The Government of Canada has announced two new tax credits in an effort to create a tax environment that is competitive with that of the United States and makes it more appealing for businesses to invest in Canada:
a tax credit for investments in clean technology; and a tax credit for clean hydrogen investments.
In accordance with previously announced tax policies, such as the Carbon Capture, Utilization, and Storage tax credit (the CCUS Tax Credit) established by the 2022 Canadian Federal Budget (Budget 2022), these are intended to further encourage the adoption of clean energy technology to assist in achieving Canada’s goal of a net-zero economy by 2050, as outlined in the federal government’s 2030 Emissions Reduction Plan.
Clean Technology Investment Tax Credit
According to the 2022 FES’s proposal, the Clean Technology Investment Tax Credit (Clean Tech ITC) will be a refundable tax credit that will amount to 30% of the capital cost of eligible equipment. The following items of equipment will qualify for the credit:
Electricity Generation Systems
Including solar photovoltaic, small modular nuclear reactors, concentrated solar, wind and water (small hydro, run-of-river, wave and tidal) as described under subparagraphs d(iii), (iii.1), (v), (vi), and (xiv) of CCA Class 43.1.
Stationary Electricity Storage Systems
Described under subparagraphs (d)(xviii) and (d)(xix) provided that they do not use fossil fuels in their operation, which includes but is not limited to: batteries, flywheels, supercapacitors, magnetic energy storage, compressed air storage, pumped hydro storage, gravity energy storage and thermal energy storage.
Low-Carbon Heat And Electricity Equipment
Including active solar heating, air-source heat pumps, and ground-source heat pumps that are described under subparagraph d(i) of Class 43.1, as well as small modular nuclear reactors and concentrated solar energy equipment.
Industrial Zero-Emission Vehicles
(i.e. non-road zero-emission vehicles, described in Class 56, such as hydrogen or electric heavy-duty equipment used in mining or construction) and Related Charging or Refueling Equipment primarily used for such vehicles, as described under subparagraph (d)(xxi) of Class 43.1 or subparagraph (b)(ii) of Class 43.2.
It is proposed that the Clean Tech ITC will be available for use on property that is acquired and becomes available for use on or after the day the 2023 Budget is released; however, it will be phased out starting in 2032 and will no longer be in effect after 2034. The first property that can be used in 2032 is eligible for a tax credit of up to 20%, the first property that can be used in 2033 is eligible for a tax credit of up to 10%, and the first property that can be used in 2034 is eligible for a tax credit of up to 5%.
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