Claiming capital cost allowance on solar equipment

What is capital cost allowance on a solar system?

When a taxpayer buys equipment that will last for years, the tax system generally does not allow the whole cost to be deducted at once. The equipment is assigned to a class with a stated rate, and each year the owner may deduct up to that rate on the remaining balance, called the undepreciated capital cost. The deduction is optional in any year, and the owner can claim less than the maximum.

This guide is general information, not tax advice. Rates, classes and special rules are set by federal tax law and change, so the Canada Revenue Agency pages and an accountant have the final say. The wider picture for firms is in the CCA for business guide and the small business solar tax guide.

How does the declining-balance method work?

Under declining balance, the deduction is a percentage of what is left, so it is largest in year one and shrinks as the balance falls. The first year is often subject to the half-year rule, which limits the claim to roughly half of the normal amount, unless a temporary measure changes that.

Here is an illustration with invented numbers. Say an income-earning property is bought for 50,000 dollars and the class rate is 20 percent. The year-one deduction under a half-year rule is about 5,000 dollars (20 percent of half the cost). The balance falls to 45,000. In year two the deduction is 20 percent of 45,000, or 9,000 dollars, and the balance falls to 36,000. The deductions keep shrinking while the balance never quite reaches zero. A real class may have a different rate, and an accelerated class changes the timing but not the total.

Which classes apply to solar equipment?

Tax law has special classes for certain clean energy generation and conservation equipment, commonly referred to as Classes 43.1 and 43.2, and solar electric and some solar heating equipment have been described as eligible. Which items qualify, under what conditions and at what rate depends on the current rules and on how the equipment is used. Inverters, mounting, wiring and batteries may be treated differently from panels, and some items can fall into a general class.

Do not rely on a blog, including this one, for the class that fits your project. Ask the installer how the invoice splits equipment from labour, and ask the accountant or the CRA which class each item belongs in. Check the CRA guidance for the tax year in which the equipment becomes available for use.

Who can claim CCA on solar panels?

The owner of the equipment, for tax purposes, claims the allowance, and only when the property is used to earn income. That includes a business, a farm and a rental property. A homeowner whose panels simply power a personal residence does not claim CCA on them, although other rules can apply if some of the electricity is sold; see is solar income taxable in Canada and the rooftop rental and grid sales guide.

If a third party owns the system under a lease or power purchase agreement, that party claims the allowance and the customer deducts its payments as an expense in general terms. The lease versus PPA guide explains why the structure matters.

How do credits and grants affect the claim?

A tax credit or grant on the same equipment can reduce the capital cost that may be depreciated, so a larger credit means a smaller base for CCA. The interaction depends on the specific measure and year. The clean technology investment tax credit explainer and the solar tax credit overview cover the credit side, and what changed in 2025 and 2026 notes how quickly the rules move.

Keep the invoice, the contract showing ownership, the commissioning date and records of any grant. A long-lived project has a long tax life, much as the Drake Landing collectors and boreholes were designed for decades on the engineering side; see borehole storage.

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