Investments and the environment

By David Dawson

How much interest do you get on your savings at the bank?  Currently the Steinbach Credit Union is paying 1.9% on regular savings and the Royal Bank 1.1% on their ‘high’ interest account.  Neither is what you would call a good moneymaking investment and you have to pay income tax on that bank interest.  But what would you say if you were told you could get a much better rate by putting your money on the roof of your house.  Think solar power.  Here’s the math:

At current prices a 2kw solar panel system will cost approx. $9600 including taxes.  That system will on average produce 3600 kw/h of electricity per year.  If you purchased that amount of electricity from Manitoba Hydro, at present prices it would cost you $275.  But that $275 is income you have already paid tax on so you have to earn approx $340 to get $275 net (depending on your income and tax rate etc).  That $340 is equivalent to about 3.5% as a return on your investment and, by generating your own electricity you have that $275 to spend on other things.

That is not all.  In fact it is just the start.  If you consider your solar generation as a home based business (which you are fully entitled to do) you get a lot of tax advantages.  Firstly, your initial investment of $9600 includes about $2000 for labour and this whole amount can be offset in the first year against your income.  Secondly you can also offset all the GST and PST that you paid in the same way as the labour because the taxes are a cost as well.  Finally you can write off a percentage of the equipment cost every year too.  This is called ‘Capital Cost Allowance’ and for solar equipment is 30% per year, though on the first year one can only claim 15%. 

Most likely it is middle income people that would have sufficient spare income to invest in solar, so basing the calculations on a 22% tax rate, in the first year you would pay about $880 less Federal income tax, and $510 less Provincial tax.  The second year it would be $375 less Federal tax and $218 less Provincial tax.  And if you pay tax at a higher rate than 22% the savings will be even greater.

So, adding all these figures together, in the first year the return on your investment would be about 18% and in the second year 11% (because you won’t have such big tax deductions.  Also the percentage is based on the original investment less the amount saved by paying less tax).  Bear in mind too, Manitoba Hydro is likely to increase the cost of electricity as the years go by, and this means the value of the electricity you generate will also go up, but your equipment is good for 25 years.

No guarantees are made for these figures so please check with an accountant before making any purchasing decisions.  Remember though, solar power is green.