BUDGET PROPOSALS UNVEILED by Canada’s federal Minister of Finance, Paul Martin, included significant tax incentives for the development of hydro power.

As part of the government’s commitment to encourage renewable energy production, the proposed tax regimes allow accelerated depreciation of water power project capital expenditures.

The change in tax treatment is now applicable to water power projects with capacities up to 50MW. The changes will improve the economic viability of these projects by deferring the payment of income taxes for the initial few years following construction, which recognises the significant capital investment required for these plants.

For example, a company that constructs a project that costs US$93.9M could potentially accelerate the deduction of capital cost allowance over the first five years of production, resulting in a deferral of income taxes on over US$43.6M of income.