Canada’s Clean Energy Investment Tax Credits
The Canadian government has enacted four new refundable investment tax credits (ITCs) designed to grow Canada’s clean economy and allow Canada to remain competitive in attracting investment in clean energy projects:
The Clean Technology ITC: A refundable tax credit of up to 30% of investments in eligible property acquired and available for use on or after March 28, 2023 and before 2034. For property that becomes available for use in 2034, this tax credit would be up to 15%. No tax credit would be available after 2034.
The Clean Technology Manufacturing ITC: A refundable tax credit of 30% of investments in eligible property to be used in clean technology manufacturing and critical mineral extraction and processing that is acquired and available for use in 2024 to 2031. This tax credit would reduce to 20% for 2032, 10% for 2033 and 5% for 2034. No tax credit would be available after 2034.
The Clean Hydrogen ITC: A refundable tax credit of up to 40% of investments in projects that produce hydrogen and become available for use on or after March 28, 2023 and before 2034. For investments that become available for use in 2034, this tax credit would generally be reduced by one-half. No tax credit would be available after 2034.
The Carbon Capture, Utilization and Storage (“CCUS”) ITC: A refundable tax credit for expenditures incurred between January 1, 2022 and December 31, 2030 of:
up to 60% of Qualified Carbon Capture Expenditures incurred to capture carbon from ambient air;
up to 50% of Qualified Carbon Capture Expenditures incurred to capture carbon other than directly from ambient air; and
up to 37.5% of Qualified Carbon Transportation Expenditures, Qualified Carbon Storage Expenditures and Qualified Carbon Use Expenditures.
For the period January 1, 2031 to December 31, 2040, the tax credit would be reduced by one-half. No tax credit would be available after 2040.
These ITCs became law in June 2024. They are refundable tax credits. That is, they would be treated as amounts that have been paid by the taxpayer on account of tax, and if no more tax is payable for the year, the taxpayer would receive a refund.
Taxpayers would generally be able to claim only one of these tax credits in respect of the acquisition of an eligible property, even if the particular property would be eligible for more than one of these tax credits.
In addition to the above ITCs, the Canadian government has proposed two additional refundable ITCs:
The Clean Electricity ITC: A refundable tax credit of up to 15% of investments in projects that generate clean electricity, store electricity without the use of fossil fuels, or transmit electricity between provinces and territories. This tax credit would be available as of April 16, 2024 for projects that did not begin construction before March 28, 2023. No tax credit would be available after 2034.
The Electric Vehicle Supply Chain ITC: A tax credit of 10% of the cost of buildings used in the following supply chain segments: (i) electric vehicle assembly; (ii) electric vehicle battery production; and (iii) cathode active material production. The EV Supply Chain ITC would apply to property that is acquired and becomes available for use on or after January 1, 2024. The credit would be reduced to 5% for 2033 and 2034, and would no longer be in effect after 2034.
This bulletin provides a description of each of these tax credits. Following these descriptions, certain tax considerations that are relevant to the design of these tax credits are discussed.
