Canadian Software & Technology Industry Report
Whitehorn Capital's Canadian Software & Technology Industry Report presents performance trends, economic drivers, and transaction activity observed during the past quarter nationwide.
PUBLIC MARKET DASHBOARD
As of September 30, 2026.
Write it off.All of it.
Ottawa is proposing a tax change called the Productivity Mega Deduction. It would change how quickly your software & tech business can deduct the cost of new equipment: instead of claiming a bit each year for a decade, you would claim the whole thing in year one. Here is what it would mean for your business.
Not to be confused with the Productivity Super-Deduction, the narrower measure from Budget 2025. The Mega Deduction is the bigger one, and it replaces most of what the Super-Deduction did.
What you could write off in year one on a $1 million equipment
General equipment, first taxation year
Example uses general equipment written down at 20% a year. The figure for your own purchase depends on the type of asset. Confirm it with your accountant.
The short version
When you buy equipment today for your software or tech business, you write off a portion of the cost each year over many years. Under the proposal you would write off the entire cost in the year you start using it, so your tax bill drops sharply in the year you invest.
Prime Minister Carney announced the Productivity Mega Deduction on 15 September 2026 and the Department of Finance released draft legislation the same day. It is not law yet.
You would not get more. You would get it sooner.
This is the part people misread. You always got to deduct the full cost of an equipment eventually. What changes is the timing, and in a business, cash today is worth considerably more than the same cash spread over ten years.
Source: Department of Finance Canada backgrounder, 15 September 2026.
What qualifies
Most things a business buys would be covered. The exclusions are the shorter list.
Write it off in full
- Machinery and equipment
- Software and computers
- Vehicles, trucks and trailers
- Oil and gas pipelines
- Mining property
- Fibre-optic cable and data networks
- Aircraft, rail track, bridges and roads
- Patents and research spending
Written off slowly, as before
- Buildings
- Goodwill and licences when you buy a business
- Natural gas pipelines running into homes
- Passenger cars, taxis, and rental or leased vehicles, unless the vehicle is new and was assembled in Canada
- Quarries, and timber and cutting rights
Eligibility is set by the tax category an asset falls into, not by what you call it. Two similar-looking purchases can land on opposite sides of this line, so check each one.
CUSMA wasn't renewed.Here's what it means for you.
On July 1, 2026, Minister LeBlanc confirmed that the U.S. had declined a new 16-year term for CUSMA. The deal stays in force, but it is now reviewed every year and any country can withdraw on six months' notice. For Canadian software companies selling into the U.S., that changes how far ahead you can plan.
Tariffs hit goods. Your risk is the digital chapter.
The tariffs in the headlines are on physical goods. For software, what matters is CUSMA's digital trade chapter (Chapter 19), which keeps cross-border sales and data flowing freely.
What protects software today
- No duties on digital productsSoftware, SaaS subscriptions and downloads cross the border tariff-free.
- Free cross-border data flowsYou can serve U.S. customers from Canada and move their data between the two countries.
- No forced data localizationNeither country can require you to host data on its soil as a condition of doing business.
- Source code protectionGovernments cannot make access to your source code a condition of selling to their market.
Where tariffs still reach you
U.S. Section 232 tariffs on Canadian steel, aluminum, autos and lumber don't apply to software, but they squeeze the manufacturers, builders, auto suppliers and forestry companies that buy it. If those industries are in your customer base, expect tighter IT budgets, longer sales cycles and more pushback at renewal.
What owners should do now
- Know your exposure.Map your U.S. revenue, U.S.-hosted data and contracts governed by U.S. law.
- Expect buyers to ask.U.S. customer concentration is now a diligence and pricing question.
- Build options.A U.S. entity, flexible hosting or new markets lowers your risk.
AI is the first questionin every software deal.
Trade rules shape where you can sell. AI is changing how buyers judge what you sell. Before they look at growth or margins, buyers now ask one question: can an AI agent replace your product?
Buyers have already moved
According to Software Equity Group's 2026 SaaS Report, nearly three in four SaaS acquisitions in 2025 referenced AI in how the target company positioned itself. AI is now part of almost every deal conversation.
That cuts both ways. A credible AI story can support your value. A weak answer to the replacement question can hold it back, or stall a deal entirely.
What buyers will examine in diligence
Expect these questions in any sale process, from the first management meeting through to the data room.
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01
Can AI replace your product?Buyers test whether a general-purpose AI agent could do what your software does. Simple tools for reporting, data entry or basic content are the most exposed.
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02
How deep is your workflow?Software that runs a customer's daily operations, with integrations, approvals and records of truth, is far harder to replace than a stand-alone tool.
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03
Do you own data competitors can't get?Proprietary data built up over years is hard for a new AI entrant to copy. Buyers will ask what you collect and what rights you have to use it, including to train AI models.
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04
How do you charge?Per-seat pricing now draws the most scrutiny. We explain why below.
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05
Are customers staying and spending more?Net revenue retention (NRR) is the clearest evidence that customers are not replacing you. Also explained below.
Why per-seat pricing is under pressure
Most software is sold per user. That model assumes your customers' headcount grows over time, and your revenue grows with it. AI agents break that link. When an agent does the work of several people, your customer needs fewer seats, and your revenue can shrink even while your product is used more than ever.
Buyers know this. In diligence they compare seat counts with actual usage, look for customers who are cutting seats at renewal, and ask how much of your revenue comes from roles AI is automating, such as support, data entry and basic analysis.
How each pricing model behaves when AI does the work
You charge for each named user.
Fewer users, less revenue.
You charge per transaction, document, API call or other unit of activity.
More activity, more revenue.
You charge per result, such as a resolved support ticket or a processed invoice.
You share in the value AI creates.
Many companies change in steps: a platform fee plus usage, or AI features sold as a separate add-on, so existing contracts do not all need to change at once. A new pricing model takes several renewal cycles to show up in your numbers, so start well before a sale process.
Retention is the proof
Net revenue retention (NRR) measures how much recurring revenue you keep and grow from your existing customers over a year. It adds upgrades and expansion, subtracts downgrades, lost seats and cancellations, and leaves new customers out.
NRR above 120%
- Customers expand without being sold to
- Strong evidence AI is not replacing you
- Buyers reward it in price and terms
NRR below 90%
- Customers are shrinking or leaving
- Buyers ask whether AI, or a cheaper tool, is the cause
- Expect a lower price or tougher terms
What owners should do now
- Prove you're hard to replace.Lead with workflow depth, vertical focus and proprietary data.
- Fix retention first.NRR moves your value more than any AI feature.
- Rethink seat pricing.Shift toward usage or outcomes before a buyer flags it.
Ottawa is buying Canadian.Is your company ready to sell?
While AI reshapes what private buyers will pay, government is becoming a bigger customer in its own right. Defence budgets, sovereign cloud and Buy Canadian rules are opening the biggest public market domestic software has ever had.
Defence spending, % of GDP
NATO figures show Canada reached the 2% benchmark in 2025, and the 2035 target is 5%.
Budget 2025 defence money, $ billions
Here is how Budget 2025 splits its new defence funding.
Together, these two lines add up to $17.5 billion aimed squarely at digital and domestic industry.
Where software fits
in 14 contracts by June 2026, now expanding to smaller contracts.
Shared Services Canada procurement prioritizes Canadian-owned providers.
ISED compute strategy, including funds for SME compute access.
What owners should do now
- Qualify.Document your Canadian-supplier status and start security clearances early.
- Partner.Primes need Canadian software content. Be the subcontractor they call.
- Price it in.Sticky government revenue raises your valuation.
Financing
We summarized select Canadian tech financing transactions announced this past quarter:
Select Merger & Acquisition Transactions
Notable Canadian software & technology transactions in Q3 2026.
Whitehorn Capital Q3 2026 Canadian Software & Tech M&A Tracker
Software and technology merger and acquisition activity with a Canadian acquirer or target, announced between July 1 and September 30, 2026. Filter by sector, province, month or direction of capital, and select any transaction to read the detail.
Transactions by sector
Select a sector to filter the table below.
Direction of capital
Domestic deals have a Canadian acquirer and target. Inbound means a foreign acquirer of a Canadian business; outbound means a Canadian acquirer abroad.
Compiled by Whitehorn Capital as of September 30, 2026, from public announcements and transaction databases. Provided for information only and believed accurate at the time of publication.
Let's talk about
your next move.
Whitehorn Capital provides sale of business, financing and merger & acquisition advisory services to Western Canadian software and technology companies. To discuss this quarter's findings, reach our team below.
All financial data has been sourced from YCharts. This report is prepared by Whitehorn Capital for informational purposes only and does not constitute investment, legal, or tax advice. Figures may include forecasts and are subject to change without notice.
