Investment Tax Credits for the Clean Economy - Introduction
The
Canadian government has taken bold steps toward fostering a clean economy with the proposal of five new refundable investment tax credits (ITCs).
These measures, updated as of 6 March 2024, are intended to enhance Canada's competitiveness in attracting clean energy investments.
This article provides an overview of the proposed ITCs as they stand, following developments from their initial announcement on 4 December 2023.
Overview of Proposed Tax Credits
Clean Technology ITC
Aimed at boosting clean technology adoption and operations within Canada, this ITC offers a 30% refundable credit on eligible investments made between 28 March 2023, and the end of 2033.
Investments made in 2034 will receive a 15% credit, with no credit available for investments thereafter.
This incentive targets taxable Canadian corporations and mutual fund trusts, including those part of a partnership investing in eligible property.
Carbon Capture, Utilization, and Storage (CCUS) ITC
This credit supports investments in
carbon capture technology, offering up to 50% for direct carbon capture expenditures and 60% for capturing carbon from ambient air.
A 37.5% credit is also available for qualified carbon transportation, storage, and use expenditures.
These rates apply to expenses incurred from January 1, 2022, to December 31, 2030, halving for the following decade and expiring after 2040.
Clean Hydrogen ITC
Investments in clean hydrogen production projects will benefit from a credit up to 40%, depending on the carbon intensity of the produced hydrogen.
This applies to projects available for use from 28 March 2023, to the end of 2033, with a reduced rate for 2034 and no credit thereafter.
Clean Technology Manufacturing ITC
A 30% credit is available for investments in clean technology manufacturing and critical mineral processing from 2024 to 2031, with a gradual reduction to 5% by 2034.
This aims to encourage the manufacturing or processing of renewable energy equipment and other clean technologies.
Clean Electricity ITC
Offering a 15% refundable credit for investments in clean electricity generation, storage, and transmission, this ITC will be available following the 2024 federal budget delivery for projects not commenced before March 28, 2023.
The initiative encompasses a wide range of clean energy sources, including wind, solar, and nuclear, and will conclude after 2034.
Key Considerations and Limitations
Each tax credit is specifically designed to support different segments of the clean energy sector, from technology adoption and carbon capture to clean hydrogen production and clean electricity generation.
Taxpayers are generally restricted to claiming one credit per eligible investment, and none of these credits have yet become law.
These ITCs are refundable, meaning they are treated as payments already made by the taxpayer, with refunds issued if no additional tax is due.
The design of these credits involves specific labor and production requirements, with potential recapture for properties that change use, are exported, or disposed of within certain timeframes.
Investment Tax Credits for the Clean Economy - Conclusion
Canada's proposed investment tax credits represent a significant push toward a sustainable, clean economy.
By incentivizing investments in clean technology, carbon capture, clean hydrogen, and clean electricity, the government aims to position Canada as a leader in clean energy while fostering economic growth.
As these credits move through the legislative process, businesses and investors should stay informed and consult with professionals to understand how these incentives could impact their operations and investment decisions.
Final thoughts
If you have any queries about the proposed Investment Tax Credits for the Clean Economy in Canada, or other Canadian tax matters, then
please get in touch.