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  • Service: Tax
  • Type: Regulatory update
  • Date: 10/8/2013

Canada 

Taxes and Incentintives
Canada Taxes and incentives for renewable energy KPMG Global Energy & Natural Resources.

Support schemes

Federal investments and other subsidies


The Government of Canada has committed that Canada’s total greenhouse gas (GHG) emissions be reduced by 17 percent from 2005 levels by 2020 and that 90 percent of Canada’s electricity be generated from sources that do not produce GHG pollution by 2020. Here is a summary of incentives and grants that the federal government has invested in support of these goals.


Income tax incentives


Accelerated Capital Cost Allowance (ACCA)


Advantageous ACCA rates are available for certain types of assets used for clean energy generation and energy conservation:


  • Class 43.1 (30 percent declining balance basis) for certain clean energy generation and energy conservation equipment.
  • Class 43.2 (50 percent declining balance basis) for certain equipment described in Class 43.1 that is acquired on or after 23 February 2005 and before 2020 that is used for clean energy generation and energy conservation and meeting higher efficiency standards.
  • Recent federal budgets continue to expand the list of equipment that qualifies for an ACCA. The current eligible equipment includes:
    • electricity
      • high-efficiency cogeneration equipment
      • small hydroelectric facilities
      • wind turbines
      • fuel cells
      • wave and tidal power equipment
      • photovoltaic (PV) equipment
      • equipment generating electricity from geothermal energy
      • equipment generating electricity from eligible waste fuel.
    • thermal energy
      • active solar equipment
      • district energy equipment that distributes thermal energy from cogeneration
      • heat recovery equipment used in electricity generation and industrial processes
      • ground source heat pump equipment
      • equipment generating heat for industrial processes or greenhouses, using an eligible waste fuel.
    • fuels from waste
      • equipment that recovers landfill gas or digester gas
      • equipment used to produce biogas through anaerobic digestion
      • equipment used to convert biomass into bio-oil.
  • The 2013 budget proposes to broaden the eligible equipment in Class 43.2 to include
    • Equipment used to produce biogas using pulp and paper waste and waste water, beverage industry waste and wastewater, and separated organics from municipal waste.
    • A broader range of cleaning and upgrading equipment used to convert eligible gases (biogas, landfill, digester) into biomethane.

Canadian Renewable and Conservation Expense (CRCE)


To promote development and conservation of sources of renewable energy, many start-up expenditures on renewable projects can be grouped in a CRCE pool. CRCE can include intangible expenses such as feasibility studies, negotiation, regulatory, site approval costs, site prep and testing, etc. CRCE can also include test wind turbines that are part of a wind farm, on projects where 50 percent or more tangible costs are reasonably expected to be included in Class 43.1 or 43.2 ACCA. CRCE is fully deductible in any year, can be carried-forward indefinitely or can be transferred to investors through the flow-through share rules.


Scientific Research & Experimental Development (SR&ED) Program


The SR&ED Program is a federal tax incentive program administered by the Canada Revenue Agency that encourages Canadian businesses of all sizes, and in all sectors, to conduct R&D in Canada. Companies, including those carrying on business in clean energy generation, may be entitled to claim an Investment Tax Credit (ITC) if they incur eligible R&D expenditure. The tax credit is based on money already committed and spent by the company. The program is the single largest source of federal government support for industrial R&D, returning as much as a 35 percent federal cash refund.


Sustainable Development Technology Canada (SDTC)


SDTC plays a significant role in bridging the gap between research and commercialization of clean technologies. It does this by fast-tracking clean technologies through their development and demonstration phases, in preparation for commercialization. SDTC is an arm’s-length foundation that was created by the Federal government to invest Canadian dollar (CAD)1.09 billion in innovative technologies and projects that deliver economic, environmental, and health benefits to Canadians.


Backed by CAD590 million in funds, SDTC supports projects that address climate change, air quality, clean water and clean soil. The CAD500 million NextGen Biofuels Fund supports the establishment of first-of-kind, large demonstration-scale facilities for the production of next-generation renewable fuels.


SDTC acts as the primary catalyst in building a sustainable development technology infrastructure in Canada. The SDTC portfolio is currently comprised of 245 clean technology projects, for a total value of CAD2.1 billion, of which over CAD1.5 billion is leveraged primarily from the private-sector. In February 2013, SDTC announced its 22nd call for applications, which was open until 17 April 2013.


ecoENERGY


The ecoENERGY program targets several areas including biofuels, energy efficiency and renewable energy.


  • ecoENERGY for biofuels: The ecoENERGY for Biofuels initiative has a budget of CAD1.5 billion over nine years to boost Canada’s production of biofuels. The program runs from 1 April 2008 to 31 March 2017, and recipients will be entitled to receive incentives for up to seven consecutive years.
  • ecoENERGY for Renewable Power: The ecoENERGY for Renewable Power initiative has a budget of approximately CAD1.4 billion over 14 years to encourage using renewable energy sources to create electricity. The program runs from 1 April 2007 to 31 March 2021. There are no new agreements signed after 31 March 2011; however, many projects with existing contribution agreements will still receive payments up until 31 March 2021.

Provincial investments and other subsidies


Bioenergy Producer Credit Program – Alberta


To expand Alberta’s bioenergy sector, the Bioenergy Producer Credit Program was established to provide production subsidies for a variety of bioenergy products, including renewable fuels, electricity, and heat using waste such as manure and wood chips. In the 2013 budget, the Government of Alberta cancelled future rounds of the Bioenergy Producer Credit Program. However, the government will still be honoring payments to existing grant agreements. The program is valid for bioenergy production from 1 April 2011 to 31 March 2016.


Carbon Capture and Storage (CCS) fund – Alberta


The Alberta government has committed CAD2 billion to advance CCS technology. Approved projects can receive a maximum of 75 percent of the total incremental cost to capture, transport and store CO2. A maximum of up to 40 percent of the approved funding will be distributed during the design and construction stage based on achieved milestones and up to an additional 20 percent of the approved funding will be granted upon commercial operation. The remaining 40 percent of the funding will be provided as CO2 is captured and stored over a maximum period of 10 years.


The government of Alberta has awarded funding for two projects from its CAD2 billion CCS fund.


  • Alberta Carbon Trunk Line (CAD495 million)
  • Shell Quest (CAD745 million)

Innovative Energy Technologies Programs (IETP) – Alberta


The Innovative Energy Technologies Program (IETP) supports the Provincial Energy Strategy (PES), which identifies the need for innovation, research and technology development. Announced in 2004, the IETP supports innovative technology development in the production of Alberta’s oil, oil sands, and gas resources. It also supports finding commercial technical solutions to the gas-over-bitumen issue to allow the efficient and orderly production of both resources. Over time, program costs will be recovered through additional recoverable reserves and increased royalties. Successful applicants in the program are provided with royalty adjustments up to a maximum of 30 percent of approved project costs. The industry must provide the remaining 70 percent or more of total project costs. The total industry/government commitment to important new technologies, assuming full subscription of the program, will be more than CAD800 million.


Innovative Clean Energy Fund (ICE) – British Columbia


The Innovative Clean Energy Fund encourages the development of new sources of clean energy and technologies and supports pre-commercial energy technology or commercial technologies not currently used in British Columbia. Since 2008, there are 62 projects with a total amount of CAD77 million that have been approved throughout British Columbia.


SR&ED tax credit – All provinces


Various provinces provide refundable and/or non-refundable investment tax credits (ITC) worth between 10 percent and 15 percent of annual eligible expenditures (depending on the particular province) for all corporations that do business through a permanent establishment situated in that province. Eligible expenditures are generally those that qualify for federal ITC purposes and are generally capped at a maximum annual credit.

Operating subsidies

There are no feed-in tariffs and quota obligations at the federal level but they are implemented in some provinces.

Quota obligation – Alberta

The province of Alberta requires facilities that emit more than 100,000 tonnes of GHG emissions a year to reduce their emissions intensity by 12 percent as of 1 July 2007. Emitters have four choices for compliance with this emissions reduction target:


  • make improvements to their operations
  • purchase offset credits from other sectors that have voluntarily reduced their emissions
  • pay CAD15 a tonne into the Climate Change and Emissions Management Fund, an arm’s length organization independent from the government that invests the funds into initiatives and projects that support emission reduction technologies
  • purchase Emissions Performance Credits from facilities that have reduced their emissions intensity below the mandatory 12 percent threshold.

Feed-in tariff (FIT) – Ontario


The Ontario FIT program is North America’s first comprehensive guaranteed pricing structure for renewable electricity production, and it provides a way to contract for renewable energy generation. It includes standardized program rules, prices and contracts for anyone interested in developing a qualifying renewable energy project. Prices are designed to cover project costs and allow for a reasonable return on investment over the contract term, and they are subject to review periodically. Qualifying renewable technologies include biogas, renewable biomass, landfill gas, solar photovoltaic (PV), waterpower and wind power. As of 31 January 2013, there were 1,728 contracts executed to generate 4,546 MW of electricity.


With the help of the FIT program, Ontario is on the track to be the first jurisdiction in North America to replace coal-fired generation with cleaner sources of power by the end of 2014.

 

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