April 17, 2009
The Department of Finance is inviting interested parties to participate in a consultative process regarding the potential provision of accelerated capital cost allowance (CCA) for income tax purposes to equipment used in carbon capture and storage.
Carbon capture and storage is an emerging technology with potential to significantly reduce greenhouse gas (GHG) emissions resulting from the combustion of fossil fuels at large industrial facilities. Broadly speaking, carbon capture and storage consists of three activities:
In light of the potential importance of carbon capture and storage as a means of reducing GHG emissions, Budget 2009 committed to consulting with stakeholders to identify specific assets used in carbon capture and storage with a view to providing accelerated CCA in respect of such investments. Accelerated CCA is currently used to promote investment in certain clean-energy generation technologies. Advancing the timing of capital cost deductions for tax purposes defers taxation and improves the financial return from investment in particular assets.
Interested parties wishing to comment on the identification of assets used in carbon capture and storage in respect of which accelerated CCA might appropriately be provided should submit their views in writing by June 30, 2009 to:
Carbon Capture and Storage CCA Consultation
Department of Finance Canada
Business Income Tax Division, 17th Floor
140 O'Connor Street
Submissions should include:
Following the consultation period, the Government will review the submissions that have been received, and take them into consideration in its deliberations with respect to possible tax changes in this area.
For further information about the consultation process, please contact:
Chief, Resource and Environmental Taxation
Department of Finance
Carbon capture and storage is an emerging technology with potential to reduce greenhouse gas (GHG) emissions resulting from the combustion of fossil fuels at large industrial facilities. Broadly speaking, carbon capture and storage consists of three activities that can be accomplished using a variety of technology options:
The capital cost allowance (CCA) system determines how much of the cost of a capital asset a firm may deduct each year for tax purposes. CCA rates are generally set so as to spread the deduction over the useful life of the asset – the period over which it contributes to earnings. This ensures a neutral tax treatment of different types of assets, so that investment is allocated to its most productive use.
An accelerated CCA rate allows an asset to be written off for tax purposes more quickly than its useful life would imply. By accelerating the timing of capital cost deductions, this defers taxation and improves the financial return from investment in particular assets.
Accelerated CCA is currently used to promote investment in certain clean energy generation technologies that have broad social benefits in terms of reduced environmental impacts. Class 43.2 provides accelerated CCA (50 per cent per year on a declining balance basis) for specified equipment that generates energy in the form of electricity or heat by using a renewable energy source (e.g. wind, solar, small hydro), using waste fuel (e.g. landfill gas, wood waste, manure), or making efficient use of fossil fuels (e.g. high efficiency cogeneration systems, which produce electricity and heat simultaneously).
Budget 2009 committed to consult with stakeholders on the identification of specific assets expected to be used in carbon capture and storage with a view to providing accelerated CCA for such investments. In this consultation process, the Department of Finance is particularly interested in views from interested parties on the following questions: