction equipment from 8% to 30% and for non-residential buildings used in LNG facilities from 6 to 10%. These allowances are available for low-carbon LNG facilities.
To be eligible for accelerated CCAs, an LNG facility would need to meet new high standards of emissions performance. Two levels of support would be available, which will depend on the emissions performance of a facility.
- Top 25% of LNG facilities for emissions performance will keep the existing accelerated CCA rate of 30% for liquefaction equipment and 10% for related buildings; while
- Top 10% of LNG facilities for emissions performance will receive an enhanced 50% CCA on liquefaction equipment and same 10% rate on related buildings.
Details on the emissions-performance benchmarks will be released by Ottawa at a later date. These measures would apply to property acquired on or after Budget Day and before 2035.
Collectively, these new and previously proposed measures form a Productivity Super-Deduction.
Investment Tax Credits (ITCs)
There are currently four clean economy investment tax credits which Operis has discussed a in previous blog (link).
These refundable investment tax credits are set out in the table below:-
| Credit | Headline Rate | Key Enhancements | Availability / Phase-out |
| CCUS | 60% (direct-air capture); 50% (other capture); 37.5% (transport & storage) | Full rates extended five years to 31 Dec 2035 | Slides to 30/25/18.75% 2036-40 |
| Clean Technology | 30% | Biomass heat & power added along with small nuclear energy property (retro to 21 Nov 2023 and 28 Mar 2023, respectively) | No sunset yet |
| Clean Hydrogen | 15%-40% (carbon-intensity linked) | Methane pyrolysis eligible from 16 Dec 2024 | No sunset yet |
| Clean Tech Manufacturing | 30% | Adds antimony, indium, gallium, germanium, scandium + polymetallic projects retro to 1 Jan 2024 | No sunset yet |
| Clean Electricity | 15% | Conditions on provincial Crown utilities removed; eligible from 16 Apr 2024 for projects not started before 28 Mar 2023 | No phase-down stated
|
Transfer Pricing
Budget 2025 overhauls Canada’s transfer-pricing regime to bring it in line with global norms, explicitly anchoring the rules in the OECD Guidelines and the arm’s-length principle. Central to the reform is a new adjustment provision that lets the CRA (and taxpayers) restate amounts to the figures that would arise under arm’s-length terms, backed by a fresh definition of “arm’s-length conditions” that offers greater flexibility when analysing related-party transactions.
Amendments to the Global Minimum Tax Act
The Global Minimum Tax Act closely tracks OECD Pillar Two model rules, adding or refining concepts such as “private investment entity,” “recapture exception accrual,” “currency-conversion rules”, and “de-consolidation mechanics”. Effective for fiscal years beginning on or after 31 December 2023, the updates aim to prevent unintended top-up-tax outcomes and streamline compliance, meaning in-scope multinationals must revisit consolidation, documentation, and modelling assumptions for their Canadian operations.
Excessive Interest and Financing Expense Limitation (EIFEL) Amendment
Budget 2024 and subsequent consultations mean that Project sponsors can elect to keep full deductions for arm’s-length interest on debt incurred before 1 January 2036 to build or buy qualifying purpose-built rental housing (four-plus units, 90% long-term rentals), and Ottawa is also consulting on a comparable carve-out for regulated utilities. The relief, effective for taxation years starting after 1 October 2023, helps preserve debt capacity and improves project-finance viability in both sectors.
Operis Impact
From our knowledge and modelling expertise of similar super deductions and tax credits in multiple jurisdictions, we can analyse how the new measures will affect your projects and corporate group. We would be pleased to support you through the consultation process, ensuring you financial models reflect the final legislation. This support will help you capture all available deduction and credit, minimising or deferring corporate income tax liabilities on project finance transactions.
For a deeper discussion on how Budget 2025 affects your transactions, contact either Henry Le Maistre (hlemaistre@operis.com), Daniel Adams (dadams@operis.com), Matt Simonot (msimonot@operis.com).
