Tax Credit for Industrial Heat Recovery

Summary#

• This bill creates a new federal tax credit for companies that install equipment to capture waste heat from industrial processes and turn it into energy.

• The goal is to boost energy efficiency, cut emissions, and lower operating costs by helping pay for heat recovery systems.

• Key points:

  • Creates a non‑refundable tax credit equal to 30% of the cost of qualifying heat recovery equipment.
  • Applies to new equipment bought on or after January 1, 2026, by taxable Canadian corporations, for use in Canada.
  • Equipment must be used almost entirely to recover industrial waste heat and convert it to energy. Gear whose main job is energy generation on its own is not eligible.
  • You must file a form with your corporate tax return on time to claim the credit.
  • If you sell, lease, export, or repurpose the equipment within five years, you have to pay back the full credit (recapture).
  • Projects set up mainly to avoid tax (tax shelters) cannot use this credit.

What it means for you#

• Businesses (taxable Canadian corporations)

  • You can claim 30% of the purchase cost of eligible heat recovery equipment against corporate income tax for the year you buy it.
  • The credit is non‑refundable. If you owe little or no corporate tax, you may not be able to use it that year.
  • To qualify, the equipment must be new, used in Canada, and used almost entirely to capture waste heat from an industrial process and convert it to energy.
  • You cannot claim the credit if you have sold, leased, or exported the equipment before your year‑end.
  • Any non‑government assistance (for example, from a supplier or private program) that helps pay for the equipment will reduce the cost used to calculate the credit. If you later repay that assistance, the eligible cost can be increased.
  • If you change the equipment’s use, sell it, or export it within five calendar years after purchase, you must repay the full credit in that year.
  • Corporate restructurings (like mergers or wind‑ups) are generally recognized so the credit isn’t lost solely because of a reorganization.

• Partnerships and investors

  • If a partnership installs eligible equipment, corporate partners can claim their reasonable share of the credit.
  • Limited partners can only claim up to their “at‑risk amount” (the portion of their own money actually at risk in the partnership).
  • If a partner gets assistance tied to the project, it is treated as assistance to the partnership for calculating the credit.

• Workers and communities

  • More heat recovery projects could mean retrofits and installation work in industrial facilities.
  • Over time, more efficient plants may have lower energy costs and emissions, which can support jobs in some regions.

• Households

  • No direct rebate for individuals. Any impact would be indirect, such as potential improvements in local air quality or industrial competitiveness.

Expenses#

• No publicly available information.

Proponents' View#

• Encourages companies to capture wasted energy, cutting fuel use and emissions at factories, mills, and other industrial sites.
• Helps close the funding gap for projects with upfront costs but long‑term savings, speeding up adoption.
• Supports Canadian clean‑technology manufacturing and installation jobs.
• Reduces energy costs for industry, which can improve competitiveness and help keep production in Canada.
• Aligns with other clean investment credits while targeting a specific, proven efficiency measure (waste heat recovery).

Opponents' View#

• Reduces federal tax revenue; benefits may flow mainly to large corporations and energy‑intensive sectors.
• Complex rules (eligibility, partnership sharing, assistance adjustments, five‑year clawback) add compliance costs.
• Excluding equipment whose main job is energy generation may leave out key components and limit real‑world projects.
• Non‑refundable design means firms with low profits may not benefit, weakening uptake where it’s most needed.
• Risk of subsidizing projects that firms would have done anyway, lowering value for money.