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Tax Savings for Industry

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 that 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 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.

Note that, as announced in the 2018 Fall Economic Statement, the federal government proposes to provide an enhanced first-year allowance for property currently included in Class 43.1 or 43.2, if it is acquired after November 20, 2018, and becomes available for use before 2028. The enhanced allowance will initially provide a 100 percent deduction, with a phase-out for property that becomes available for use after 2023.

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.

Fact sheet on tax incentives for businesses PDF, 1.56 MB

Technical Information

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. The latest editions of the Technical Guide to Class 43.1 and 43.2 and the Technical Guide to Canadian Renewable and Conservation Expenses (CRCE) are available at the following links:

TECHNICAL GUIDE TO CLASS 43.1 and 43.2 (2019 EDITION)
(An accessible version of this PDF will be available on or by December 14, 2020)

TECHNICAL GUIDE TO CANADIAN RENEWABLE and CONSERVATION EXPENSES (CRCE) (2012 EDITION)

Note that the current edition of the Technical Guide to Canadian Renewable and Conservation Expenses (CRCE) predates the changes to Class 43.1, 43.2 and CRCE announced in the 2014 through 2018 budgets, listed in the Class 43.1, Class 43.2 and CRCE News section.

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 ON K1A 0E4
Tel:  343-292-6319
E-mail:  nrcan.class43-1-categorie43-1.rncan@canada.ca

Crown Copyright and Licensing

Commercial reproductions and distribution of the technical guides are prohibited except with written permission from the Government of Canada’s copyright administrator for Natural Resources Canada. For more information, contact Natural Resources Canada at email:  nrcan.copyrightdroitdauteur.rncan@canada.ca.

General Information

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 ON K1A 0L5
Tel.: 416-973-3066
E-mail:  itrulingsdirectorate@cra-arc.gc.ca
 

Class 43.1, Class 43.2 and CRCE News

New Edition of the Technical Guide to Class 43.1 and 43.2

A new edition of the Technical Guide to Class 43.1 and 43.2 was published on November 27, 2020.

This guide supersedes the 2013 edition of the Technical Guide to Class 43.1 and 43.2. A PDF version of the new edition is available at the link in the Technical Information section.

Proposed Changes to Class 43.1 and Class 43.2 Announced in the 2018 Fall Economic Statement

As announced in the 2018 Fall Economic Statement, the federal government proposes to provide an enhanced first-year allowance for property currently included in Class 43.1 or 43.2. The allowance applies to property that is acquired after November 20, 2018, and becomes available for use before 2028. The enhanced allowance will initially provide a 100 percent deduction, with a phase-out for property that becomes available for use after 2023. More information on this change may be found in Annex 3 of the statement, which is available on the 2018 Fall Economic Statement website.

Proposed Changes to Class 43.2 Announced in Budget 2018

As announced in Budget 2018, eligibility for Class 43.2 was extended by five years so that it is available in respect of property acquired before 2025. More information on this change may be found on page 155 of the Budget Plan, which is available 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 was 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 was expanded. More information on these changes may be found on pages 19 to 21 of Tax Measures: Supplementary Information, which is available 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. More information on the proposed changes may be found on pages 21 to 24 of Tax Measures: Supplementary Information, which is available from the Budget 2016 website.

New Editions of the Technical Guides

New editions of the technical guides for business income tax incentives for clean energy generation and energy conservation were published on December 12, 2014.

These guides supersede the 1998 edition of the Class 43.1 Technical Guide, the Technical Guide to Canadian Renewable and Conservation Expenses (CRCE), and all addenda and updates since 1998.

Proposed Changes to Class 43.1 and Class 43.2 in Budget 2014

As announced in Budget 2014, eligibility for the accelerated capital cost allowance for clean energy equipment was expanded to include water current energy equipment and a broader range of equipment used to gasify eligible waste. More information on the proposed changes may be found on pages 336 to 338 of the Budget Plan, which is available from the Budget 2014 website.

 

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