Solar and Tax: A Guide for Small Businesses

Start with who owns the equipment

This guide is general information, not tax advice. Tax rules differ by person and by year, so the final word belongs to the Canada Revenue Agency and to an accountant who has seen your actual situation.

Buy, lease or pay per unit of power: the three common structures put the tax benefits in different hands. A buyer owns the asset, may claim depreciation, and may be eligible for a business credit if the equipment qualifies. A lessee generally deducts the lease payments, and the lessor holds the asset. A power purchase arrangement looks like a utility bill to the customer. Compare these structures with the financing options guide, then ask an accountant which fits your tax position. A business with little taxable income may not be able to use tax-based benefits, which makes the owner's tax capacity a real input.

Small businesses also face a practical question that large firms rarely do: the owner often pays personally for things the business uses. If the system is bought in an owner's name and used by a company, the ownership paper trail may not match the tax claim. Sort out which legal entity buys, which signs the utility agreement and which claims, and put it in writing before the first payment. Retrofitting that paperwork after the fact is slow, and an accountant will usually prefer to hear about it at the quote stage.

Timing of the purchase against the business's fiscal year end can matter too, since in-service dates drive when deductions begin. Ask your accountant what year the system will fall into, based on the likely commissioning date and not the date of the deposit.

What can be claimed, in concept

There are two main concepts. One is depreciation, called capital cost allowance in Canada, explained in the CCA guide. The other is an investment tax credit for qualifying clean equipment, described in the clean technology credit guide. Operating costs such as maintenance and monitoring are generally ordinary business expenses. Interactions between grants, credits and depreciation can reduce one another, so do not add up benefits from separate sources without checking.

Farms, shops and rental buildings

A farm may use power for pumps, fans, drying and shops, and an array there is often a business asset. A shop or office with an attached suite may need a split between business and non-business use. A landlord who owns a building and tenants who pay their own power raises further questions about who benefits from the production. Think about who consumes the electricity and who receives the bill credits. The guide on solar income covers what happens when power is sold or credited and why contract wording matters.

Record-keeping that pays off

Create one folder for the project with the contract, quotes you rejected, the final invoice, proof of payment, permits, utility approval, commissioning sheet, warranty documents and photographs of the installation. Add annual production data and any bill credits. Keep it as long as an accountant advises, which is usually longer than people expect. The warranty guide explains why the same documents matter for repairs.

Discipline of this kind is how long-running projects stay credible. The Drake Landing community was measured for years, and the results are in the performance results.

Questions to bring to an accountant

• Which structure, purchase or lease, suits our tax position?
• Does our system qualify for any business credit, and what conditions apply?
• How do grants affect the depreciation base?
• How should we split use if part of the building is not business?
• What should be on the invoice to support the claim?

Take the quotes along, ideally compared as described in the quote comparison guide, and the Canada Revenue Agency's current guidance for business expenses and capital assets. The agency's enquiries line can answer narrower questions.

Quick answers