Accelerated Capital Cost Allowance

Electricity Canada is advocating to extend Accelerated Capital Cost Allowance (ACCA) classes 43.1 and 43.2 to support our members as they bring Canada closer to our climate goals.

Overview

Canadian electric utility companies are expected to carry Canada toward our 2030 and 2050 greenhouse gas (GHG) reduction targets. Reaching our goals will mean the electrification of heavily polluting sectors like transportation and industrial processes. To support electrification, Canada’s clean energy production will need to double or triple in the next few decades. While our electric utilities are expected to invest in more clean energy generation, they must also invest to ensure continued reliability in the face of increasingly common extreme weather events. The Conference Board of Canada estimates that the necessary investment for decarbonizing, expanding, and reinforcing is $1.7 trillion.

The federal government can help Canada’s investor-owned electricity companies in a simple, practical, and impactful way through tax depreciation. Tax depreciation can encourage businesses to invest in clean energy technology with tax deductions for certain eligible properties, saving money. Current Accelerated Capital Cost Allowance (ACCA) classes are already doing this.

Background on Tax Depreciation and Classes

  • Tax depreciation is a mechanism for writing off some amount of an asset’s cost over its useful life against the profits generated by the asset owner. Depreciation is a useful mechanism to encourage investments for specific types of assets since increasing depreciation rates reduces taxable income, saving money.
  • Accelerated depreciation allows a company to greatly reduce its taxable income in current years, further incentivizing the purchase of new assets.

  • In Canada, depreciable property is split into multiple classes with differing rates of depreciation, called Capital Cost Allowance (CCA) classes.

Classes 43.1/43.2

  • CCA classes 43.1 and 43.2 are accelerated and have high depreciation rates of 30% and 50% respectively, on a declining balance basis. Eligibility criteria for both classes are otherwise generally the same, with a few exceptions.
  • Properties included in classes 43.1 or 43.2 are also generally eligible for an enhanced first-year allowance initially providing a 100% deduction.
  • Projects for which at least 50% of the capital cost of depreciable property used is included in classes 43.1 or 43.2 are also eligible for Canadian Renewable and Conservation Expense (CRCE) income tax incentives. Expenditures that qualify as CRCE may be fully deducted in the year incurred or carried forward indefinitely.
  • These tax incentives additionally allow asset owners to issue flow through shares, which work by allowing a business with more tax deductions than revenue to ‘flow’ unused tax deductions on to shareholders. In this way, investors can support clean energy and reduce their own tax burdens.

Extending classes 43.1 and 43.2 in time and scope

ACCA Classes 43.1 and 43.2 help to encourage Canadian businesses to invest in clean energy generation and conservation equipment through the mechanisms outlined above.

  • Scope: Electricity Canada believes that classes 43.1 and 43.2 should be extended to include smart grid technology equipment since it is the key to a more diversified energy supply as grid automation and extension enables the integration of variable renewable generation and energy storage.
  • Duration: Electricity Canada believes that ACCA class 43.2 should be extended to include properties acquired before 2031 or beyond, as Canada’s electric utilities are expected to invest heavily in clean energy generation in the coming years to meet our 2030 and 2050 climate goals.

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