Air. Earth. Fire. Water. The four classical elements help to conceptualize environmental impact, and aid in the classification of a wide variety of ecological measures.
• Pollution control equipment
• Green technologies
Earth: carbon tax, trading
• Waste disposal/diversion
• End of life product plans
• Production inputs
• Packaging materials
• Alternative energies: solar, wind, geothermal, biomass
Water: tax incentives
• Flow restrictions
• Waste diversion
Canadian governments are encouraging the use of green technologies through regulations and taxes. A recent flurry of legislative activity focuses on the “Air” and “Fire” elements.
The Income Tax Act provides an accelerated capital cost allowance (50 per cent per year on a declining balance basis) for specified clean energy equipment acquired before 2020. This category includes equipment that generates heat or electricity by using renewable energy sources (wind, solar, tidal, geothermal, biomass), uses waste to create bio-fuels, and uses fossil fuels in high-efficiency co-generation situations. Similar equipment meeting a lower efficiency standard is eligible for the lower, but still generous, 30 per cent per year CCA rate.
Where the majority of tangibles are eligible for the enriched CCA rates, certain intangible start-up costs (such as engineering, design work, and feasibility studies) are also treated as Canadian Renewable and Conservation Expenses. These expenses may be fully deducted in the year incurred, carried forward indefinitely for use in future years, or transferred to investors.
• British Columbia: The province announced a revenue-neutral carbon tax commencing July 1, 2008. This tax will be offset by income tax reductions to businesses and individuals, and levied at the retail level. A cap and trade system will also be introduced commencing in August 2008.
• Alberta: An emissions trading system was introduced to provide for the purchase of credits and offsets. Where emissions levels are exceeded, it provides for payments into a management fund.
• Ontario: In addition to several programs and retail sales tax initiatives already in place (e.g. Energy Star), two new measures are aimed at start-up clean technology companies: the Next Generation of Jobs Fund, and a ten year income tax break for corporations commercializing their intellectual property.
• Quebec: In 2007, Quebec introduced a carbon levy with revenues funneled towards the six-year, $1.2 billion Green Fund to support projects aimed at lowering the province’s GHG emissions and meet its Kyoto target.
Making sense of the various fiscal incentives, disincentives and taxes at the federal and provincial levels is a challenge – but one worth undertaking. By maximizing tax benefits and addressing the implications of regulatory regimes, an effective tax strategy will provide access to capital, and can be the lever for technological advancement.