Canada’s proposed Productivity Mega Deduction could save dentists thousands of dollars in taxes when purchasing dental equipment.
But if you’re planning to sell your practice through an asset sale, that same tax deduction could come back to bite you. Here’s what dentists need to know before buying expensive equipment or selling their practice.
What Is Canada’s New Mega Deduction?
On September 15, 2026, the federal government announced its proposed Productivity Mega Deduction. Under the proposal, dentists could immediately deduct 100% of the cost of most qualifying dental equipment acquired on or after September 15, 2026, once it becomes available for use. This includes equipment such as dental chairs, X-ray machines, intraoral scanners, CAD/CAM systems and sterilization equipment.
Previously, most dental equipment had to be written off over several years using Capital Cost Allowance (“CCA“). The new proposal would allow a much larger deduction upfront. Sounds great, right? It certainly can be. But there’s a catch if you’re planning to sell your dental practice’s assets.
Understanding CCA Recapture
Here’s something many dentists don’t realize.
When your corporation claims depreciation on equipment and later sells that equipment, the Canada Revenue Agency (“CRA“) may require your corporation to report some of that depreciation as taxable income. This is called CCA recapture.
Think of it this way: Your corporation received a tax deduction (i.e. a benefit) because its equipment was expected to lose value over time. But when that equipment is sold, the CRA looks at how much depreciation was claimed compared with how much value is recovered through the sale. If too much depreciation was claimed, some of it may effectively be reversed. And that recovered amount becomes taxable income to the corporation!
The new Mega Deduction does NOT eliminate these recapture rules. In fact, claiming 100% depreciation upfront could make recapture especially significant when selling your practice.
Example: Buying $200,000 of Equipment Before Selling
Let’s assume an Ontario dentist purchases $200,000 of qualifying dental equipment in October 2026. The equipment is installed and ready for use that year. Under the proposed rules, the corporation claims a $200,000 deduction. Assuming sufficient taxable income and an 11.2% combined small-business corporate tax rate in Ontario (note this rate changed July 1 when Ontario reduced its corporate small business tax rate by 1%, so it’s down from a combined federal and Ontario tax rate of 12.2%), the immediate tax savings would be approximately $22,400. Now imagine the dentist sells the practice’s assets in 2027. As part of the asset sale, the purchaser agrees to pay $150,000 for that same equipment. Here’s what happens, assuming the equipment is the only property in its CCA class and there are no other adjustments:
| Item | Amount |
|---|---|
| Original equipment cost | $200,000 |
| CCA previously claimed | $200,000 |
| Remaining tax value | $0 |
| Equipment selling price | $150,000 |
| Taxable CCA recapture | $150,000 |
That’s right. Despite previously receiving a $200,000 deduction, the selling corporation must NOW INCLUDE $150,000 of recaptured depreciation in taxable income! At the same illustrative 11.2% tax rate, that could mean approximately $16,800 in additional corporate income tax. The original $22,400 tax saving has effectively been reduced to just $5,600. The actual tax could be higher if the corporation faces a higher tax rate when it sells.
Why Asset Sales Are Different From Share Sales
This is one of the biggest differences between selling assets and selling shares. In an asset sale, your corporation sells the dental equipment, goodwill and other practice assets directly to the purchaser. Because the equipment changes ownership, the sale may trigger CCA recapture.
In a share sale, the dentist sells the shares of the dentistry professional corporation. The corporation continues owning the same equipment. Therefore, the share sale itself generally doesn’t trigger equipment-related CCA recapture. Even better, an eligible dentist selling qualifying shares may benefit from the Lifetime Capital Gains Exemption (LCGE), which I’ve written about extensively on this website. That exemption isn’t available when the corporation sells its practice assets directly. This is another reason why many dentists prefer share sales.
Buyers and Sellers May Want Different Things
Here’s where negotiations could get interesting. Under the proposed Mega Deduction, a purchaser buying qualifying used dental equipment from an arm’s-length seller may also be eligible to immediately deduct 100% of that equipment’s purchase cost. For example, if the purchaser allocates $300,000 of the practice purchase price toward qualifying equipment, that could potentially generate a $300,000 deduction. Naturally, buyers may prefer allocating more of the purchase price toward equipment.
But sellers may prefer allocating more toward goodwill. Why? Because money received for equipment can trigger taxable CCA recapture, while proceeds from selling goodwill may receive more favourable capital gains treatment, depending on the corporation’s tax history. The non-taxable portion of a corporate capital gain may also create a capital dividend account balance that can potentially be paid to shareholders tax-free. However, the allocation can’t simply be whatever the parties prefer. The CRA expects reasonable amounts supported by fair market values.
What Should Dentists Planning to Sell Do?
If you’re considering selling your dental practice through an asset sale, keep three things in mind.
First, don’t purchase expensive equipment just for the tax deduction. Consider whether the equipment genuinely improves your practice and increases its value.
Second, review the equipment allocation before signing your purchase agreement. The amount allocated toward equipment could significantly affect your corporate tax bill.
Third, compare an asset sale with a share sale. The tax savings available to the purchaser and the tax consequences for the seller could be very different.
Also, remember that purchasing and selling equipment within the same taxation year may limit the immediate deduction. You shouldn’t assume you can claim 100% CCA and then ignore the sale proceeds.
The Bottom Line
Canada’s proposed Productivity Mega Deduction could provide dentists with a valuable opportunity to invest in modern technology while reducing their immediate corporate income taxes. But if you’re planning an asset sale, be careful.
The tax deduction you receive today could become taxable income when you sell tomorrow. Before buying expensive equipment or negotiating the sale of your dental practice, speak with your dental accountant and dental lawyer. A little planning could make a significant difference to how much money you ultimately keep.
Disclaimer: This article is for general information only and is based on proposed federal tax legislation announced September 15, 2026. Tax consequences depend on individual circumstances, including the applicable CCA classes, tax rates and final legislation.
