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, that conserve energy by using fuel more efficiently, or that produce low-carbon fuels from waste are eligible for an 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 lower annual rates.
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.
There are also capital cost allowances for zero emission vehicles acquired after 18 March 2019, which are available for use before 2028 (with a phase out on deductions happening from 2024). Eligible vehicles are those that are plug-in hybrid with battery capacity of at least 7 kWh or is fully electric or fully powered on hydrogen.
An enhanced first-year capital cost allowance with the following phase-out period is available:
- 100% after March 18, 2019, and before 2024
- 75% after 2023 and before 2026
- 55% after 2025 and before 2028
