The alternative energy sector has grown rapidly in Canada. Renewables and low-carbon energy sources meet an expanding proportion of the nation’s needs: according to Canada Energy Regulator’s fact book, one sixth of the country’s end-use demand comes from renewables like solar or wind generation.
Technological progress moves fast in the alternative energy sector. There have been rapid advancements in energy storage through battery energy storage systems (BESS) and pumped storage hydroelectricity. And tools and policies to mitigate the grid instability caused by variable energy sources from intermittent renewables are another area of advancement.
To support advances and improvement in alternative energy technology, the Canadian Government encourages organisations carrying out R&D work in this sector to apply for a valuable tax credit known as SR&ED. Use our SR&ED calculator tool to check if your alternative energy R&D work is eligible for SR&ED in Canada.
Confirm whether your company’s research activities are SR&ED eligible
Companies that are using systematic investigation to meet scientific or technological uncertainty or to achieve a technological advancement within the alternative energy sector can apply to the Canadian SR&ED tax credit program to offset their research costs.
And, your application will still be successful if your research was not commercially successful. Research activities involving systematic experimentation and technical problem solving in the alternative energy sector are eligible for this valuable tax credit.
Solving problems in the alternative energy sector
Here are some examples of projects that would be eligible for the SR&ED tax credit in the clean energy sector:
- Creation of a new photovoltaic material
- Optimizing wind turbines by designing a new blade geometry that performs in low wind
- Solving corrosion and biofouling issues on a tidal energy prototype
Other areas for research work include green hydrogen projects, low-carbon fuels and non-emitting electricity.
Another area for research in the alternative energy sector is battery energy storage (BESS). Companies experimenting with new solid-state materials, or resolving overheating issues could benefit from SR&ED.
And companies working on software development (for example, to enhance lifecycle performance in a grid-scale storage system) can also benefit from the tax credit – in 2024/25, 40% of SR&ED investment tax credits in Canada were claimed for software development.
Benefits of the SR&ED tax credit
The tax credit allows alternative energy companies to get their innovations working sooner, improving the efficiency and sustainability of Canada’s energy grid. The reduced tax liability gives companies the ability to innovate further, refining their solutions and getting them to market ahead of the competition.
Reducing your tax liability as an alternative energy company
As well as claiming back up to 35% of R&D costs through the SR&D tax credit, alternative energy companies can apply to the Canadian government for various other tax credits. These include:
- CCUS Investment Tax Credit
- Clean Electricity Investment Tax Credit (15%)
- Clean Hydrogen Investment Tax Credit (up to 40%)
- Clean Technology Investment Tax Credit (30%)
- Clean Technology Manufacturing ITC
There are also some provincial and regional credits for renewables, including:
- BC CleanBC Industry Fund
- Alberta TIER (Technology Innovation and Emissions Reduction)
- Ontario R&D Tax Credit (ORDTC)
- Quebec C3i Tax Credit (for digital transformation and green tech)
Some of these benefits are ‘stackable’, so it’s worth getting professional advice from a top Canadian SR&ED consultant with experience in the alternative energy sector to better understand how they interact.
Is our organization too small for the SR&ED program?
The vast majority of claims to the SR&ED program come from small and medium-size enterprises – that is, organizations with a turnover under $250million. In fact, the CRA says that more than 64% of claims to SR&ED are made by companies that have a turnover of less than $4million.
Making a claim through the SR&ED program
Companies make an SR&ED application when they file their tax return. The deadlines are strict, and there is no opportunity to reapply for the SR&ED credit once that date has passed. The SR&ED application includes a description of the alternative energy research, and a list of eligible expenditures. The company making the claim will also need to prepare supporting evidence.
Learn more about making an SR&ED claim with our support.
Expert support with the SR&ED program
If you have questions about whether your research activity would pass CRA’s tests for the SR&ED program, there is support available from SR&ED claims specialists. As one of Canada’s best SR&ED consultants, we can evaluate your R&D and give you clear guidance, as well as help with supporting evidence.
To learn more about the tax credits available to the alternative energy sector, get in touch.
Supporting business that contribute to the world through R&D