Class 43.1 and Class 43.2 and Canadian Renewable and Conservation Expenses
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 2025 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 20 percent.
In addition to Class 43.1 or 43.2 accelerated 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 under a flow-through share agreement.
To qualify as CRCE, expenses must be incurred in respect of 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:
Please note that these editions of the technical guides predate the changes to Class 43.1, 43.2 and CRCE announced in Budgets 2014 through 2018 listed in the News section below. If you are unable to access the technical guides or have questions concerning the changes to Class 43.1, 43.2 and CRCE, contact Natural Resources Canada at the following address:
Class 43.1/43.2 Secretariat
Policy and Planning
Innovation and Energy Technology
Natural Resources Canada
580 Booth Street
Ottawa, Ontario, K1A 0E4
Crown Copyright and Licensing
Commercial reproductions and distribution of the technical guides is prohibited except with written permission from the Government of Canada’s copyright administrator for Natural Resources Canada. For more information, please contact Natural Resources Canada at email: email@example.com.
For general information on CRCE or Class 43.1 and 43.2, visit the Canada Revenue Agency website or contact:
Income Tax Rulings Directorate
Canada Revenue Agency
Place de Ville
112 Kent Street
12th Floor, Tower B
Ottawa, Ontario, K1A 0L5
Class 43.1, Class 43.2 and CRCE News
Proposed Changes to Class 43.2 Announced in Budget 2018
As announced in Budget 2018, eligibility for Class 43.2 has been extended by five years so that it is available in respect of property acquired before 2025. Further information on this change may be found on page 155 of the Budget Plan, which may be downloaded from the Budget 2018 website.
Proposed Changes to Class 43.1 and Class 43.2 Announced in Budget 2017
As proposed in Budget 2017, accelerated capital cost allowance for clean energy equipment has been extended to a broader range of geothermal projects and expenses. Similarly, the range of geothermal energy project expenses that are eligible as Canadian renewable and conservation expenses has been expanded. Further information on these changes may be found on pages 19-21 of Tax Measures: Supplementary Information, which may be downloaded from the Budget 2017 website.
Proposed Changes to Class 43.1 and Class 43.2 Announced in Budget 2016
Budget 2016 proposed to expand eligibility for the accelerated capital cost allowance for clean energy equipment to include electric vehicle charging stations and electrical energy storage equipment. Further information on the proposed changes may be found on pages 21-24 of Tax Measures: Supplementary Information which may be downloaded from the Budget 2016 website.
New Editions of Technical Guides Published
New editions of the technical guides for business income tax incentives for clean energy generation and energy conservation have been published on Friday, December 12, 2014.
These guides supersede the 1998 edition of the Class 43.1 Technical Guide and Technical Guide to Canadian Renewable and Conservation Expenses (CRCE) and all addenda and updates since 1998. PDF versions of the new editions can be downloaded at the links above.
Proposed Changes to Class 43.1 and Class 43.2 Announced in Budget 2014
As announced in Budget 2014, eligibility for the accelerated capital cost allowance for clean energy equipment has been expanded to include water-current energy equipment and a broader range of equipment used to gasify eligible waste. Further information on the proposed changes may be found on pages 336-338 of the Budget Plan, which may be downloaded from the Budget 2014 website.
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