Renewable Energy Incentives: Accelerated Capital Cost Write-offs and Canadian Renewable and Conservation Expenses (CRCE) Program

There is an interesting tax incentive for the renewable energy industry which could compensate for the removal of capital from the SR&ED expenditure base: a category of deductible expenses for companies undertaking project development through the Canadian Renewable and Conservation Expenses (CRCE) program.

At the moment, the CRA allows for accelerated capital cost write-offs on capital expenditures on systems that produce heat and/or power from renewable energy sources. Class 43.1 and 43.2 capital cost allowances allow taxpayers an accelerated write-off of specific equipment designed to generate more efficient or alternatively sourced energy.   This means that for new renewable energy and energy conservation projects in which 50% of the capital is designated to efficient/renewable energy associated equipment, the government is offering a category of fully deductible expenditures.

In addition to capital, some expenses incurred during the development and start-up of renewable energy and energy conservation projects (engineering and design work, for example)  qualify as Canadian Renewable and Conservation Expenses (CRCEs), and would thus be fully deductible  or could be financed through flow-through shares. The Canadian Revenue Agency (CRA) defines a Canadian Renewable and Conservation Expense to include “certain expenses incurred in respect of the development of a project for which it is reasonable to expect that at least half of the capital cost of the depreciable property to be used in the project will be the capital cost of property described in Class 43.1 or 43.2 of Schedule II of the Income Tax Regulations.”

The accelerated capital cost write-offs for capital expenditures, combined with CRCE, are important incentives which could help offset the elimination of capital from the SR&ED program expenditure base as announced in the recent federal budget, especially advantageous to capital-intensive industries like renewable energy. Contact NorthBridge Consultants for more information about how you can benefit from CRCE.