An Act to amend the Income Tax Act (heat recovery tax credit)

Bill C-269 would amend the Income Tax Act to create a new tax credit for businesses that install equipment to capture waste heat from industrial processes and convert it into energy. A taxable Canadian corporation that acquires this "qualifying heat recovery equipment" after December 31, 2025 could deduct an amount equal to 30% of the equipment's capital cost from the tax it would otherwise owe. To qualify, the equipment must be used almost entirely for recovering and converting industrial waste heat (not equipment whose main job is generating energy), must be intended for use in Canada, and must be new (not previously used or leased by anyone before the company acquired it).

The bill sets out detailed technical rules for how this credit works, similar to rules already in place for other business tax credits (like clean technology or clean electricity credits). These include how to calculate the equipment's cost when the company has also received government or other assistance, how the credit is shared among partners in a partnership, and limits on how much a "limited partner" can claim. If a company sells, exports, or repurposes the equipment for something other than heat recovery within five years of claiming the credit, it must repay the credit amount by adding it back to its taxes owing. The credit does not apply if the equipment is part of an arrangement considered a tax shelter.

Most of the rest of the bill consists of consequential technical amendments to other parts of the Income Tax Act, updating cross-references so that this new heat recovery credit is treated consistently with existing investment tax credits in provisions dealing with things like corporate reorganizations, partnerships, and calculating a business's income and capital cost. The changes would apply starting with the 2025 tax year.

This bill amends the Income Tax Act to create a new non-refundable "heat recovery tax credit" allowing taxable Canadian corporations to deduct a portion of the cost of qualifying heat recovery equipment from their taxes payable.

• Credit amount and eligibility — corporations may deduct 30% of the capital cost of "qualifying heat recovery equipment" (equipment acquired after December 31, 2025, used all or substantially all to recover industrial heat and convert it to energy, intended for exclusive use in Canada, and not previously used or acquired for use in Canada) from tax otherwise payable, upon filing a prescribed form with prescribed information.
• Discretionary detail left to regulation — the specific form and the information it must contain are "prescribed" (to be set by regulation), not specified in the bill itself.
• Adjustments for other assistance — the capital cost used to calculate the credit must be reduced by any non-government assistance received or expected in relation to the equipment; repaid or no-longer-expected assistance is added back to capital cost in the year of repayment.
• Partnership allocation rules — the credit can flow through to a corporate partner in a partnership, with the partnership's credit divided among members; the Canada Revenue Agency may deem an unreasonable sharing arrangement to be replaced by an amount it considers reasonable, and a limited partner's credit is capped at their "at-risk amount" in the partnership.
• Recapture obligation — if equipment is converted to a use other than heat recovery, exported, or disposed of within five years of acquisition, the taxpayer must add back the previously deducted credit amount to taxes payable for that year.
• Exclusion for tax shelters — the credit does not apply where the equipment (or an interest in an entity holding rights to it) constitutes a "tax shelter investment" under section 143.2 of the Act.
• Retroactive application — the Act, once passed, would apply to the 2025 taxation year and all subsequent years.