As first announced in Budget 2025 and as many stakeholders have anticipated, the Department of Finance (“Finance”) has launched consultations on whether to introduce a domestic content requirement under two of Canada’s clean economy investment tax credits (ITCs):

  • The Clean Technology ITC[1]
  • The Clean Electricity ITC[2]

The consultations align with questions we have been hearing in the market, including insights from our firm’s Energy Innovators Roundtable, where panelists raised practical concerns about how Canadian content expectations could interact with the ITC regime, particularly for projects that rely on global supply chains.

Importantly, Finance has not proposed a specific domestic content test. Instead, it invites stakeholders to weigh in on whether a requirement is appropriate and, if so, how it could be designed and administered in a workable way, mindful of administrative burden, supply-chain realities, and the need to maintain investment momentum.

What Finance is asking stakeholders

Finance’s consultation poses several design questions that go directly to project structuring, procurement, documentation, and ITC risk allocation:

1. Should Canada adopt a domestic content requirement for these ITCs?

2. If yes, which products should it apply to?

Finance asks what kinds of products should be covered and provides examples of categories that could be targeted, including:

  • Structural steel (e.g. load-bearing columns)
  • Advanced manufactured products (e.g., wind turbine generators, photovoltaic modules, battery modules)

These examples suggest a design that targets specific high-impact components. A product-based approach (use Canadian “X”) can be conceptually simple, but becomes complex quickly when projects rely on globalized, multi-tier supply chains. It is unclear whether there may be a threshold test (e.g., a minimum percentage of eligible project inputs must be Canadian).

3. Should exemptions be allowed? If so, under what conditions?

Finance asks whether exemptions should be permitted for certain products or scenarios, and what evidence could substantiate an exemption.

4. What should happen if a project fails to meet the requirement?

While Finance does not propose outcomes, the spectrum of plausible approaches includes:

“Cliff” ineligibility (all-or-nothing):

This approach carries the highest risk for project economics and financing, and may compound concerns about slower uptake and underutilization of the ITCs already noted by stakeholders (see our recent update on the ITCs).

Rate reduction (partial credit):

A more financeable approach in many cases, this is conceptually analogous to how the labour requirement can affect credit value.

Rate increase (a “bonus” for meeting domestic content):

This approach preserves expectations around the announced base rate while using a bonus as the incentive lever, potentially more palatable for projects facing global supply constraints.

Recapture (later reversal):

This shifts risk into the post-filing/audit period, with knock-on impacts for indemnities, tax insurance, covenants, and reserve planning.

5. What mechanisms should be used to verify domestic content?

Finance asks whether established country-of-origin documentation mechanisms (including those used for tariffs or in the context of CUSMA) could be used, or whether a different mechanism should apply.

6. What would be the positive or negative impacts on businesses or sectors?

Finance invites input on impacts to costs, timelines, and employment, among other considerations.

7. Are there other important considerations?

Finance also invites a broader policy view: Is a domestic content requirement an “appropriate approach” to support Canadian products? What other considerations should be factored in, including administrative complexity and supply-chain realities?

Why this matters now

Even at the consultation stage, the possible introduction of a domestic content requirement is relevant for businesses planning to rely on these ITCs. If adopted, such a requirement could influence procurement strategy and timing, supply-chain contracting, and ITC certainty and financing.

Businesses that expect to claim these ITCs may wish to evaluate their exposure now, particularly where major equipment or materials may be sourced from outside Canada, and consider whether to make a submission addressing feasibility, verification, exemptions, and appropriate consequences for non-compliance.

Comment deadline and next steps

Finance invites interested parties to submit comments by March 13, 2026.

If you would like to understand how these developments may affect your business, or if you are considering making a submission, we would be pleased to assist. Please contact one of the authors of this article or a member of Gowling WLG’s Tax Group.


[1] The Clean Technology ITC provides a refundable tax credit of up to 30 per cent for eligible investments in certain clean electricity generation systems (such as wind and solar energy systems), stationary electricity storage systems, low-carbon heating equipment (such as air-source heat pumps) and non-road zero-emission vehicles and related recharging and refueling equipment. This measure is available to taxable Canadian corporations and REITs as of March 28, 2023.

[2] The Clean Electricity ITC would provide a refundable tax credit of up to 15 per cent for eligible investments in low-emitting electricity generation systems, stationary electricity storage systems and inter-provincial transmission equipment. This measure will be retroactively available to taxable Canadian corporations, qualifying trust, certain non-taxable corporations (including provincial and territorial Crown corporations), Canada Infrastructure Bank, Canada Growth Fund Inc. and its wholly owned corporations once legislation introduced in Bill C-15 (Budget 2025 Implementation Act, No.1) receives Royal Assent.