Planning to Sell? This May Be the Wrong Time to Stop Investing in Your Business
October 1, 2026
Canada’s proposed Productivity Mega Deduction could change the economics of investing in your business before an exit.
For many business owners, there comes a point when the thinking changes.
Retirement is getting closer. A sale may be three, four or five years away. And suddenly that new piece of equipment, software upgrade or operating-system overhaul becomes harder to justify.
Why spend the money now if I’m going to sell the business anyway?
It sounds reasonable. It can also be a costly mistake.
On September 15, 2026, the federal government proposed a significant expansion of immediate expensing for Canadian businesses. The new Productivity Mega Deduction would permanently allow businesses to immediately expense a much broader range of depreciable capital property acquired on or after September 15, 2026. According to the Department of Finance, the proportion of capital investment eligible for immediate expensing would increase from approximately 15% under the existing Productivity Super-Deduction to roughly two-thirds of capital investment. [1]
The government estimates the measure would reduce Canada’s marginal effective tax rate on new business investment from 13.0% to 6.4%.[1]
Those are significant numbers. But for an owner thinking about succession or the eventual sale of a business, the more interesting issue is not the tax deduction. It is what happens to the business when an owner stops investing too early.
The Pre-Sale Investment Trap
We see versions of this regularly.
An owner decides that retirement is somewhere on the horizon. They may not be ready to sell today, but mentally they have begun transitioning from building the business to harvesting it.
Capital expenditures get postponed. Technology upgrades can wait. An aging vehicle or piece of equipment gets another year. Processes that should have been automated remain manual. Necessary renovations become “the next owner’s problem.”
Individually, none of these decisions may seem particularly serious. Collectively, they can matter a great deal.
Three to five years later, the business goes to market and a prospective buyer sees something quite different from what the seller sees. The seller sees a business that has produced reliable cash flow for decades. The buyer sees deferred capital expenditures. And buyers tend to price what they see.
Buyers Don’t Want to Buy Yesterday’s Business
A buyer is not simply purchasing last year’s EBITDA. They are buying the expectation that the business can continue producing cash flow after ownership changes.
Consider two otherwise similar companies. One has current equipment, modern systems, good operating processes and limited immediate capital requirements. The other produces similar earnings but has aging equipment, outdated technology and a significant list of investments likely to be required shortly after closing.
The historical earnings may look similar. The businesses are not necessarily equally attractive.
A sophisticated buyer will eventually ask: What am I going to have to spend after I buy this business?
That question can find its way into negotiations through a lower price, demands for capital expenditures before closing, more conservative forecasts or simply reduced buyer enthusiasm. This is why deliberately starving a business of investment before a sale can become a false economy.
The Proposed Tax Change Makes the Question More Interesting
Under Canada’s normal capital cost allowance system, the cost of many capital assets is deducted for tax purposes over a period of years. Immediate expensing changes the timing.
For eligible property, the proposed rules would generally allow the cost to be deducted in the year the asset becomes available for use. The Department of Finance says the proposed regime would apply permanently to most depreciable property acquired on or after September 15, 2026, subject to specific exclusions and restrictions.
For an owner contemplating a sale in several years, it creates an interesting planning question: Could an investment made now generate a tax benefit today, improve the business over the next several years and leave a stronger company for a future buyer?
Sometimes the answer will be yes. Examples could include investments that reduce labour requirements, replace obsolete equipment, improve inventory management, automate administrative processes, strengthen financial reporting, reduce owner dependence, increase capacity, improve cybersecurity or remove an obvious capital expenditure that a future buyer would otherwise have to make.
Not every expenditure qualifies for immediate expensing, and not every qualifying expenditure is a good investment. Buildings, certain intangible property such as goodwill and licences, some vehicles and other specified property are among the exclusions contained in the government’s proposal.
A Tax Deduction Does Not Create Business Value
Do not spend $1 simply because the government will let you deduct $1.
Immediate expensing changes the tax treatment of an investment. It does not magically turn a poor capital allocation decision into a good one. And from a valuation perspective, claiming a large deduction does not automatically increase enterprise value.
When valuing a business, advisors still need to examine sustainable earnings, normalize unusual or non-recurring expenditures where appropriate, consider ongoing capital requirements and assess whether the investment actually improves the economics of the company.
The relevant question is not: How big is the tax deduction? It is: What economic return does this investment produce?
If a $150,000 investment reduces recurring operating costs by $50,000 per year, improves reliability and eliminates an obvious post-acquisition expenditure for a future buyer, that may be very relevant to value. If the same $150,000 is spent on something the business does not really need simply to obtain a tax deduction, the analysis is very different.
Think in Terms of the Next Owner
One of the most useful exercises for an owner approaching an eventual exit is to stop looking at the business exclusively through the eyes of the current owner. Look at it through the eyes of the buyer.
Ask: What would I replace? What would I modernize? Where is the business inefficient? Which systems depend too heavily on me? What investment has been postponed because “we’ve always done it this way”? What would worry me during due diligence?
Then distinguish between investments that merely make the business newer and investments that make it better. The second category is far more important.
Three to Five Years Before a Sale Can Be an Ideal Investment Window
There is another reason not to wait until immediately before a transaction: value creation usually needs time to become visible.
Suppose an owner implements new technology that reduces labour costs. If the investment is made three years before the business is sold, a buyer may see several years of financial results demonstrating the improvement. Make the same investment three months before going to market and the seller may be trying to convince the buyer that the savings will happen.
Those are very different conversations. Buyers generally place greater confidence in demonstrated results than promised results.
That is why serious exit planning should begin well before the business is actually listed for sale. The objective is not to dress up the company immediately before a transaction. It is to spend several years making it a genuinely better business.
Don’t Confuse Harvesting With Neglect
Owners understandably want to take money out of their businesses as they approach retirement. There is nothing inherently wrong with that. But there is an important difference between harvesting the value you have created and allowing the underlying asset to deteriorate.
If Canada’s proposed Productivity Mega Deduction becomes law, the tax system may make certain productive investments more attractive during precisely the period when some owners are psychologically inclined to stop making them.
That does not mean every owner approaching retirement should suddenly embark on a capital-spending spree. It means the decision deserves analysis.
For each significant proposed investment, ask whether it will improve sustainable cash flow, reduce risk, make the business less dependent on the owner, be recognized by a buyer, have enough time to demonstrate results before a sale, and produce an attractive after-tax return.
The Bottom Line
If you expect to sell your business within the next three to five years, your instinct may be to stop putting money into it. In some cases, that may be appropriate. But do not assume it is.
The business you eventually sell will be judged on what it looks like then, not on how successful it was ten years earlier.
A well-planned investment made several years before an exit can potentially improve productivity, strengthen margins, reduce buyer concerns and make the business easier to transfer. Canada’s proposed immediate-expensing regime could make the economics of some of those investments even more attractive.
Just remember: the tax deduction is not the strategy. Building a stronger, more transferable and more valuable business is the strategy. And sometimes the years immediately before a sale are exactly when you should still be investing in it.
Important note: The Productivity Mega Deduction is currently a proposed tax measure and is not yet enacted law. Business owners should obtain advice from their tax professionals regarding eligibility, timing and the application of the proposed rules to particular investments.
