New Big Five Clean Investment Tax Credits in Canada

September 20, 2023

2023 Federal Budget highlighted the transformational new big five clean investment tax credits, which will help produce, manufacture, or transition to clean energy in Canada. These Clean Investment Tax Credits, which total over $60 billion over the coming ten years, will support green innovation in the private sector, grow our economy, and create or secure thousands of good middle-class jobs.

The Clean Electricity Investment Tax Credit is to support and accelerate clean electricity investment in Canada. This is a 15% refundable tax credit for eligible investments in non-emitting electricity generation systems, abated natural gas electricity-fired electricity generation, stationary electricity storage systems, and equipment for the transmission of electricity between provinces and territories.

Some of the eligibility criteria are:

• The investment must be made by a non-taxable entity, such as an Indigenous community, a municipally owned utility or a Crown corporation.
• The investment must be made after March 28, 2023 and before January 1, 2030.
• The investment must be part of a project that has received an environmental assessment or an equivalent process under provincial or territorial legislation.

Some of the eligible activities for the tax credit are:

• Investments in non-emitting electricity generation systems, such as solar, wind, water, geothermal or nuclear energy.
• Investments in abated natural gas electricity-fired electricity generation, which use carbon capture, utilization and storage or hydrogen to reduce emissions.
• Investments in stationary electricity storage systems, such as batteries, pumped hydro or compressed air.
• Investments in equipment for the transmission of electricity between provinces and territories, such as interties or smart grids.

The Clean Technology Manufacturing Investment Tax Credit is to support Canadian businesses that invest in machinery and equipment used to manufacture or process clean technologies, such as renewable energy equipment and nuclear energy equipment. The tax credit is up to 30% of the capital cost of eligible property associated with eligible activities.

The eligible activities for the tax credit are:

• Manufacturing of certain renewable energy equipment (solar, wind, water, or geothermal) and nuclear energy equipment.
• Processing or recycling of nuclear fuels and heavy water.
• Manufacturing of nuclear fuel rods.
• Manufacturing of electrical energy storage equipment used to provide grid-scale storage or other ancillary services.
• Manufacturing of equipment for air- and ground-source heat pump systems.
• Manufacturing of zero-emission vehicles and their components.
• Manufacturing of hydrogen production, storage, and distribution equipment.
• Manufacturing of carbon capture, utilization, and storage equipment.

The Clean Hydrogen Investment Tax Credit is a refundable tax credit is to support Canada’s transition to a net-zero economy by 2050. Eligible investments in clean hydrogen production that are made as of the day of Budget 2023 with the credit being phased out after 2030.  The tax credit rate will vary from 15% to 40% depending on the carbon intensity of the hydrogen produced and the labour requirements met.

Some of the eligibility criteria are:

• The investment must be made in a facility that produces hydrogen with a carbon intensity of less than 10 kg CO2e per GJ of hydrogen.
• The investment must be part of a project that has received an environmental assessment or an equivalent process under provincial or territorial legislation.
• The investment must meet certain labour requirements, such as paying at least the prevailing wage rate and ensuring fair labour practices.

Some of the eligible activities for the Tax Credit are:

• Purchasing and installing eligible equipment that is used primarily for the production of clean hydrogen in Canada.
• Eligible equipment includes electrolyzers, steam methane reformers with carbon capture and storage, and other equipment that produces hydrogen with low carbon intensity.
• The carbon intensity of the hydrogen produced must be below a certain threshold, which will be determined by the government after consultation with stakeholders.
• The labor requirements for the project must meet certain standards, such as paying prevailing wages, respecting collective bargaining rights, and ensuring health and safety of workers.

The Carbon Capture, Utilization, and Storage (CCUS) Investment Tax Credit is a refundable tax credit for eligible investments in equipment to capture, transport, store and use CO2 through CCUS projects starting as early as January 1, 2022 to support Canada’s efforts to achieve net-zero emissions by 2050. The tax credit rate will vary from 37.5% to 60% depending on the type of CCUS project and the equipment involved.

Some of the eligibility criteria are:

• Project must capture, transport, store or use CO2 and reduce emissions by 15 megatons/year.
• Project must have a plan approved by Natural Resources Canada.
• Project must use equipment acquired or refurbished after 2021 and before 2041.
• Project must allocate 10% of CO2 for eligible use (geological storage or concrete) for 20 years.
• Project must meet labour requirements (50% Canadians, 10% underrepresented groups, 5% apprentices) or face credit reduction .
• Project must comply with recovery mechanisms if CO2 going to eligible uses is lower than expected.
• Project must disclose climate risks and share knowledge with public repository.

Some of the eligible activities for the tax credit are:

• Capturing CO2 from industrial sources or from the ambient air using eligible equipment, such as direct air capture devices or other capture technologies.
• Transporting CO2 from the capture site to the storage or use site using eligible equipment, such as pipelines or trucks.
• Storing CO2 in geological formations or in concrete using eligible equipment, such as injection wells or mixers12. Only dedicated geological storage and storage in concrete are considered eligible uses for the credit.
• Using CO2 for purposes that result in permanent storage or utilization of CO2, such as converting it into fuels, plastics, or other products using eligible equipment, such as reactors or catalysts12. Only uses that do not involve enhanced oil recovery are considered eligible uses for the credit.

The Clean Technology Investment Tax Credit is a refundable tax credit for eligible investments in clean technology manufacturing and processing, and critical mineral extraction and processing. The tax credit rate is 30% of the capital cost of eligible property. The Clean Tech ITC will be reduced to 15 percent for property that becomes available for use in 2034 and will no longer be in effect after 2034.

Some of the eligibility criteria are:

• Project must use equipment acquired or refurbished after 2023 and before 2035 for clean energy or emissions reduction.
• Project must be qualified and have a plan approved by Natural Resources Canada.
• Project must meet labour requirements (50% Canadians, 10% underrepresented groups, 5% apprentices) or face credit reduction.
• Project must comply with recovery mechanisms if clean energy or emissions reduction are lower than expected.
• Project must disclose climate risks and share knowledge with public repository.

Some of the eligible activities for the Tax Credit are:

• Generating clean energy from solar, wind, water, geothermal, or nuclear sources using eligible equipment, such as solar panels, wind turbines, hydroelectric generators, geothermal heat pumps, or nuclear reactors.
• Storing clean energy using eligible equipment, such as batteries, flywheels, compressed air, or hydrogen tanks.
• Using clean energy for industrial or transportation purposes using eligible equipment, such as electric vehicles, heat pumps, or fuel cells.
• Reducing greenhouse gas emissions from industrial processes or waste management using eligible equipment, such as carbon capture and storage devices, biogas digesters, or waste-to-energy systems.

ABGI & Braithwaite Canada has a team of experts who can guide companies through the process, optimize your claim, and reduce the risk of audits and can help you identify, document, and claim the eligible expenses for the big five Clean Investment Tax Credit as well as other provincial and federal incentives. For more information or to find out your eligibility, contact today to book an appointment with our experts.