Canada Just Cut the Tax on New Investment Nearly in Half: This TSX Stock Could Win

Canada’s new tax write-off could quietly drive more investment than any single mega-project announcement.

Amy Legate-Wolfe

Author Bio Amy became interested in investing in 2018 after having her first daughter. After receiving a masters degree in journalism from Western University, she became frustrated that the finance industry remained a confusing place for Canadians like her: new parents, millennials, and other young people who needed to understand their finances. Now, Amy focuses on tech companies and renewable energy for growth opportunities, coupling that with long-term investing strategies and equities. She also provides investors with a daily newsletter, Canada Stock Digest, for daily market updates. Her work can also be found at Canada's National Observer, where she writes on the business side of climate action. Before joining Motley Fool Canada, Amy wrote for major news organizations including HuffPost, CTVNews.ca, and CBC. When she’s not researching investing strategies, Amy’s time is pretty much monopolized by her two wild daughters, but in what little spare time she has she loves to do yoga, go on walks with her dog, and travel with her husband. Social Media Follow Amy on LinkedIn and Canada Stock Digest. Favorite Investment Quote “October: This is one of the particularly dangerous months to speculate in stocks. The others are July, January, September, April, November, May, March, June, December, August and February.” – Mark Twain

Published September 15, 3:30 pm EDT

| More on: CNR

Key Points

Immediate expensing lowers the after-tax cost of building, which can push more projects from “maybe” to “go.”
CN could benefit twice: cheaper rail capex for itself and higher freight volumes if others build mines, factories, and ports.
The risks are valuation and the economy, since CN isn’t cheap and announcements don’t guarantee shipments.

Canada just made building things a lot cheaper.

That may sound less exciting than BCE‘s $52.5 billion artificial-intelligence (AI) project or a shiny new mine. Yet a tax change announced at the Canada Investment Summit could ultimately influence far more investment than any single project unveiled this week.

Prime Minister Mark Carney announced that businesses will be able to immediately write off most new capital investments, including machinery, software, research and development, pipelines, fibre networks, and railway infrastructure.

Ottawa estimates the change will slash Canada’s marginal effective tax rate on new business investment from roughly 13% to 6.4%. That’s nearly half.

A train passes Morant's curve in Banff National Park in the Canadian Rockies. — Source: Getty Images

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Why investors should care

Normally, companies deduct the cost of expensive assets gradually over many years. Allowing businesses to deduct more of those costs immediately improves the economics of investing today. A factory, railway expansion, data centre, or mine that previously looked marginal could suddenly look a little more attractive.

Ottawa wants to catalyze roughly $1 trillion of investment over five years, while the Canada Investment Summit highlighted more than 160 potential projects spanning energy, mining, AI, ports, transportation, and other infrastructure.

The tax change won’t make every project happen. Still, making capital spending cheaper removes one hurdle precisely when Canada is asking companies to spend significantly more. That brings me to a company positioned to benefit twice.

Watch CN

Canadian National Railway (TSX: CNR) owns nearly 20,000 miles of railway connecting Canada’s Atlantic and Pacific coasts with the U.S. Midwest and Gulf Coast. It transports more than 300 million tonnes of natural resources, manufactured goods, and finished products each year.

That means CN could benefit directly from investment incentives on its own railway infrastructure. More importantly, it could benefit indirectly if everyone else starts building too.

A new mine needs equipment hauled in and minerals hauled out. Energy projects move materials. New factories need inputs and eventually ship finished goods. Growing ports can send more freight onto railway networks.

CN doesn’t need to correctly predict whether uranium, LNG, critical minerals, agriculture, or manufacturing becomes Canada’s biggest winner. It can move all of them. That’s why I like railways as a picks-and-shovels investment on Canada’s capital-spending ambitions.

Already improving

CN doesn’t need Ottawa’s new policy to rescue a struggling business. Second-quarter revenue jumped 11% year over year to $4.8 billion, while revenue ton miles increased 5%. Adjusted earnings per share (EPS) rose 11%.

Management responded by raising its 2026 guidance. It now expects low-single-digit revenue-ton-mile growth and mid-to-high-single-digit adjusted EPS growth. Free cash flow increased 19% during the first half to $1.8 billion.

That cash helps fund CN’s roughly $2.8 billion 2026 capital program, dividends, and share repurchases. The railway bought back approximately $454 million of stock during the second quarter alone. Investors interested in Canadian blue-chip stocks therefore get an established business before counting any potential boost from Canada’s investment push.

Considerations

CN isn’t particularly cheap, trading around 21 times trailing earnings. Railways are also deeply tied to economic activity. A recession, weaker commodity demand, tariffs, or slower industrial production could reduce freight volumes even if governments continue announcing enormous projects.

There’s another risk too, as announcements aren’t shipments. Canada has spent decades discussing projects that never get built. Investors buying stocks in Canada shouldn’t assume every dollar discussed at this week’s summit eventually passes through CN’s network.

Yet the investment case doesn’t require that. Canada has just made new capital spending materially more attractive while simultaneously courting hundreds of billions of dollars for infrastructure, resources, manufacturing, and technology. CN already owns one of the networks much of that activity would eventually need.