Canada: Comments requested on clean hydrogen and technology investment tax credits

Comments will be accepted until 6 January 2023.

Clean hydrogen and technology investment tax credits

The Department of Finance on 1 December 2022 announced two new public consultations on the design of the clean hydrogen investment tax credit and the labour conditions to be met to receive the maximum tax credit rate under both the clean technology and clean hydrogen investment tax credits.

The credits are proposed to apply to eligible investments made as of the date of the 2023 federal budget. Comments will be accepted until 6 January 2023.

Background

In the 2022 federal fall economic update, Finance announced it would launch a consultation on a refundable clean hydrogen investment tax credit that would provide a top tax credit of at least 40% for eligible investments (depending on carbon intensity) and would be phased out after 2030. To receive the maximum rate, claimants would have to meet certain labour conditions. The proposed clean hydrogen investment tax credit would be available for eligible investments made as of the date of the 2023 federal budget.

Finance also announced a refundable clean technology investment tax credit for 30% of the capital cost of certain eligible clean technology equipment. The proposed credit would be available for the capital cost of property that is acquired and that becomes available for use on or after the day that the 2023 federal budget is released, as long as it has not been used for any purpose before its acquisition.

The credit will be gradually phased out between 2032 and 2035. To receive the maximum rate, claimants will have to meet certain labour conditions, or may only be able to claim the credit at a 20% rate. 

Clean hydrogen investment tax credit consultation

In one consultation, Finance is seeking input on the design of the clean hydrogen investment tax credit. In particular, Finance invites participants to comment on the credit, including to respond to specific questions on:

  • What would constitute an appropriate carbon intensity-based system for Canada
  • What levels of support would be appropriate for each carbon intensity tier (including the proposed top rate of at least 40%)
  • How Finance could consider eligibility for certain necessary equipment external to a facility under the clean hydrogen investment tax credit or other investment tax credits
  • Whether the government’s fuel life cycle assessment model is appropriate for calculating the life cycle carbon intensity of clean hydrogen production, and other issues related to this calculation

Labour conditions for clean technology and clean hydrogen investment tax credits

Finance also announced a separate consultation on establishing labour conditions to be met to receive the maximum tax credit rate for the investment tax credits for clean technologies and clean hydrogen. Finance invites participants to comment on potential labour conditions, including to consider specific questions on:

  • How the labour conditions of paying prevailing wages and creating apprenticeship opportunities should be accounted for in Canada
  • How employers could demonstrate compliance with the labour conditions
  • Whether there should be a threshold of investment required (or other metrics such as number of workers) for the labour conditions to apply, and if so, the appropriate threshold
  • How to deal with special circumstances involving subcontracted work and specific exemptions from the conditions

Read a December 2022 report prepared by the KPMG member firm in Canada

 

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