15 December 2025 External T.I. 2024-1043191E5 - Clean Technology ITC - Leasehold interest

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Principal Issues: Whether the lessor or the lessee under a lease-to-own arrangement in respect of a clean technology property is eligible to claim the Clean Technology Investment Tax Credit ("CT ITC") under section 127.45 of the Act.

Position: Question of fact.

Reasons: The law.

XXXXXXXXXX 2024-104319
Marie-Audrey Kirouac

December 15, 2025

Dear XXXXXXXXXX:

Re: Clean Technology ITC – Leasehold interest

We are writing in response to your emails dated November 1, 2024, in which you seek clarification on whether the lessor or the lessee under a lease-to-own arrangement in respect of a clean technology property is eligible to claim the Clean Technology Investment Tax Credit (“CT ITC”) under section 127.45 of the Income Tax Act, R.S.C. 1985, c. 1 (5th Supp.) (the “Act”).

Our comments

This technical interpretation provides general comments about the provisions of the Act and related legislation (where referenced). It does not confirm the income tax treatment of a particular situation involving a specific taxpayer but is intended to assist you in making that determination. The income tax treatment of particular transactions proposed by a specific taxpayer will only be confirmed by this Directorate in the context of an advance income tax ruling request submitted in the manner set out in Information Circular IC 70-6R12 Advance Income Tax Rulings and Technical Interpretations.

Unless otherwise stated, all references to a statute are to the relevant provision of the Act or, where appropriate, the Income Tax Regulations, C.R.C., c. 945, as amended (the “Regulations”).

Eligibility for the CT ITC

1. Relevant legislation

Pursuant to subsection 127.45(1), the “clean technology investment tax credit” available to a qualifying taxpayer for a taxation year is, in general terms, equal to the specified percentage of the capital cost to the taxpayer of “clean technology property” acquired in the year. (footnote 1)

According to that same subsection, a “clean technology property” means property:

(a) situated in Canada […] and intended for use exclusively in Canada;

(b) that has not been used, or acquired for use or lease, for any purpose whatever before it was acquired by the taxpayer;

(c) that, if it is to be leased by the taxpayer to another person or partnership, is

(i) leased to a qualifying taxpayer or a partnership all the members of which are taxable Canadian corporations, and

(ii) leased in the ordinary course of carrying on a business in Canada by the taxpayer whose principal business is selling or servicing property of that type, or whose principal business is leasing property, lending money, purchasing conditional sales contracts, accounts receivable, bills of sale, chattel mortgages or hypothecary claims on movables, bills of exchange or other obligations representing all or part of the sale price of merchandise or services, or any combination thereof; and

(d) that is

(i) equipment used to generate electricity from solar, wind and water energy that is described in subparagraph (d)(ii), (iii.1), (v), (vi) or (xiv) of Class 43.1 in Schedule II to the Income Tax Regulations. […]

In addition, to qualify for the CT ITC, the taxpayer must acquire the clean technology property on or after March 28, 2023, and the property must become available for use before 2034. (footnote 2)

2. CT ITC – Acquisition of a clean technology property

Based on these definitions, a taxpayer will not be eligible for the CT ITC unless it has acquired a capital property that is a clean technology property. The determination of when a taxpayer will be considered to have acquired a depreciable property is discussed in paragraph 1.28 of Income Tax Folio S3-F4-C1 “General Discussion of Capital Cost Allowance” (footnote 3) ? (“Folio S3-F4-C1”), which reads as follow:

1.28 Generally, a taxpayer will be considered to have acquired a depreciable property at the earlier of:

• the date on which title to it is obtained; and
• the date on which the taxpayer has all the incidents of ownership such as possession, use, and risk, even if the vendor retains legal title as security for the purchase price (as is commercial practice under a conditional sale agreement).

In order that the cost of an asset may fall within a specified class, the purchaser must have a current ownership right in the asset itself and not merely rights under a contract to acquire the asset in the future.

Whether and when a taxpayer, such as a lessor or a lessee under a lease-to-own arrangement, has acquired a clean technology property can only be determined based on a review of all the facts and circumstances, including a review of all the relevant legal arrangements, of a particular situation.

3. Leasing of a clean technology property

If, in a particular circumstance, a taxpayer has acquired a capital property that is a clean technology property and the taxpayer leases that property to another person, the leasing conditions set out in paragraph (c) of the definition of “clean technology property” in subsection 127.45(1) must be satisfied in order for the property to qualify as such.

Summarily, the clean technology property must be leased to a qualifying taxpayer (or a partnership all the members of which are taxable Canadian corporations) in the ordinary course of carrying on a business in Canada by the lessor whose principal business is, amongst other things, selling or servicing property of that type, or whose principal business is leasing property, or any combination thereof.

A detailed review of all relevant facts of a specific case is necessary to determine whether the requisite conditions are met.

4. Disposition of the clean technology property and recapture

Pursuant to subsection 127.45(11), if a taxpayer that has acquired a clean technology property in the current year or any of the preceding ten calendar years disposes of it, converts it to a non-clean technology use or exports it from Canada, all or part of the CT ITC previously claimed in respect of that property may be subject to recapture and added to the taxpayer’s Part I tax otherwise payable. This would need to be considered in a situation where, for example, a lessor owns a clean technology property in respect of which it is entitled to a CT ITC, and within the recapture period, the lessor subsequently disposes of the clean technology property to, for example, a lessee under a lease-to-own arrangement.

5. Requirement that the property not be used before its acquisition

Consideration would also need to be given to the requirement that the property must not have been used, or acquired for use or lease, for any purpose whatever before it was acquired by the taxpayer to qualify as a clean technology property. In particular, if the property was used by the lessee under a lease arrangement before it was acquired by the lessee, this requirement would not be met and the property would not qualify as a clean technology property of the lessee.

In summary, there are a significant number of considerations that would need to be taken into account in order to determine whether a particular taxpayer might be eligible for the CT ITC and/or subject to recapture in respect of the CT ITC. All the facts and circumstances of the particular situation would need to be considered in order to make such a determination.

We trust that these comments will be of assistance.

Yours truly,

Kimberley Wharram
Manager
Resources Section
Reorganizations Division
Income Tax Rulings Directorate
Legislative Policy & Regulatory Affairs Branch

FOOTNOTES

Note to reader: Because of our system requirements, the footnotes contained in the original document are shown below instead:

1. Pursuant to subsection 127.45(4), a clean technology property is deemed not to have been acquired by a taxpayer before the property is considered to have become available for use by the taxpayer, determined without reference to paragraphs 13(27)(c) and 13(28)(d).

2. As per the definition of “specified percentage” in subsection 127.45(1).

3. February 27, 2019, online : .