Incentive provision for fast depreciation of “Clean Energy” assets was introduced in 1996 by Federal Budget as a new category of deductible expenses under Schedule II to the Income Tax Regulations. After that, the updates took place several times. The incentive is based on the environmental benefits of low-emission energy generation equipment.
On November 21, 2018 Canada’s federal Finance Minister Bill Morneau announced new Accelerated Investment Incentive program. The program will temporarily allow 100% depreciation for the tax purpose for the classes 43.1 and 43.2. Rules apply to the equipment acquired after November 20, 2018, and available for business use before 2028. The new rules will be gradually phased out for investments that become available for use in 2024. The allowance will drop to 75% in 2024 and 2025. In the subsequent two years 2026 and 2027 the allowance will drop to 55% for investments available for use in these years. This rule will no longer apply for the investment ready for business use after 2027.
Accelerated Investment Incentive rules include the following:
- Pro-rated basis for short taxation years rules apply.
- The half-year rule suspended.
- The requirement to qualify for neither the taxpayer nor a non-arm’s-length person previously owned the property; and
- The property cannot be transferred to the taxpayer on “rollover” basis, which means the tax benefit is not transferable.
Equipment included in Class 43.1 or 43.2 are
- Renewable energy source as wind power, solar power, small hydro, geothermal, wave or tidal energy:
- A solar cell or PV module or solar collector that is integrated into a building, with exception of a window.