Air-source heat pumps have been added to the list of clean energy equipment that qualifies for special tax treatment through Canada’s accelerated capital cost allowance (CCA) program. Businesses that acquire qualifying systems for indoor space heating/cooling or water heating between federal budget day on April 7, 2022 and December 31, 2023 will be eligible to deduct the full value in the first year of ownership.
Other clean energy equipment — which is designated in class 43.1 or 43.2 for CCA purposes — already eligible for accelerated deductions includes: ground-source heat pumps, including those used to heat swimming pools; active solar heating equipment; heat recovery equipment; photovoltaic electrical generation equipment; geothermal energy equipment; equipment related to district energy systems; electrical energy storage equipment; and electric vehicle charging equipment.
As announced in the newly released 2022 federal budget, the following components associated with air-source heat pumps can be claimed: refrigerant piping; energy conversion equipment; thermal energy storage equipment; and control equipment and equipment designed to enable the system to interface with other heating and cooling equipment. Purchasers may also be able to be claim feasibility studies, engineering and design costs as allowable Canadian Renewable and Conservation Expenses (CRCE), which could claimed in the year incurred, carried forward or transferred to investors.
“As a means to displace the use of fossil fuels for heating, or of providing a more efficient means of heating with electricity (e.g., compared to electric baseboard heaters), air-source heat pumps can play a role in reducing emissions of greenhouse gases and air pollutants associated with heating buildings in Canada,” the budget document states.
Concurrently, manufacturers of air-source heat pumps will be eligible for new tax credits, which were announced in the 2021 federal budget, but are available to claimants for the first time in 2022. That program provides a 50 per cent reduction in the corporate tax or small business tax rate until 2028 for manufacturers of designated zero-emission technologies, with a continued tax credit at incrementally lower rates in the 2029-2031 period.
The budget document states that adding the new category to the original list of designated manufacturers — including those producing solar, wind, hydroelectric and geothermal equipment, as well as equipment related to ground source heat pumps, electrical storage of renewable energy, and electric vehicle charging systems — will “support job creation and growth in clean technology manufacturing in Canada”.
It’s estimated the Canadian government will forego about $53 million in tax revenue over five years by extending the two measures to air-source heat pumps.
