Canada's clean economy tax credits receive royal assent

23 minute read
24 June 2024

In order to encourage early adoption of clean technologies across Canada, and in response to the significant clean-technology incentives promulgated under the U.S. Inflation Reduction Act, the Federal Government of Canada introduced the following refundable, clean economy investment tax credits ("ITCs") over the course of Budgets 2022 to 2024:

  1. Clean Technology ("Clean Tech") ITC
  2. Carbon Capture, Utilization and Storage ("CCUS") ITC
  3. Clean Hydrogen ("CH") ITC
  4. Clean Technology Manufacturing ("CTM") ITC
  5. Clean Electricity ITC


On Thursday, June 20, 2024, the enabling legislation for the first four of the above five ITCs (Bill C-59 and Bill C-69) received royal assent - an important legislative step toward the enactment of legislation which will have wide ranging impact across many key Canadian industry verticals.

The following provides a high-level summary of these four ITCs. Our bulletins for Budget 2022Budget 2023, Fall Economic Statement 2023 and Budget 2024 contain details regarding the five clean economy ITCs. Some of our recent commentary regarding the potential opportunities available to Canadian firms under U.S. clean-tech incentives can be found here: Tightening American clean vehicle tax credit may create advantage for Canadian firms.

Clean Tech ITC

Timing 

Acquired

On or after March 28, 2023 and before 2034 

On or after March 28, 2023

Becomes available for use 

On or after March 28, 2023 and before 2034

In 2034

Prepared or installed on or after

Nov. 28, 2023

/

Nov. 28, 2023

/

Meets labour requirements 

Yes

No

Yes

No

Clean Tech ITC 

30%

20%

15%

5%

Qualifying 
taxpayer 

  • Taxable Canadian corporation;
  • REIT; or  
  • Taxable Canadian corporation or REIT that is a member of a partnership (subject to partnership rules)

Excludes: individuals, trusts (other than REIT), pension funds

Clean technology property 

  1. Situated in Canada and intended for use exclusively in Canada
  2. Has not been previously used, or acquired for use or lease
  3. If the property is leased to another person, that person be a qualifying taxpayer or partnership all members of which are taxable Canadian corporations, and the lease must be in the ordinary course of taxpayer's business of selling or servicing the property or of financing the acquisition of the property
  4. Types of qualifying equipment:
    1. Electricity generation systems, including solar, wind and water (small hydro, run-of-river, wave, and tidal);
    2. Fossil-fuel free stationary electricity storage equipment, including batteries, flywheels, supercapacitors, and certain storage;
    3. Low-carbon heat equipment, including active solar heating equipment, air-source heat pumps and ground-source heat pumps;
    4. Industrial zero-emission vehicle and related charging or refueling equipment;
    5. Eligible geothermal equipment, including pipes, pumps, heat exchangers;
    6. Concentrated solar energy equipment used all or substantially all to generate heat or electricity, or a combination, exclusively from concentrated sunlight; or
    7. Small modular nuclear reactors used all or substantially all to generate electrical energy or heat energy, or a combination, from nuclear fission.

Filing requirements

File prescribed form within 1 year after filing-due date for the taxation year (no late filings)

Recapture 

10 calendar years 

CCUS ITC

Timing

Qualified CCUS Expenditure incurred

2022 - 2030

2031 - 2040

Property prepared or installed on or after

Nov. 28, 2023

/

Nov. 28, 2023

/

Meets labour requirements

Yes

No

Yes

No

CCUS ITC

CCUS projects capturing carbon dioxide directly from ambient air

60%

50%

30%

20%

CCUS projects capturing carbon dioxide other than directly from ambient air

50%

40%

25%

15%

CCUS projects transporting, storing, or using carbon dioxide

37.5%

27.5%

18.75%

8.75%

Qualifying 
taxpayer

  • Taxable Canadian corporation; or  
  • Taxable Canadian corporation that is a member of a partnership (subject to partnership rules)

Excludes: individuals, trusts, tax-exempt entities (e.g., pension funds, REIT)

Qualified CCUS expenditure

Expenditures must relate to a qualified CCUS project and fall into one of the following four categories:

  1. carbon capture expenditure
  2. carbon transportation expenditure
  3. carbon storage expenditure  
  4. carbon use expenditure

Types of CCUS ITC

  • Cumulative CCUS development tax credit: expenses incurred before the first day of commercial operations
  • CCUS refurbishment tax credit: expenses incurred after the first day of commercial operations

Eligible jurisdiction

Currently available for storage in:

  • British Columbia
  • Alberta
  • Saskatchewan

Filing requirement

File prescribed form on or before filing-due date (late filings may be accepted until 1 year after the filing-due date)

Non-tax obligations

  • Knowledge sharing reports
  • Climate risk disclosure

CH ITC

Timing

Acquired

On or after March 28, 2023 and before 2034 

On or after March 28, 2023

Becomes available for use

On or after March 28, 2023 and before 2034 

In 2034

Prepared or installed on or after

Nov. 28, 2023

/

Nov. 28, 2023

/

Meets labour requirements

Yes

No

Yes

No

CH ITC (excl. clean ammonia equipment)

CI < 0.75

40%

30%

20%

10%

0.75 ≤ CI < 2

25%

15%

12.5%

2.5%

2 ≤ CI < 4

15%

5%

7.5%

Nil

CH ITC (clean ammonia equipment)

CI ≤ 4

15%

5%

7.5%

Nil

Qualifying 
taxpayer

  • Taxable Canadian corporation; or  
  • Taxable Canadian corporation that is a member of a partnership (subject to partnership rules)

Excludes: individuals, trusts, tax-exempt entities (e.g., pension funds, REIT)

Eligible clean hydrogen property

  1. Use in connection with a qualified clean hydrogen project (government verification required) of the acquiring taxpayer in Canada
  2. Has not been previously used, or acquired for use or lease   
  3. Situated in Canada
  4. Types of qualifying equipment:
    1. Electrolysis equipment used all or substantially all to produce hydrogen through electrolysis of water ;
    2. Natural gas reforming equipment used all or substantially all to produce hydrogen through natural gas reforming, including certain specified equipment;
    3. Clean ammonia equipment used for the sole purpose of producing ammonia;
    4. Dual-use electricity and heat equipment that is part of a clean hydrogen project and that supports the production of hydrogen by reforming natural gas and that is certain energy generation equipment, certain electrical transmission equipment, or certain energy distribution equipment;
    5. Dual-use hydrogen and ammonia equipment that is part of a clean hydrogen project used for the generation of oxygen and nitrogen to be used in both hydrogen and ammonia production;
    6. Integrated ancillary equipment to any of the equipment described above and used solely to support the functioning of such equipment within a hydrogen or ammonia production process as part of certain specified subsystems; or
    7. Safety and monitoring equipment used as part of a control, monitoring or safety system solely to support any of the equipment described above.
  5. Cannot be excluded property

Filing requirement

File prescribed form within 1 year after filing-due date (no late filings)

Annual reporting obligations

  • Information reporting
  • CI reporting

Recapture 
 

20 calendar years 

CTM ITC

Timing

(property acquired and becomes available for use)

2024 - 2031

2032

2033

2034

CTM ITC

30%

20%

10%

5%

Qualifying 
taxpayer

  • Taxable Canadian corporation; or  
  • Taxable Canadian corporation that is a member of a partnership (subject to partnership rules)

Excludes: individuals, trusts, tax-exempt entities (e.g., pension funds, REIT)

CTM property

  1. Situated in Canada and intended for use exclusively in Canada
  2. Has not been previously used, or acquired for use or lease   
  3. If the property is leased to another person, that person be a qualifying taxpayer or partnership all members of which are taxable Canadian corporations, and the lease must be in the ordinary course of carrying on a business in Canada by taxpayer whose principal business is one of the specified activities (or any combination thereof)
  4. Types of qualifying equipment:
  1. Certain machinery and equipment used for manufacturing or processing
  2. Certain tangible property attached to buildings and other structures used for manufacturing or processing or that is required for machinery or equipment
  3. Certain property used for mineral extraction and processing:
  4. Certain specialized tolling
  5. Certain non-road vehicles and automotive equipment

CTM use

The use of the property must be:

  • all or substantially all for certain qualified zero-emission technology manufacturing activities; or
  • in a qualifying mineral activity producing all or substantially all qualifying materials (i.e., lithium, cobalt, nickel, copper, rare earth elements; and graphite).

Filing requirement

File prescribed form within 1 year after filing-due date (no late filings)

Recapture 

10 calendar years 


NOT LEGAL ADVICE. Information made available on this website in any form is for information purposes only. It is not, and should not be taken as, legal advice. You should not rely on, or take or fail to take any action based upon this information. Never disregard professional legal advice or delay in seeking legal advice because of something you have read on this website. Gowling WLG professionals will be pleased to discuss resolutions to specific legal concerns you may have.