Ottawa Will Help Pay for Your Private AI Stack

On September 15, Prime Minister Mark Carney announced the Productivity Mega-Deduction: as proposed, businesses write off 100% of eligible new investment in the first year the asset is available for use, permanently, for costs incurred from that day forward.¹ The eligible classes read like a private AI stack's bill of materials: computer equipment, software, R&D, patents.¹ The share of capital investment that can be expensed immediately jumps from roughly 15% to over 65%.³

Here's the thing this announcement doesn't say: it isn't arriving alone. It lands on top of an SR&ED program that was just expanded by Bill C-15, and a $200 million regional AI fund that most operators have never heard of.⁴⁶ Let's walk through the three programs, then put real numbers on a $1 million build, then lay out the order of operations, because sequencing is where firms leave money on the table.

The three programs, in one pass

The Productivity Mega-Deduction is immediate expensing made permanent and made wide. Computers already had a temporary 100% first-year write-off (Class 50 equipment acquired after April 2024, in use before 2027⁷); the proposal makes immediate expensing permanent and extends it across software, R&D, patents, and far more. It would apply to eligible costs incurred on or after September 15, 2026, at an estimated fiscal cost of $36 billion over five years, and the government's own framing is that it drops Canada's marginal effective tax rate on new business investment below every major economy.²³ Draft legislative proposals are published; until passed, the details are the government's word, not yet law.²

SR&ED is the one Canadian founders think they know, and the 2026 version is meaningfully better than its reputation. Bill C-15 doubled the enhanced expenditure limit: the 35% refundable credit now applies to up to $6 million of qualifying R&D spending a year, the taxable-capital phase-out was raised to $15–75 million, eligible Canadian public corporations gained access to the refundable rate, and capital equipment used at least 90% for eligible R&D is claimable again for the first time in over a decade (capital credits are 40% refundable; current spending within the limit refunds in full).⁴⁵ Refundable means a cheque, not a carry-forward; a pre-profit company gets cash for its qualifying R&D payroll. The catch is real, though: SR&ED pays for experimental development, work with genuine technological uncertainty. Fine-tuning evaluation methods, novel retrieval architectures, and serving optimizations can qualify. Installing a chatbot doesn't.

RAII, the Regional Artificial Intelligence Initiative, is the sleeper. It's a $200 million envelope delivered through the regional development agencies for projects that commercialize or adopt AI, and the national AI strategy has since committed a further $500 million to expand it.⁶⁸ For businesses it isn't a grant, and it's worth being precise about that: as published by PrairiesCan, it's an interest-free repayable contribution covering up to 50% of eligible project costs, from $250,000 to $5 million, repaid at 0% over five years starting a year after the project ends, with no security taken.⁶ Intake windows vary by region: the Prairies are open through 2028, while FedDev Ontario is between intakes with the next one to be announced.⁹ Unsecured 0% money with a multi-year runway is a financing instrument most CFOs would take every day of the week.

A $1M stack, with the layers applied

Take a concrete case: an Ontario alternative-asset manager (the management company, a Canadian-controlled private corporation) builds a $1 million private AI stack this fall, models running in its own environment over deal files, research, and LP reporting. Say the bill splits into $450K of GPU and server hardware, $100K of software, $150K of integration engineering, and $300K of genuine experimental development, the model-adaptation and serving work where outcomes are actually uncertain. Assume it pays the combined 26.5% general corporate rate and has the taxable income to absorb a deduction.

The layers apply like this, and the arithmetic is worth showing. The mega-deduction expenses the $550K of hardware and software in year one: at 26.5%, that's $145,750 of tax that doesn't get paid. The $300K of experimental development earns the 35% refundable SR&ED credit: a $105,000 cheque, payable even in a loss year. That's $250,750 back across the first tax cycle, about 25 cents on every dollar, before touching provincial R&D credits; the write-off lands at filing, the refund after the CRA processes the claim. And here structure matters: where the region's intake and sector fit line up (the program's callout sectors plus others of regional importance; confirm with your agency), point RAII at the $700K of non-R&D costs, and up to half of that, $350,000, arrives as unsecured 0% financing while the SR&ED base stays untouched by assistance. At a 7% commercial borrowing rate, that's around $24,500 a year of interest that never gets paid while the balance is drawn.

Notice what makes the stack work: the three programs don't overlap, they interlock, and the seams are load-bearing. SR&ED credits count as government assistance in RAII's math, and the agencies cap total assistance on a project (50% on capital costs, up to 75% on others), so the layering above is deliberate: RAII against the non-R&D costs keeps the SR&ED base clean, and combined assistance here is $455K, about 45.5% of the project, under the ceiling.⁶ The agency reconciles the final numbers at approval, which is exactly the conversation you want to walk into with the layers already separated.

The order of operations

Sequencing matters more than any single program. Talk to the regional development agency before incurring costs, not after, and keep the SR&ED evidence trail from day one rather than reconstructing it at filing time.

What this doesn't say

Honest caveats, because a primer that skips them isn't one. The mega-deduction is nine hours old as this publishes: the announcement and draft proposals are specific, but until legislation passes, final class definitions can shift (certain licences, for instance, sit in excluded classes under the draft rules).² A deduction is only worth its rate times your taxable income, and an accelerated deduction is a timing benefit, cash pulled forward rather than free money; a company with no profit banks the SR&ED refund but waits on the write-off. The cash also moves on program clocks, not purchase dates: RAII reimburses costs after they're incurred and paid, and the SR&ED refund follows CRA processing of a filed claim, so the firm fronts the build. RAII money must be repaid, on schedule, whether or not the project delivered. And SR&ED eligibility is a technical test, not a vibe; plenty of AI integration work is valuable and still doesn't qualify. One more structural catch for professional services: a law firm's document stack runs the same tax math, but the enhanced refundable SR&ED rate needs a CCPC, and partnership structures change how the credits flow. The worked example is illustrative, provincial rates and credits vary, and none of this is tax advice; the right structure for your firm is a conversation with your accountant.

Sources

1. Prime Minister's Office, "Prime Minister Carney introduces new Productivity Mega Deduction" (September 15, 2026): https://www.pm.gc.ca/en/news/news-releases/2026/09/15/prime-minister-carney-introduces-new-productivity-mega-deduction
2. Finance Canada, "Government of Canada introduces new Productivity Mega Deduction" (September 15, 2026): https://www.canada.ca/en/department-finance/news/2026/09/government-of-canada-introduces-new-productivity-mega-deduction-to-boost-canadas-advantage-as-the-most-competitive-g7-country-for-new-business-inve.html
3. The Globe and Mail, investment summit coverage (September 15, 2026): https://www.theglobeandmail.com/business/article-canada-investment-summit-live-updates-september-15/
4. KPMG in Canada, "Canada's SR&ED program enters a new era" (2026): https://kpmg.com/ca/en/insights/2026/02/canadas-sr-and-ed-program-enters-a-new-era.html
5. BDO Canada, "SR&ED tax credit program significantly enhanced as Bill C-15 passes" (2026): https://www.bdo.ca/insights/sr-ed-program-enhancements-and-updates-draft-legislation-released
6. PrairiesCan, Regional Artificial Intelligence Initiative program pages (accessed September 15, 2026): https://www.canada.ca/en/prairies-economic-development/services/funding/regional-artificial-intelligence-initiative.html
7. Canada Revenue Agency, classes of depreciable property (Class 50 temporary first-year measure): https://www.canada.ca/en/revenue-agency/services/tax/businesses/topics/sole-proprietorships-partnerships/report-business-income-expenses/claiming-capital-cost-allowance/classes-depreciable-property.html
8. ISED, Regional Artificial Intelligence Initiative, national AI strategy expansion: https://ised-isde.canada.ca/site/ised/en/regional-artificial-intelligence-initiative
9. FedDev Ontario, Regional Artificial Intelligence Initiative in southern Ontario (intake status, accessed September 2026): https://feddev-ontario.canada.ca/en/funding-southern-ontario/regional-artificial-intelligence-initiative-southern-ontario