The global accelerating transition to net zero has provided Canadian businesses with a huge opportunity to invest and innovate in the clean energy sector to remain competitive to the global market. Canadian businesses can now receive various funding and financial support from the government via investment tax credits such as Clean Electricity ITC, Clean Hydrogen ITC, and targeted programming such as Strategic Innovation Fund, Smart Renewables & Electrification Pathway Programs, Clean Fuels Fund, and Low Carbon Economy Fund.
Canada’s Ministry of Finance has proposed new investment tax credits relating to clean economy, along with expanding on current investment tax credits in budget 2023 to continue to attract investment funds and support innovation in Canada. These investment tax credits are specific to firms in various industries, and we will explore the details of each investment tax credit below:
Investment Tax Credit for Clean Electricity
Types of funding available
To support and accelerate clean electricity investment in Canada, the government has proposed a $6.3 billion budget over four years starting in 2024-25, and an additional $19.4 billion from 2028-29 to 2034-35. Businesses can receive 15 per cent refundable tax credit in eligible investments.
Eligible Applicants
Both taxable and non-taxable entities such as Crown corporations and publicly owned utilities, corporations owned by Indigenous communities, and pension funds, would be eligible for the Clean Electricity Investment Tax Credit.
Eligible Projects
Eligible investments for the refundable tax credit includes:
- Non-emitting electricity generation systems: wind, concentrated solar, solar photovoltaic, hydro (including large-scale), wave, tidal, nuclear (including large-scale and small modular reactors);
- Abated natural gas-fired electricity generation (which would be subject to an emissions intensity threshold compatible with a net-zero grid by 2035);
- Stationary electricity storage systems that do not use fossil fuels in operation, such as batteries, pumped hydroelectricity storage, and compressed air storage;
- Equipment for the transmission of electricity between provinces and territories; and,
- Projects across the North that support the transition away from diesel and in meeting emissions goals, including the Atlin Hydro Expansion Project, the Taltston Hydro Expansion Project, ad the Kivalliq Hydro-Fibre Link;
- Both new projects and the refurbishment of existing facilities will be eligible
Implementation
Below are some implementation details form Canada’s Budget 2023:
- Details on designs and implementation of this new tax credit are still under being discussed between the Department of Finance and relevant parties with more details to come. The government will also conduct targeted consultations on the possibility to introduce reciprocal treatment considering some of the eligibility conditions associated with certain tax credits under the U.S. Inflation Reduction Act.
- In order to access the tax credit in each province and territory, other requirements will include a commitment by a competent authority that the federal funding will be used to lower electricity bills, and a commitment to achieve a net-zero electricity sector by 2035.
- The Clean Electricity Investment Tax Credit could be claimed in addition to the Atlantic Investment Tax Credit, but generally not with any other investment tax credit.
- Any projects that did not begin construction before the day of Budget 2023 can apply for the tax credit as of the day of Budget 2024. The Clean Electricity Investment Tax Credit would not be available after 2034.
- There is an additional labour requirement introduced to all ITCs for companies to receive the full 15 per cent tax credit. If labour requirement is not met, the credit rate will be reduced by ten percentage points, effective on October 1, 2023. More details will be covered in the labour requirement section.
