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Tax Implications of Solar Projects For Business Owners

Category: Tax Services

You own a business in Kingston, Ontario and are considering the installation of solar panels on your facility’s roof to take advantage of the terms offered under the microFIT or FIT programs. Your tax considerations would include:

  • The income you earn from the project will be taxable. However, you will be entitled to claim deductions for any related expenses such as interest on loans used to acquire the solar panels and Capital Cost Allowance (“CCA”).
  • The amount of CCA you can claim will be restricted unless the solar equipment was acquired primarily to produce energy for use in your business. You will also not be subject to the CCA restriction if your business is incorporated and the principal business is manufacturing or processing, mining, or the generation and sale of energy.
  • The cost to acquire and install the solar panels will be included in Class 43.2 for CCA purposes, meaning that every year you can claim CCA of up to 50% of the remaining balance in Class 43.2. However, unless your business meets the exceptions noted above, the CCA will be restricted to an amount equal to the net profit from the solar panels.
  • The following example illustrates the CCA calculation. In this example, we have assumed your business is subject to the CCA restrictions, you paid $100,000 for the solar panels and your annual revenue will be $10,000.
Year 1 Year 2
Feed-in Tariff $ 10,000 $ 10,000
Expenses (interest, etc.) (1,000) (1,000)
Net Profit 9,000 9,000
CCA (9,000) (9,000)
CCA $ 0 $ 0

 

CCA Calculation:
Opening Balance in Class 43.2 $ 0 $ 91,000
Additions during the year 100,000 0
Available for CCA 100,00050% 91,00050%
Maximum CCA 25,000* 45,500
Restricted CCA 9,000 9,000
Ending Balance in Class 43.2 $ 91,000 $ 82,000

*In the year of acquisition, the maximum CCA that can be claimed is limited to half of the CCA that would otherwise be deductible.

Note that if your business was not subject to the CCA restrictions, the CCA would equal the “Maximum CCA” calculated above resulting in significant deductions in the first few years after the initial investment in the solar panels.
Contact Sean Tait or Adam Young at Secker Ross & Perry LLP for further information on the tax implications of your solar project. Sean and Adam can be reached at 613.544.1517 or by email at stait@srp-ca.com or ayoung@srp-ca.com.

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