The Government of Canada wants Canadians to invest in a healthier environment, a more stable energy future and a more competitive economy, so it offers innovative Renewable Energy Tax Credits.
In order to achieve these goals, two specific Renewable Energy Tax Credit measures are available to encourage investments in energy efficiency and renewable energy projects:
Investments in energy efficiency and renewable energy are helping to reduce Canada’s consumption of fossil fuels and minimize the production of greenhouse gases that contribute to climate change and other environmental problems. These investments also contribute to the development of new technologies1 and lead to export opportunities. It’s all part of the government’s ongoing efforts to promote sustainable development by integrating economic and environmental goals.
Sustainable development will ensure the continued prosperity of Canadians while safeguarding our natural heritage for future generations.
Canadian Renewable Energy Tax Credits and Conservation Expenses
The early development phase of renewable energy and energy conservation projects typically involves certain intangible costs, such as feasibility and resource assessment studies. The CRCE category of expenditures was introduced in the 1996 Budget to allow investors Renewable Energy Tax Credits to fully write-off certain intangible costs associated with investments in renewable energy and energy conservation projects. CRCE is intended to promote the development of conservation and renewable energy projects in the same way that is currently done for investments in other types of resource activities.
Under CRCE, Renewable Energy Tax Credits allow eligible expenditures are 100 per cent deductible in the year they are incurred or can be carried forward indefinitely for deduction in later years. These expenditures can also be renounced to shareholders through a flow-through share agreement, providing the agreement was entered into before the expense was incurred. To be eligible, costs must be incurred after December 5, 1996. For the legislative basis of flow-through shares and CRCE expenditures, please refer to Sections 66 and 66.1 of the Income Tax Act and to Section 1219 of the Income Tax Regulations.
Class 43.1 Accelerated Capital Cost Allowance
Class 43.1 provides an accelerated rate of write-off for certain capital expenditures on equipment that is designed to produce energy in a more efficient way or to produce energy from alternative renewable sources.
Class 43.1 allows taxpayers to deduct the cost of eligible equipment at up to 30 per cent per year, on a declining balance basis. Without this accelerated Renewable Energy Tax Credit write-off, many of these assets would be depreciated at annual rates of 4, or 20 percent (with the exception of expenses eligible for the pre-existing Class 34, which were deductible at an annual rate of up to 50 percent).
What Types of Systems Qualify?
In general, the following types of systems qualify for CRCE Renewable Energy Tax Credit or Class 43.1 write-off:
Electricity Generation Systems
Specified-waste fuels, both for electricity generation and heat production, are defined as municipal waste, wood waste, landfill gas or digester gas.
Thermal Energy Systems
Note: Thermal energy systems qualify only if their primary purpose is to produce thermal energy for use directly in an industrial process.
Intangible expenses eligible under CRCE Renewable Energy Tax Credits include:
Test Wind Turbines
Costs related to the acquisition and installation of a test wind turbine – defined as “the first wind turbine installed at the site of a proposed wind farm, whose primary purpose is to test the energy production at the site” – are included in the CRCE category of expenses. In order to be eligible, a favourable prior opinion must be issued by the Minister of Natural Resources Canada for each installation.
The following types of costs are eligible for an accelerated rate under Class 43.1:
Depending on all the facts of a particular situation, the cost of modifications and improvements to existing qualifying equipment may also be eligible, provided that:
The following are generally ineligible under Class 43.1:
For more information on CRCE or Class 43.1, please order the guide entitled Class 43.1 Technical Guide and Technical Guide to Canadian Renewable and Conservation Expenses (CRCE) at a cost of $100 plus applicable taxes, available from the following address. A written prior opinion can be obtained by writing to:
Class 34/43.1 Secretariat
CANMET Energy Technology Centre
Natural Resources Canada
1 Haanel Drive, Bldg. 3
Nepean, ON K1A 1M1
Tel.: (613) 996-0890
Fax: (613) 995-7868