Canadian Investment Tax Credits for Clean Technologies and Clean Hydrogen Announced in 2022 Fall Economic Statement

Key Highlights

• Proposed 30 percent refundable Clean Technology Investment Tax Credit.
• Proposed refundable Clean Hydrogen Investment Tax Credit.
• Further details and consultations are forthcoming.
• Project proponents must comply with labour conditions to receive the full tax credits.
• Availability is determined by reference to the release of the 2023 Federal Budget.

In an effort to establish a competitive tax environment with the United States, making it more attractive for businesses to invest in Canada, the Government of Canada has announced two new tax credits:

1. a Clean Technology Investment Tax Credit; and
2. a Clean Hydrogen Investment Tax Credit.

These are intended to further incentivize 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, and to this end are in keeping with previously announced tax policy, such as the Carbon Capture, Utilization and Storage tax credit (the CCUS Tax Credit) established by the 2022 Canadian Federal Budget (Budget 2022).

Clean Technology Investment Tax Credit

The Clean Technology Investment Tax Credit (Clean Tech ITC) as proposed by the 2022 FES will be a refundable tax credit equal to 30 percent of the capital cost of eligible equipment. The equipment eligible for the credit will include:

• 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 that 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.

The Department of Finance will consult on whether there will be any additional eligible equipment related to clean technologies that will be eligible for the Clean Tech ITC. The 2022 FES specifically mentions large scale-nuclear and large-scale hydroelectric projects as potential additions.

Availability

The Clean Tech ITC is proposed to be available for property that is acquired and becomes available for use on or after the day the 2023 Budget is released—it will be gradually phased out beginning in 2032 and will no longer be in effect after 2034. Property first available for use in 2032 will qualify for a tax credit of up to 20 percent, property first available for use in 2033 will qualify for a tax credit of up to 10 percent, and property first available for use in 2034 will qualify for a tax credit of up to 5 percent.