Finance has launched a consultation on Canada's clean economy to develop specific design details of new investment tax credits intended to encourage investment in clean energy. In particular, Finance is asking for stakeholder feedback on the new Clean Electricity Investment Tax Credit and the Clean Technology Manufacturing Investment Tax Credit, which were announced in the 2023 federal budget. In addition, Finances says it will accept comments on the previously announced Clean Technology Investment Tax Credit, the Clean Hydrogen Investment Tax Credit, and proposed enhancements to the Investment Tax Credit for Carbon Capture, Utilization and Storage (CCUS). Although this public consultation was announced as part of a series of consultations on recent federal budget measures, Finance did not release a specific consultation paper on these incentives. It also appears that Finance has not yet announced a closing date for this consultation.
Background
In the 2023 federal budget, Finance announced a new refundable Clean Technology Manufacturing Investment Tax Credit of up to 30% of the capital cost of certain machinery and equipment used to manufacture or process clean technologies (e.g., renewable energy equipment and nuclear energy equipment), and extract or process six critical minerals. The credit applies to property that is acquired and becomes available for use on or after January 1, 2024, subject to a gradual phase-out for property available for use beginning in 2032 and is no longer available for property that becomes available for use after 2034.
The Clean Technology Investment Tax Credit, which was previously announced in the 2022 Federal Fall Economic Update, is a refundable credit that offers up to 30% of the capital cost of eligible clean technology equipment (e.g., low-carbon heat equipment, industrial zero-emission vehicles and geothermal energy systems). This credit applies to eligible property that is acquired and becomes available for use on or after March 28, 2023, subject to a reduction to 15% in 2034 and will be no longer available after 2034.
The Clean Hydrogen Investment Tax Credit was also announced in the 2022 Federal Fall Economic Update. This refundable credit provides a maximum of 40% of the cost of purchasing and installing eligible equipment, with the highest level of support available for equipment that produces the cleanest hydrogen. This credit applies to property that is acquired and becomes available for use on or after March 28, 2023, subject to a 50% reduction for property that becomes available for use beginning in 2034 and will no longer be available after 2034.
Finance introduced the Clean Electricity Investment Tax Credit in the 2023 federal budget. This 15% refundable tax credit is available for eligible investments, which include investments in non-emitting electricity generation systems, abated natural gas-fired electricity generation, stationary electricity storage systems that do not use fossil fuels in operation, and certain equipment for electricity transmission. This credit would be available as of the day of the 2024 federal budget for projects that did not begin construction before March 28, 2023, and would not be available after 2034.
Finance also proposed enhancements to the CCUS Investment Tax Credit in the 2023 federal budget. Among other changes, the budget expanded the refundable CCUS credit to include the cost of dual use heat and/or power equipment (or uses water) on a prorated basis in proportion to expected use of energy or material supporting the carbon capture, utilization, and storage process, subject to certain conditions. Once enacted, the tax credit should be retroactively available to businesses that have incurred eligible CCUS expenses after 2021 and before 2041.
For more information on these credits, see TaxNewsFlash-Canada 2023-20, “Your Business May Qualify for New Funding and Incentives” and TaxNewsFlash-Canada 2023-17, "2023 Federal Budget Highlights".
Finance consultation
Finance is currently seeking comments from Canadian businesses, unions and stakeholders on these clean energy incentives, including whether it should implement reciprocal treatment of its clean economy measures such as domestic content requirements where other countries have similar incentives for Canadian businesses. In particular, Finance notes that it is considering matching other countries’ domestic content requirements with similar restrictions in Canada so that any country that provides incentives to Canadian businesses would receive reciprocal treatment in Canadian incentives.
Finance also notes that it continues to consult with unions and other stakeholders on the labour requirements which will be part of most of these tax credits. Previously, Finance sought feedback on these labour conditions beginning in December 2022.
For more information, contact your KPMG adviser.
Information is current to June 12, 2023. The information contained in this publication is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act upon such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's National Tax Centre at 416.777.8500
