2015-0568271E5 Class 43.2 - Solar Thermal System

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA. Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Principal Issues: Whether solar thermal systems qualify for accelerated capital cost allowance under Class 43.2 of Schedule II of the Income Tax Regulations?

Position: Possible, depends on the facts.

Reasons: Mixed fact and law.

Author: Evans, Sean

Section: Reg. 1100(1)(a)(xxix.1), Cl. 43.1 (d)(i)(A)(I); Reg.(1100)(1)(a)(xxix.2) Sch. II:Cl. 43.2; Reg. 1100(24) to (29); Reg. 1102(1)(c); ss 13(26) to (31) of the ITA

                                                                                                                                                             Sean Evans, CPA, CGA, MBA
                                                                                                                                                             613 670-9049
March 31, 2015

Dear Sir:

Re: Class 43.2 – Solar Thermal System

This is in response to your email dated January 15, 2015, which enquired about whether solar thermal systems qualify for accelerated capital cost allowance (the “CCA”) under Class 43.2 of Schedule II to the Income Tax Regulations (footnote 1) (the “Regulations”).

Our Comments:

Written confirmation of the income tax implications inherent in particular transactions is given by this directorate only where the transactions are proposed and are the subject matter of an advance income tax ruling request as described in Information Circular 70-6R6 (the “IC 70-6R6”) dated August 29, 2014, issued by the Canada Revenue Agency (the “CRA”).  This service requires a fee.  Although we are unable to provide any comments with respect to the specific situations that you have described, otherwise than in the form of an advance income tax ruling, we will provide the following general comments.

Whether any particular piece of equipment qualifies for inclusion in one of the classes described in Schedule II of the Regulations is a question of mixed fact and law, which requires a review of all the facts of the situation.  While we cannot confirm that your equipment will be eligible for inclusion in Class 43.2 of Schedule II to the Regulations we can provide some general comments, which we hope will be of assistance. Class 43.2 of Schedule II to the Regulations provides a CCA rate of 50% per year on a declining balance method for certain clean energy generation equipment that is described in paragraph (d) of Class 43.1 and is acquired after February 22, 2005 and before 2020.  Subclause (d)(i)(A)(I) of Class 43.1 includes property that is used by the taxpayer, or by a lessee of the taxpayer, primarily for the purpose of heating an actively circulated liquid or gas and is active solar heating equipment.  This includes equipment that consists of above ground solar collectors, solar energy conversion equipment, solar water heaters, energy storage equipment, control equipment and equipment designed to interface solar heating equipment with other heating equipment.

There is an exclusion for certain property under clause (d)(i)(B) of Class 43.1.  Specifically, (1) a building or part of a building other than an active solar collector that is integrated into the building; (2) equipment used to heat water for use in a swimming pool; (3) energy equipment that backs up equipment described in subclause (d)(i)(A)(I) of Class 43.1; or (4) equipment that distributes heated or cooled air or water in a building.

Furthermore, paragraph (e) of Class 43.1 stipulates that the property must be situated in Canada and must be acquired or leased for the purpose of gaining or producing income from a business carried on in Canada or from property situated in Canada.  In addition, the property must not have been used before the taxpayer acquired it unless the property was depreciable property that was included in Class 34, 43.1 or 43.2 of the vendor and the taxpayer acquired the property no more than five years after it had become available for use by the vendor.  In addition, the property must remain at the same site in Canada as that at which the vendor used the property.

We note that active solar heating equipment refers to equipment that uses a liquid or gas to transfer heat collected from solar energy in solar collectors to the solar energy conversion equipment.  The liquid or gas in active solar heating equipment is actively circulated in process piping or ductwork with a pump or a blower.  On the other hand, passive solar heating equipment does not use any mechanical equipment to actively transfer solar energy and is not eligible for inclusion in Class 43.1 or Class 43.2.

Scientific and engineering information on the equipment that can qualify under Class 43.2 is published by Natural Resources Canada in the Technical Guide to Class 43.1 and 43.2.  The latest editions of these technical guides in PDF format can be downloaded at the link:


In particular, section 2.3 describes active solar thermal equipment and schematic ASE 2.3.3 diagrams active solar heating equipment.

CCA limitation rules

Where certain taxpayers, other than taxpayers described in subsection 1100(26) of the Regulations, acquire clean energy generation or energy conservation equipment, the taxpayers may be considered to own “specified energy property” as defined under subsection 1100(25) of the Regulations and could be subject to the rules contained in subsection 1100(24) of the Regulations (the “CCA limitation rules”).  In general, these rules limit the amount of CCA deductions to the amount of income from such property.  This prevents the utilization of CCA deductions to create or increase a loss that might otherwise shelter other sources of income for tax purposes.

Specified energy property generally includes property described in Class 43.1 and 43.2.  However, pursuant to paragraphs (a) and (b) of subsection 1100(25) of the Regulations, the definition of specified energy property does not apply to the following situations:

(a)   Where the property is acquired to be used by the owner primarily for the purpose of gaining or producing income from a business carried on in Canada (other than the business of selling the product of the property) or from another property situated in Canada, or

(b)   Where the property is leased in the year in the ordinary course of carrying on a business of the owner in Canada and where certain conditions are met.

Finally, we note that subsection 1100(26) of the Regulations provides an exception from the CCA limitation rules and applies to the following taxpayers:

(a)   a corporation whose principal business throughout the year was (i) manufacturing or processing; (ii) mining operations; or (iii) the sale, distribution or production of electricity, natural gas, oil, steam, heat or any other form of energy or potential energy; or

(b)   a partnership each member of which was (i) a corporation described in paragraph (a), or (ii) another partnership described in this paragraph.

We trust that our comments, provided in accordance with paragraph 6 of the IC 70-6R6, will be of assistance.

Yours truly,


Fiona Harrison, CPA, CA
Resources Section
Reorganizations Division
Income Tax Rulings Directorate
Legislative Policy & Regulatory Affairs Branch



Note to reader:  Because of our system requirements, the footnotes contained in the original document are shown below instead:


1  “Regulations” means the Income Tax Regulations, C.R.C., c. 945, promulgated under the Act.

All rights reserved. Permission is granted to electronically copy and to print in hard copy for internal use only. No part of this information may be reproduced, modified, transmitted or redistributed in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, or stored in a retrieval system for any purpose other than noted above (including sales), without the prior written permission of Canada Revenue Agency, Ottawa, Ontario K1A 0L5.

© Her Majesty the Queen in Right of Canada, 2015

Tous droits réservés. Il est permis de copier sous forme électronique ou d'imprimer pour un usage interne seulement. Toutefois, il est interdit de reproduire, de modifier, de transmettre ou de redistributer de l'information, sous quelque forme ou par quelque moyen que ce soit, de facon électronique, méchanique, photocopies ou autre, ou par stockage dans des systèmes d'extraction ou pour tout usage autre que ceux susmentionnés (incluant pour fin commerciale), sans l'autorisation écrite préalable de l'Agence du revenu du Canada, Ottawa, Ontario K1A 0L5.

© Sa Majesté la Reine du Chef du Canada, 2015

Monthly Tax Update

For additional commentary on Technical Interpretations, court cases, government releases, and conference materials in a single practical document specifically geared toward owner-managed businesses, see Video Tax News Monthly Tax Update newsletter.

This effective summary and flagging tool is the most efficient way to ensure that you, your firm, and clients are fully supported and armed for whatever challenges are thrown your way.

Packages start at $399/year.

Learn More