This bulletin complements last week’s update on the Fall Economic Statement Implementation Act, 2023 (Bill C-59). In addition to the climate-related amendments to the Competition Act (read our earlier bulletin here), Bill C-59 implements significant clean economy investment tax credits (ITCs), for clean technology (CT) and carbon capture utilization and storage (CCUS), as well as clean hydrogen (CH) and clean technology manufacturing (CTM).
This bulletin briefly summarizes the amendments to the Income Tax Act (the Act) and Income Tax Regulations (the Regulations) that implement the CT ITC and CCUS ITC.
Clean Technology Investment Tax Credit. Bill C-59 amends the Act and Regulations to implement the CT ITC, initially proposed in the 2022 Fall Economic Statement and expanded in both the 2023 Fall Economic Statement (FES) and 2023 Budget (read our earlier bulletins here and here). Key provisions of the now implemented and expanded CT ITC include:
- refundable tax credit for capital invested in the adoption and operation of new clean technology property in Canada from March 28, 2023, to December 31, 2034;
- rate may be up to 30% of the capital cost of CT property that is acquired and that becomes available for use from March 28, 2023, to December 31, 2033;
- rate may be up to 15% for property acquired and that becomes available for use in 2034, and will be unavailable after 2034;
- available for investments in the following types of CT property:
- equipment used to generate electricity from solar, wind and water energy;
- stationary electricity storage equipment that does not use any fossil fuel in operation (such as batteries and pumped hydroelectric storage);
- active solar heating equipment, air-source heat pumps and ground-source heat pumps;
- non-road zero-emission vehicles and related charging and refueling equipment that is used primarily for such vehicles;
- equipment used exclusively for the purpose of generating electrical energy or heat energy (or a combination of both), solely from geothermal energy, unless it is part of a system that extracts fossil fuels for sale;
- concentrated solar energy equipment; and
- small modular nuclear reactors; and
- credit rate is reduced if certain labour conditions are not met (see below).
The Government of Canada issued guidance on the CT ITC on June 21, 2024.
Carbon Capture, Utilization, and Storage Investment Tax Credit. The CCUS ITC was first proposed in Budget 2023 and expanded in the FES. The CCUS ITC is available to projects that support a CCUS process through any of the following: (i) capturing CO2 that would otherwise be released into the atmosphere; (ii) capturing CO2 directly from the ambient air (direct air capture); (iii) transporting captured carbon; and (iv) storing or using captured carbon. Key provisions of the now implemented CCUS ITC include:
- refundable tax credit that applies to eligible expenditures incurred for a qualified CCUS project, from January 1, 2022, to December 31, 2040;
- related to the acquisition of property used to capture CO2 emissions from fuel combustion, industrial process or directly from the air, to transport the captured carbon and to store it or use it in industry;
- available to a broad range of CCUS applications in different industrial subsectors such as concrete, plastics, and fuels;
- available for CCUS projects to the extent that 10% or more of the captured CO2 is used in an eligible use (storage of captured carbon in dedicated geological storage and use of captured carbon in producing concrete in Canada or the United States using a qualified process for sequestration of the captured CO2 in concrete);
- excludes enhanced oil recovery projects;
- regular credit rates for qualified CCUS expenditures incurred from January 1, 2022, to December 31, 2040, are as follows:
- 60% for qualified carbon capture expenditures incurred from 2022-2030 to capture carbon directly from ambient air (reduced to 30% after 2030);
- 50% for qualified carbon capture expenditures incurred from 2022-2030 to capture carbon other than directly from ambient air (reduced to 25% after 2030);
- 37.5% for qualified carbon transportation, storage, or use expenditures (reduced to 18.75% after 2030); and
- credit rate is reduced if certain labour conditions are not met (see below).
The Government of Canada issued guidance on the CCUS ITC on June 21, 2024.
Clean Hydrogen and Clean Technology Manufacturing Investment Tax Credit. The CH ITC is a refundable tax credit that applies to eligible CH property that is acquired and becomes available for use in respect of a qualified CH project after March 27, 2023, and before 2035. The CTM ITC is a refundable tax credit that applies to investment of capital for CTM and processing and critical mineral extraction and processing in Canada from January 1, 2024, to December 31, 2034.
The Government of Canada has yet to issue guidance on the CH ITC and CTM ITC.
Labour conditions incentive for ITC claimants. The amendments to the Act include provisions allowing ITC claimants to elect to meet certain labour conditions to receive the full regular tax credit rate. If a claimant chooses not to meet these labour requirements, they will only be eligible to claim the ITC at a reduced rate, which is 10 percentage points less than the regular tax credit rate (e.g., 20% instead of 30%). The labour requirements include:
- meeting the prevailing wage requirements by compensating covered workers at a designated work site, in respect of their work on the preparation or installation of specified property, in accordance with an eligible collective agreement(s) that applies to the workers, among other requirements; and
- meeting the apprenticeship requirements by making reasonable efforts to ensure that apprentices registered in a Red Seal trade work at least 10% of the total hours that are worked during the year by Red Seal workers at a designated work site of the ITC claimant on the preparation or installation of specified property.
Restrictions on claiming multiple clean economy ITCs. ITC claimants can generally only claim one clean economy ITC for the same eligible property (i.e., they cannot claim both the CT ITC and the CCUS ITC on a particular property). However, a claimant may claim multiple clean economy ITCs for the same project if the project includes different types of eligible property.
Other ITCs. The Government of Canada has also announced plans for a clean electricity ITC and an electric vehicle supply chain ITC (for more details read our earlier bulletins on the FES and 2023 Budget).
For further information or to discuss the contents of this bulletin, please contact Lisa DeMarco at lisa@resilientllp.com.
*Special thanks to Anuja Purohit for her assistance in preparing this bulletin.