Tax Credit for Industrial Heat Recovery

Summary#

Bill C-269, An Act to amend the Income Tax Act (heat recovery tax credit), would amend the federal Income Tax Act; it would not create a separate operating program. Its stated goal is to provide a tax credit to certain businesses that recover heat from industrial processes and convert it to energy. The proposed provisions are not in force under this bill.

• A taxable Canadian corporation could claim a non-refundable tax credit equal to 30% of the capital cost of qualifying equipment acquired after December 31, 2025.
• The equipment would have to be used all or substantially all to recover industrial-process heat and convert it to energy, be intended for use exclusively in Canada, and be new to use in Canada.
• The corporation would have to file a form with prescribed information by its filing deadline. The equipment must not have been exported, sold or leased before the end of the tax year.
• Non-government assistance for the equipment would reduce the cost used to calculate the credit. Partnership rules would govern how credits are allocated, including a limit for limited partners.
• If, within the specified five-calendar-year period, the equipment is converted to another use, exported or disposed of, the corporation’s tax would be increased by the credit it claimed for that equipment.

What it means for you#

• Businesses: An eligible taxable Canadian corporation could use the credit to reduce tax otherwise payable. Because it is non-refundable, the credit is not described as a payment to a business.
• Businesses buying equipment: Equipment already used, or acquired for use or lease, in Canada for any purpose would not qualify. The bill does not define “industrial processes” or “all or substantially all.”
• Businesses in partnerships: A corporation could receive its reasonable share of a partnership’s credit. A limited partner’s allocation could not exceed its at-risk amount (broadly, the amount it has at stake under the tax rules).
• Other people and organizations: The bill does not directly change personal income taxes, set an energy-generation requirement for the public, or create a new front-line service.
• The supplied material does not include the current Income Tax Act, so I could not verify how the amendments would interact with current law or existing credits.

Money#

No publicly available information gives an estimate of the credit’s cost to the federal government.

• The bill would allow qualifying corporations to reduce tax otherwise payable; it does not state a total spending limit.
• The bill requires a tax form but gives no estimate of administration, compliance or staffing costs.
• No cost estimate is provided for businesses acquiring equipment.

What is unclear#

• The bill does not define “industrial processes” or “all or substantially all,” or explain how eligibility would be decided.
• It refers to a prescribed form and prescribed information, but the supplied text does not give them or describe a review, decision, appeal or reporting process.
• It does not state whether unused credits can be carried forward if a corporation cannot use the full amount against tax otherwise payable.
• The supplied material does not explain how this credit would interact with other available credits or assistance.
• The bill says it applies to the 2025 and later tax years, but equipment must be acquired after December 31, 2025. The supplied text does not give a separate start date for the amendments.

Case for#

• The bill appears intended to encourage businesses to recover heat that would otherwise be produced by industrial processes and convert it into energy.
• A credit based on equipment cost could lower the tax cost of investing in qualifying equipment.
• Requiring the equipment to be intended for use exclusively in Canada, and not previously used in Canada, ties the credit to new equipment for Canadian use.
• The partnership rules would allow eligible corporations to receive a share of a partnership’s credit, while limiting allocations that are unreasonable or exceed a limited partner’s at-risk amount.

Case against#

• The credit would reduce federal tax revenue, but the supplied material gives no estimate of its cost.
• The key eligibility tests are not defined in the bill text supplied. This could leave businesses uncertain about which equipment qualifies.
• A non-refundable credit may provide little or no immediate benefit to a corporation without enough tax otherwise payable; the supplied text does not say whether unused amounts can be carried forward.
• A corporation could owe tax equal to the full credit claimed if the equipment is converted to another use, exported or disposed of within the specified period, even though the text gives no process for exceptions or partial repayment.