The Government of Canada makes clean energy projects, such as solar energy, wind energy and energy from waste, more fiscally attractive for industry by providing business income tax incentives.
Under Classes 43.1 and 43.2 in Schedule II of the Income Tax Regulations, certain capital costs of systems that produce energy by using renewable energy sources or fuels from waste, or conserve energy by using fuel more efficiently are eligible for accelerated capital cost allowance. Under Class 43.1, eligible equipment may be written-off at 30 percent per year on a declining balance basis. In general, equipment that is eligible for Class 43.1 but is acquired after February 22, 2005 and before year 2020 may be written-off at 50 percent per year on a declining balance basis under Class 43.2. Without these accelerated write-offs, many of these assets would be depreciated for income tax purposes at annual rates between 4 and 30 percent.
In addition to Class 43.1 or 43.2 capital cost allowance, the Income Tax Regulations allow certain expenses incurred during the development and start-up of renewable energy and energy conservation projects [Canadian renewable and conservation expenses (CRCE)] to be fully deducted in the year they are incurred, carried forward indefinitely and deducted in future years, or transferred to investors through a flow-through share agreement.
To qualify as CRCE, expenses must be incurred for a project for which it is reasonable to expect at least 50 percent of the capital costs incurred for the project would be the capital costs of equipment described in Class 43.1 or 43.2.
Technical information on the equipment and expenses that can qualify for Class 43.1, Class 43.2 or CRCE is published by Natural Resources Canada in the Technical Guide to Class 43.1 and 43.2 and the Technical Guide to Canadian Renewable and Conservation Expenses (CRCE). The latest editions of these technical guides in PDF format can be downloaded at the links below:
Contact: Canada Revenue Agency | 613-670-9064 | firstname.lastname@example.org