Federal Tax Incentive for Commercial Solar Power

The Federal Government recently announced their Fall Economic Statement for 2018. Included in this are key tax incentives for businesses    A key outcome that has been implemented which will greatly affect commercial solar power systems is the new Federal tax incentive.

Previously, businesses were allowed to write off 50% of their renewable energy assets using the declining balance method, which worked out to a 25% write off in the first year. With the proposed changes, the government is now allowing a 100% write off in the first year for the full cost of specified renewable energy equipment.  These changes are effective for equipment purchase after November 20, 2018 and shall be in effect until 2028 with a 5-year phase out of the proposed increased leading up to that date.

This is a big advantage for businesses wanting to install solar panels.

The benefits of the changes stretch far beyond clean energy investments into manufacturing, processing, equipment, buildings, computers and numerous other business facets.

By the Numbers

Business XYZ wants to purchase a $100,000 commercial solar power system.  The current federal corporate tax rate for XYZ is 28%.

Case A – Original Tax Incentive for Commercial Solar Panels

Under the previous tax methodology, Business XYZ would be able to write off $25,000 in year 1, $37,500 in year 2, $18,750 in year 3 gradually diminishing by 50%/yr until the entire $100,000 is written off.

This would result in savings of $7,000 in year 1, $ 10,500 in year 2, $5,250 in year 3 also gradually diminishing by 50%/yr until the asset is depreciated.

Case B – Updated Commercial Tax Incentive for Solar Power

With the new changes, Business XYZ can write off the entire $100,000 investment in Year 1, saving 5-10 years of diminishing savings.  

At a corporate tax rate of 28%, Business XYZ will save $28,000 in Year 1 - a massive advantage to the previous system.

Conclusion

The numbers cited above are for example only and may differ from one business to another. Always consult your CPA for advice regarding tax incentives for you specific business.

The new federal tax incentives for commercial solar power systems (and other business areas) are a great financial savings accelerator for businesses wanting to invest in clean energy.  To combat rising electricity prices, solar power investments offer a safe hedge against rising operating costs.  The decreasing cost of solar panels in addition to this new tax incentive for businesses makes solar more affordable than ever.

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