The federal government announced major new tax incentives Monday aimed at encouraging companies to invest more money in Canada, with potentially significant benefits for the oil and gas and LNG sectors.
The new Productivity Mega Deduction will allow businesses to immediately write off a much larger share of new investment rather than deducting those costs gradually over many years.
For oil and gas producers, one of the biggest changes is the immediate expensing of Canadian development expenses (CDE) incurred on or after September 15, 2026.
CDE includes certain costs associated with developing oil and natural gas wells. These expenses have generally been deducted at a rate of 30% per year on a declining balance.
Allowing companies to deduct those costs immediately doesn’t necessarily increase the total deduction, but it moves the tax benefit forward. That improves near-term cash flow and can make new drilling investment more attractive.
Big boost for LNG
Canada’s growing LNG sector also stands to benefit.
Qualifying LNG liquefaction equipment will be eligible for 100% immediate expensing, while eligible LNG buildings will continue to receive accelerated depreciation.
Ottawa has also removed a previously proposed emissions-intensity requirement for LNG projects to qualify for these incentives.
The broader tax package extends immediate expensing to most new depreciable capital investments in Canada, meaning the benefits could reach pipelines, processing facilities, power generation and other energy infrastructure depending on how individual assets are classified.
The federal government estimates the measures will reduce Canada’s marginal effective tax rate on new business investment to 6.4%, compared with its estimate of 16.9% in the United States.
Commodity prices, regulatory timelines, construction costs and access to markets will still play major roles in investment decisions.
But the tax changes improve one important part of the equation.
For producers deciding where to drill their next wells, LNG proponents considering billions of dollars of new capacity, and companies looking at major energy infrastructure projects, Canada just became a more tax-competitive place to invest.