The Ontario Power Authority (the "OPA") has developed a Feed-In Tariff (the "FIT") Program for the Province of Ontario to encourage and promote greater use of renewable energy sources, including wind, waterpower, renewable biomass, bio-gas, landfill gas and solar photovoltaic ("solar pv"), for electricity generating projects in Ontario. The microFIT Program is a stream of the FIT Program and allows for the participation in "micro"renewable energy projects (10 kW or less).
Participants in either the FIT or microFIT Program will include individuals, proprietorships, partnerships and corporations that meet the eligibility requirements described under each Program (the "Participant"). Details of each Program are available at The Ontario Power Authority Feed-in Tariff Program.
Under each Program, a Participant with an approved renewable energy project will enter into a contract with the OPA (the "Contract") to supply the electricity generated from the renewable energy project to the electricity distribution system. The terms of the Contract generally provide that the Participant will be paid for each kWh of electricity generated from the renewable energy project, regardless of whether the electricity is consumed by the Participant or delivered to the electricity distribution system. The present rates per kWh are contained at Feed-in Tariff prices.
A Participant in these Programs will have income tax consequences, as discussed below. All CRA publications referred to in the questions below are available on the CRA web site in the Forms and publications section. For further information on the income tax implications of these Programs, contact the Resources Industry Section, Income Tax Rulings Directorate by making a request.
Yes. The amounts earned by a Participant under a Contract are considered income from a source that is either business or property.
A Participant will include in income for a given taxation year all amounts earned for electricity generated by the renewable energy project and for which the Participant is entitled to receive an amount under the Contract, regardless of whether the Participant uses any of the electricity for personal consumption.
Generally, the Participant should report income using the accrual method of accounting. With this method, the Participant will report the income in the taxation year that the amount is earned under the Contract, regardless of when the amount is received.
A Participant may deduct any reasonable expenses incurred to earn business or property income. For example, a homeowner who installs a solar pv system on the roof of his or her residence, and enters into a Contract under the microFIT Program may deduct any incremental increases to property taxes and insurance resulting from the installation of the solar pv system.
4. Will a Participant who uses a portion of the electricity generated from the renewable energy property for personal home consumption be allowed to deduct any amount paid to his or her local electricity distributor for such personal home consumption?
No. The Participant's personal home consumption of electricity is a personal expense that is not deductible for income tax purposes.
Generally, costs associated with the purchase and installation of renewable energy property are considered as capital costs of depreciable property, which are deducted over a period of several years, based on a prescribed percentage.This deduction is referred to as capital cost allowance (CCA). Generally, amounts paid for legal, engineering, installation, and other fees that relate to the acquisition of the renewable energy property, would be included as part of the capital cost of the property.
In general, a Participant would include the capital costs of a renewable energy property in Class 43.1 or 43.2 for CCA purposes, provided that the property meets the requirements of these Classes. These classes provide an accelerated CCA rate for specified clean energy generation equipment, as discussed in Question 6 below.
The renewable energy property included in these Classes is generally the same with the exception that renewable energy property acquired after February 22, 2005 and before 2020 is classified as Class 43.2 property.
If the majority of tangible property in a project is eligible for inclusion in Class 43.1 or Class 43.2, certain intangible project start-up costs such as feasibility studies and pre-construction development expenses may be treated as a Canadian renewable and conservation expenses [CRCE]. For most taxpayers, these expenses may be deducted in the year incurred or carried forward for deduction in future year.
Further information regarding CRCE is available at Renewable energy and energy conservation.
The CCA rate for Class 43.1 is 30% per year and the CCA rate for Class 43.2 is 50% per year, computed on the declining balance basis, and is subject to certain CCA deduction limitations as discussed in Question 7 below.
In the year a Participant acquires a renewable energy property that has become available for use, the CCA rate is normally one-half of the rate that would otherwise be allowed.
For further information on computing CCA, please refer to Chapter 4 of Guide T4002, Business and Professional Income.
Subject to the exceptions described in question 8 below, under the "specified energy property rules" CCA on renewable energy property is limited to the net income from the property or the business of selling the energy generated by the property. CCA cannot be used to create or increase a loss from a renewable energy property.
The CCA deduction limitation would not apply where it is expected that more than 50% of the energy produced by the renewable energy property is to be used or consumed in earning income from either
In addition, the CCA deduction limitation does not apply to certain corporations (and partnerships each member of which was an eligible corporation) whose principal business is:
Yes. Since the homeowner is not consuming the energy produced in a business or to earn income from another property, the homeowner will be subject to the CCA deduction limitation described in Question 7.
Where a particular renewable energy property meets all of the criteria for inclusion in Class 43.1 or 43.2, it must be included in those Classes and not in any other CCA Class.
No. Since the Participant will be earning business or property income from the solar pv system, the Participant will not be able to claim HRTC for expenditures relating to the purchase and installation of the system.
Yes. For further information on "principal residence", see Chapter 6 of Guide T4037, Capital Gains.
Yes. Where a Participant sells his or her residential home, which includes a renewable energy property, a reasonable portion of the sale price must be allocated as proceeds of disposition of the renewable energy property and reported in Area A on page 4 of your Form T2125. This may result in a recapture into income of any CCA claimed on the property and such recaptured income must be reported for income tax purposes. For further information on reporting dispositions of depreciable property, please refer to Chapter 4 of Guide T4002, Business and Professional Income.
The balance of the sale price is generally allocated to the residential home. If the residential home was designated as a principal residence for every year that it was owned, there will be no income tax consequences on the disposition of the residential home. For further information on "principal residence", see Chapter 6 of Guide T4037, Capital Gains.