The global accelerating transition to net zero has provided Canadian businesses with a huge opportunity to invest and innovate in the clean energy sector to remain competitive to the global market. Canadian businesses can now receive various funding and financial support from the government via investment tax credits such as Clean Electricity ITC, Clean Hydrogen ITC, and targeted programming such as Strategic Innovation Fund, Smart Renewables & Electrification Pathway Programs, Clean Fuels Fund, and Low Carbon Economy Fund.
Canada’s Ministry of Finance has proposed new investment tax credits relating to clean economy, along with expanding on current investment tax credits in budget 2023 to continue to attract investment funds and support innovation in Canada. These investment tax credits are specific to firms in various industries, and we will explore the details of each investment tax credit below:
Investment Tax Credit for Clean Electricity
Types of funding available
To support and accelerate clean electricity investment in Canada, the government has proposed a $6.3 billion budget over four years starting in 2024-25, and an additional $19.4 billion from 2028-29 to 2034-35. Businesses can receive 15 per cent refundable tax credit in eligible investments.
Eligible Applicants
Both taxable and non-taxable entities such as Crown corporations and publicly owned utilities, corporations owned by Indigenous communities, and pension funds, would be eligible for the Clean Electricity Investment Tax Credit.
Eligible Projects
Eligible investments for the refundable tax credit includes:
- Non-emitting electricity generation systems: wind, concentrated solar, solar photovoltaic, hydro (including large-scale), wave, tidal, nuclear (including large-scale and small modular reactors);
- Abated natural gas-fired electricity generation (which would be subject to an emissions intensity threshold compatible with a net-zero grid by 2035);
- Stationary electricity storage systems that do not use fossil fuels in operation, such as batteries, pumped hydroelectricity storage, and compressed air storage;
- Equipment for the transmission of electricity between provinces and territories; and,
- Projects across the North that support the transition away from diesel and in meeting emissions goals, including the Atlin Hydro Expansion Project, the Taltston Hydro Expansion Project, ad the Kivalliq Hydro-Fibre Link;
- Both new projects and the refurbishment of existing facilities will be eligible
Implementation:
Below are some implementation details form Canada’s Budget 2023:
- Details on designs and implementation of this new tax credit are still under being discussed between the Department of Finance and relevant parties with more details to come. The government will also conduct targeted consultations on the possibility to introduce reciprocal treatment considering some of the eligibility conditions associated with certain tax credits under the U.S. Inflation Reduction Act.
- In order to access the tax credit in each province and territory, other requirements will include a commitment by a competent authority that the federal funding will be used to lower electricity bills, and a commitment to achieve a net-zero electricity sector by 2035.
- The Clean Electricity Investment Tax Credit could be claimed in addition to the Atlantic Investment Tax Credit, but generally not with any other investment tax credit.
- Any projects that did not begin construction before the day of Budget 2023 can apply for the tax credit as of the day of Budget 2024. The Clean Electricity Investment Tax Credit would not be available after 2034.
- There is an additional labour requirement introduced to all ITCs for companies to receive the full 15 per cent tax credit. If labour requirement is not met, the credit rate will be reduced by ten percentage points, effective on October 1, 2023. More details will be covered in the labour requirement section.
Investment Tax Credit for Clean Technology Manufacturing
Types of funding available
To support Canadian companies adopting clean technologies, the government has proposed a $4.5 billion budget over five years, starting from 2023-2024, and an additional $6.6 billion from 2028-2029 to 2034-35 for the investment tax credit. Businesses can receive 30 per cent refundable tax credit of the cost of investment in new machinery and equipment used to manufacture or process key clean technologies, and extract, process, or recycle key critical minerals.
Eligible Projects
Eligible investments for the refundable tax credit includes:
- Extraction, processing, or recycling of critical minerals essential for clean technology supply chains, specifically: lithium, cobalt, nickel, graphite, copper, and rare earth elements;
- Manufacturing of renewable or nuclear energy requirement;
- Processing or recycling of nuclear fuels and heavy water;
- Manufacturing of grid-scale electrical energy storage equipment;
- Manufacturing of zero-emission vehicles; and,
- Manufacturing or processing of certain upstream components and materials for the above activities, such as cathode materials and batteries used in electric vehicles
Implementation:
Below are some implementation details form Canada’s Budget 2023:
- This investment tax credit is available to properties that are acquired and becomes available for use on or after January 1, 2024, and would no longer be in effect after 2034, subject to a phase-out starting in 2032.
Investment Tax Credit for Clean Hydrogen
Types of funding available
To support the production of clean hydrogen, the government has proposed a $5.6 billion budget over five years, starting from 2023-24, and an additional $12.1 billion from 2028-29 to 2034-35 for the investment tax credit. Businesses can receive between 15 to 40 per cent refundable tax credit on eligible project costs, based on the lifecycle carbon intensity of hydrogen.
Eligible Projects
| Carbon Intensity Tier | Tax Credit Rat (applied to eligible cost) |
| < 0.75 kg | 40% |
| 0.75 kg to < 2.0 kg | 25% |
| 2.0 kg to < 4.0 kg | 15% |
| 4.0 kg or higher | N.A. |
* Reflects the expected life-cycle emissions of a project based on its carbon intensity (measured as kilograms (kg) of carbon dioxide equivalent per kg of hydrogen produced).
* Assumes labour requirements are met.
Source: Budget 2023, Department of Finance Canada
Implementation:
Below are some implementation details form Canada’s Budget 2023:
- There is an additional labour requirement introduced to all ITCs for companies to receive the full percentage tax credit. If labour requirement is not met, the credit rate will be reduced by ten percentage points, effective on October 1, 2023. More details will be covered in the labour requirement section.
Expanding Eligibility for the Clean Technology Investment Tax Credit
Types of funding available
To support the growth of Canada’s burgeoning clean technology sector, the government proposed to expand the eligibility for the Clean Technology Investment Tax Credit and increase the budget to $6.9 billion from 2023-24 to 2027-28. Businesses can receive 30 per cent refundable tax credit in eligible investments.
Eligible Projects
The eligibility of this tax credit has expanded to include geothermal energy systems that are eligible for capital cost allowance Classes 43.1 and 43.2.
Implementation:
Below are some implementation details form Canada’s Budget 2023:
- The Clean Technology Investment Tax Credit would be available to businesses investing in properties related to geothermal energy systems that is acquired and becomes available for use on or after the day of Budget 2023.
- Instead of phasing out in 2032, budget 2023 proposed to modify the phase-out timeline for the Clean Technology Investment Tax Credit to begin in 2034, the tax credit will no longer be available after that year.
- Note that any projects that will co-produce oil, gas, or other fossil fuels in the process will not be eligible for this tax credit.
Enhancing the Carbon Capture, Utilization, and Storage Investment Tax Credit
Types of funding available
In order to promote reducing emissions in high-emitting sectors, the government proposed $520 million budget over five years, beginning in 2023-24 to enhance the Carbon Capture, Utilization, and Storage Investment Tax Credit.
Eligible Projects
Eligible investments for the refundable tax credit includes:
- Include dual use heat and/or power equipment and water use equipment, with tax support prorated in proportion to the use of energy or material in the carbon capture, utilization, and storage process, subject to certain conditions;
- In addition to Saskatchewan and Alberta, be available to projects that would store using dedicated geological storage in British Columbia;
- Require projects storing in concrete to have their concrete storage process validated by a third-party based on an ISO standard prior to claiming the investment tax credit; and,
- Include a recovery calculation for the investment tax credit in respect of refurbishment property.
Implementation:
Below are some implementation details form Canada’s Budget 2023:
- There is an additional labour requirement introduced to all ITCs for companies to receive the full percentage tax credit. If labour requirement is not met, the credit rate will be reduced by ten percentage points, effective on October 1, 2023. More details will be covered in the labour requirement section.
- The consultation on draft legislation was launched in August 2022 with information about the investment tax credit. Details on the full package of legislative proposals of this new tax credit will be released for consultation in coming months with more details to come.
- Businesses that have incurred eligible CCUS expenses starting in 2022 will be eligible for the tax credit once legislated.
Labour Requirements for Investment Tax Credits
Labour requirements are introduced as an additional requirement to various investment tax credits for the first time in Canadian history to ensure prevailing wages are paid and apprenticeship opportunities are being created.
Labour requirements
To quality for full tax credit amount, new labour requirements include:
- Paying a total compensation package that equates to the prevailing wage. The definition of prevailing wage would be based on union compensation, including benefits and pension contributions from the most recent, widely applicable multi-employer collective bargaining agreement, or corresponding project labour agreements, in the jurisdiction within which relevant labour is employed
- At least 10% of the tradesperson hours worked must be performed by registered apprentices in the Red Seal trades.
Applicable investment tax credits
Labour requirements would be added to the following investment tax credits for labour that is performed on or after October 1, 2023:
- Clean Technology Investment Tax Credit
- Clean Hydrogen Investment Tax Credit
The government also intends to add labour requirements to the following investment tax credits in the future:
- Carbon Capture, Utilization, and Storage Investment Tax Credit
- Clean Electricity Investment Tax Credit
Strategic Innovation Fund
Types of funding available
Strategic Innovation Fund provides funding for large scale projects across various sectors to encourage R&D and facilitate business growth and expansion. The Strategic Innovation Fund can be broken down into various streams and initiatives such as the Net Zero Accelerator Initiative. The government proposed a $500 million budget over ten years to support the development and application of clean technologies in Canada. The Strategic Innovation Fund will also direct up to $1.5 billion of its existing resources towards projects in sectors including clean technologies, critical minerals, and industrial transformation.
Continuing Support for the Student Work Placement Program
Types of funding available
The government proposed a $197.7 million budget in 2024-25 for the Student Work Placement Program to continue creating quality work-integrated learning opportunities for students through partnerships between employers and post secondary education institutions.
We are closely following how these new ITCs will be implemented. Please follow us here to receive further updates on how your company can take advantage of these incentives.
Call EVAMAX today to get started on your investment tax credit claims!
