Bill C-269: An Act to amend the Income Tax Act (heat recovery tax credit)

R.S., c. 1 (5th Supp.) Income Tax Act 1 Paragraph 12(1)(t) of the Income Tax Act is replaced by the following: Investment tax credit (t) the amount deducted under subsection 127(5) or (6), 127.431(2) , 127.44(3), 127.45(6), 127.48(3), 127.49(6) or 127.491(10) in respect of a property acquired or an expenditure made in a preceding taxation year in computing the taxpayer’s tax payable for a preceding taxation year to the extent that it was not included in computing the taxpayer’s income for a preceding taxation year under this paragraph or is not included in an amount determined under paragraph 13(7.1)(e) or 37(1)(e), subparagraph 53(2)(c)(vi) to (vi.5) or (h)(ii) or for I in the definition undepreciated capital cost in subsection 13(21) or L in the definition cumulative Canadian exploration expense in subsection 66.1(6); 2 (1) The portion of subsection 13(7.1) of the Act before paragraph (a) is replaced by the following: Deemed capital cost of certain property (7.1) For the purposes of this Act, where section 80 applied to reduce the capital cost to a taxpayer of a depreciable property or a taxpayer deducted an amount under subsection 127(5) or (6), 127.431(2) , 127.44(3), 127.45(6), 127.48(3), 127.49(6) or 127.49(10) in respect of a depreciable property or received or is entitled to receive assistance from a government, municipality or other public authority in respect of, or for the acquisition of, depreciable property, whether as a grant, subsidy, forgivable loan, deduction from tax, investment allowance or as any other form of assistance other than (2) Paragraph 13(7.1)(e) of the Act is replaced by the following: (e) where the property was acquired in a taxation year ending before the particular time, all amounts deducted under subsection 127(5) or (6), 127.431(2) , 127.44(3), 127.45(6), 127.48(3), 127.49(6) or 127.491(10) by the taxpayer for a taxation year ending before the particular time, (3) The description of I in the definition undepreciated capital cost in subsection 13(21) of the Act is replaced by the following: I is the total of all amounts deducted under subsection 127(5) or (6), 127.431(2) , 127.44(3), 127.45(6), 127.48(3), 127.49(6) or 127.49(10) in respect of a depreciable property of the class of the taxpayer, in computing the taxpayer’s tax payable for a taxation year ending before that time and subsequent to the disposition of that property by the taxpayer, (4) The portion of paragraph 13(24)(a) of the Act before subparagraph (i) is replaced by the following: (a) subject to paragraph (b), for the purposes of the description of A in the definition undepreciated capital cost in subsection (21) and of sections 127, 127.1, 127.431 , 127.44, 127.45, 127.48, 127.49 and 127.491, the property is deemed 3 The portion of paragraph (l) before subparagraph (i) of the description of B in the definition adjusted taxable income in subsection 18.2(1) of the Act is replaced by the following: (I) an amount deducted under subsection 127(5) or (6), 127.431(2) , 127.44(3), 127.45(6), 127.48(3), 127.49(6) or 127.491(10) in respect of a property acquired in a preceding taxation year in computing the taxpayer’s tax payable for a preceding taxation year to the extent that it 4 Paragraph 53(2)(c) of the Act is amended by adding the following after subparagraph (vi): (vi.01) an amount equal to that portion of all amounts of a heat recovery tax credit deducted under subsection 127.431(2) in computing the tax otherwise payable by the taxpayer under this Part for the taxpayer’s taxation years ending before that time that may reasonably be attributed to amounts added in computing the tax credit of the taxpayer because of subsection 127.431(5), 5 Subclause 66.8(1)(a)(ii)(B)(I) of the Act is replaced by the following: (I) the total of all amounts required by subsections 127(8), 127.431(5) , 127.44(11), 127.45(8), 127.48(12), 127.49(8) and 127.49(12) in respect of the partnership to be added in computing the investment tax credit, the heat recovery tax credit referred to in section 127.431 , the CCUS tax credit (as defined in subsection 127.44(1)), the clean technology investment tax credit (as defined in subsection 127.45(1)), the clean hydrogen tax credit (as defined in subsection 127.48(1)), the CTM investment tax credit (as defined in subsection 127.49(1)) or the clean electricity investment tax credit (as defined in subsection 127.491(1)) of the taxpayer in respect of the fiscal period, and 6 Paragraph 87(2)(qq.1) of the Act is replaced by the following: Continuation of corporation (qq.1) for the purposes of sections 127.431 , 127.44, 127.45, 127.48, 127.49 and 127.491 and Part XII.7, the new corporation is deemed to be the same corporation as, and a continuation of, each predecessor corporation; 7 (1) Paragraph 88(1)(e.31) of the Act is replaced by the following: (e.31) for the purposes of sections 127.431 , 127.44, 127.45, 127.48, 127.49 and 127.491 and Part XII.7, at the end of any particular taxation year ending after the subsidiary was wound up, the parent is deemed to be the same corporation as, and a continuation of the subsidiary; (2) Paragraph 88(2)(c) of the Act is replaced by the following: (c) for the purpose of computing the income of the corporation for its taxation year that includes the particular time, paragraph 12(1)(t) shall be read as follows: “ (t) the amount deducted under subsection 127(5) or (6), 127.431(2) , 127.44(3), 127.45(6), 127.48(3), 127.49(6) or 127.491(10) in computing the taxpayer’s tax payable for the year or a preceding taxation year to the extent that it was not included under this paragraph in computing the taxpayer’s income for a preceding taxation year or is not included in an amount determined under paragraph 13(7.1)(e) or 37(1)(e) or subparagraph 53(2)(c)(vi) to (c)(vi.5) or (h)(ii) or the amount determined for I in the definition undepreciated capital cost in subsection 13(21) or L in the definition cumulative Canadian exploration expense in subsection 66.1(6);”. 8 (1) Subparagraph 96(2.1)(b)(ii) of the Act is replaced by the following: (ii) the amount required by subsection 127(8), 127.431(5) , 127.44(11), 127.45(8), 127.48(12), 127.49(8) or 127.491(12) in respect of the partnership to be added in computing the investment tax credit, the heat recovery tax credit referred to in section 127.431 , the CCUS tax credit (as defined in subsection 127.44(1)), the clean technology investment tax credit (as defined in subsection 127.45(1)), the clean hydrogen tax credit (as defined in subsection 127.48(1)), the CTM investment tax credit (as defined in subsection 127.49(1)) or the clean electricity investment tax credit (as defined in subsection 127.491(1)) of the taxpayer for the taxation year, (2) The portion of subsection 96(2.2) of the Act before paragraph (a) is replaced by the following: At-risk amount (2.2) For the purposes of this section and sections 111, 127, 127.431 , 127.44, 127.45, 127.47, 127.48, 127.49 and 127.491, the at-risk amount of a taxpayer, in respect of a partnership of which the taxpayer is a limited partner, at any particular time is the amount, if any, by which the total of (3) The portion of subsection 96(2.4) of the Act before paragraph (a) is replaced by the following: Limited partner (2.4) For the purposes of this section and sections 111, 127, 127.431 , 127.44, 127.45, 127.47, 127.48, 127.49 and 127.491, a taxpayer who is a member of a partnership at a particular time is a limited partner of the partnership at that time if the member’s partnership interest is not an exempt interest (within the meaning assigned by subsection (2.5)) at that time and if, at that time or within three years after that time, 9 Clause 111(1)(e)(ii)(A) of the Act is replaced by the following: (A) the amount required by subsections 127(8), 127.431(5) , 127.44(11), 127.45(8), 127.48(12), 127.49(8) or 127.491(12) in respect of the partnership to be added in computing the investment tax credit, the heat recovery tax credit referred to in section 127.431 , the CCUS tax credit (as defined in subsection 127.44(1)), the clean technology investment tax credit (as defined in subsection 127.45(1)), the clean hydrogen tax credit (as defined in subsection 127.48(1)), the CTM investment tax credit (as defined in subsection 127.49(1)) or the clean electricity investment tax credit (as defined in subsection 127.491(1)) of the taxpayer for the taxation year 10 The Act is amended by adding the following after section 127.43: Heat recovery tax credit — definitions 127.431 (1) The following definitions apply in this section. at-risk amount  has the meaning assigned by subsection 96(2.2). ( fraction à risques ) non-government assistance  has the same meaning as in subsection 127(9). ( aide non gouvernementale ) qualifying heat recovery equipment  means equipment acquired by a taxable Canadian corporation after December 31, 2025 — other than equipment whose primary function is the generation of energy – used all or substantially all to recover heat produced by industrial processes and to convert it in order to generate energy and that (a) is intended for use exclusively in Canada; and (b) has not been used, or acquired for use or lease, in Canada for any purpose whatever before it was acquired by the corporation. ( matériel de récupération de chaleur admissible ) Heat recovery tax credit — non refundable (2) If a taxpayer that is a taxable Canadian corporation files a prescribed form containing prescribed information on or before its filing-due date for a taxation year, there may be deducted from the tax otherwise payable by the taxpayer under this Part for a taxation year an amount equal to 30% of the capital cost to the taxpayer of qualifying heat recovery equipment acquired by the taxpayer in the year if the equipment has not been exported, sold or leased by the corporation before the end of the taxation year. Special rules — adjustments (3) For the purposes of this section, the capital cost to a taxpayer of qualifying heat recovery equipment must be (a) determined without reference to subsections 13(7.1) and (7.4); and (b) reduced by the total of all amounts, each of which can reasonably be considered to be in respect of the equipment and is (i) an amount of any non-government assistance received by the taxpayer in or before the taxation year in which the equipment was acquired, or (ii) an amount that is not described in subparagraph (i) that, in the taxation year, the taxpayer is entitled to receive or can reasonably be expected to receive and that would be non-government assistance if it were received by the taxpayer. Repayment of assistance (4) If a taxpayer has, in a particular taxation year, repaid (or has not received and can no longer reasonably be expected to receive) an amount of non-government assistance that was applied to reduce the capital cost of qualifying heat recovery equipment under subsection (3) for a preceding taxation year, the amount repaid (or no longer expected to be received) is to be added to the capital cost to the taxpayer of the equipment. Partnership (5) If, in a particular taxation year of a taxpayer who is a taxable Canadian corporation and a member of a partnership, an amount would be determined under subsection (2) in respect of the partnership, for its taxation year that ends in the particular year, if the partnership were a taxable Canadian corporation and its fiscal period were its taxation year, the portion of that amount that can reasonably be considered to be the taxpayer’s share of that amount shall be added in computing the tax credit of the taxpayer under subsection (2) at the end of the particular year. Credits in unreasonable proportions (6) If the members of a partnership agree to share the amount of a heat recovery tax credit of the partnership and the share of any member of that amount is not reasonable in the circumstances having regard to the capital invested in or work performed for the partnership by the members of the partnership or such other factors as may be relevant, that share shall, despite any agreement, be deemed to be the amount that is reasonable in the circumstances. Limited partners (7) Despite subsection (6), if a taxpayer is a limited partner of a partnership at the end of a fiscal period of the partnership, the amount of the heat recovery tax credit allocated to the taxpayer by the partnership in respect of that fiscal period shall not exceed the taxpayer’s at-risk amount in respect of the partnership at the end of that fiscal period. Assistance received by member of partnership (8) For the purposes of computing the heat recovery tax credit, if, at a particular time, a taxpayer that is a member of a partnership has received, is entitled to receive or can reasonably be expected to receive government assistance , within the meaning of subsection 127(9), or non-government assistance, the amount of that assistance that may reasonably be considered to be in respect of the capital cost of an expenditure in relation to qualifying heat recovery equipment of the partnership shall be deemed to have been received at that time by the partnership as government assistance or non-government assistance, as the case may be, in respect of the expenditure. Credit received by member of partnership (9) For the purposes of subsection 13(7.1), if, as a result of an allocation from a partnership under this section, an amount is added in computing the heat recovery tax credit of a taxpayer at the end of the taxpayer’s taxation year, the amount shall be deemed to have been received by the partnership at the end of its fiscal period in respect of which the allocation was made as assistance from a government for the acquisition of depreciable property. Tiered partnerships (10) For the purposes of this section, a person or partnership that is (or is deemed by this subsection to be) a member of a particular partnership that is a member of another partnership is deemed to be a member of the other partnership. Recapture of credit (11) In the case of a taxpayer that acquired qualifying heat recovery equipment in any of the preceding five calendar years and that deducted an amount under subsection (2) in respect of that equipment, if the qualifying heat recovery equipment is converted for a use other than heat recovery, is exported or is disposed of, there shall be added to the taxpayer’s tax otherwise payable under this Part for the year the amount deducted under subsection (2) by the taxpayer in respect of qualifying heat recovery equipment. Tax shelter investment (12) Subsection (2) does not apply in respect of qualifying heat recovery equipment if the equipment used in the heat recovery system — or an interest in a person or partnership that has, directly or indirectly, an interest in, or for civil law, a right in, such equipment — is a tax shelter investment for the purpose of section 143.2. Application 11 This Act applies to the 2025 and subsequent taxation years.