Overview

Following clean energy and carbon storage investment tax credit (ITC) announcements in Budget 2022 and the 2022 Fall Economic Statement, the 2023 Canadian Federal Budget (Budget 2023) released on March 28, 2023 (2023 Budget Day) provided further details on previously announced ITCs and details on further clean energy and technology ITCs. 

While there are many details still pending for the particular programs, the Budget 2023 announcements continue the focus on providing incentives through ITCs. Notably where expenditures could qualify under more than one ITC program, taxpayers would generally only be eligible for one of the ITCs.

Also of note, the Clean Hydrogen ITC, Clean Technology ITC, and Clean Electricity ITCs (referenced below) are subject to labour conditions outlined in Budget 2023, which will be applicable to work performed on or after October 1, 2023. The labour conditions generally require that workers engaged in project elements subsidized by an applicable ITC must satisfy a “prevailing wage requirement” and an “apprenticeship requirement”. These conditions very generally require that for applicable workers, (i) wages meet or exceed what is determined to be a prevailing wage by reference to applicable collective agreements, and (ii) that a minimum level (10%) of labour hours are performed by registered apprentices. Budget 2023 indicates these labour conditions will generally apply to workers whose duties are primarily manual or physical in nature, and would not apply to workers that are primarily administrative, clerical, supervisory or executive. If the labour conditions are not satisfied the amount of the ITC will be reduced (generally by 10%). Budget 2023 also indicates that labour conditions will apply to the CCUS ITC, though details of these conditions have not been provided. 

The following is a high level summary of the details of the different ITC programs now available in clean energy, technology and carbon storage. 

Incentive  Summary 

Clean Hydrogen ITC

(15 – 40%) 
  • A refundable tax credit for the capital cost of projects that produce clean hydrogen.
  • The credit ranges from 15 – 40% of the costs of eligible equipment acquired to produce hydrogen through electrolysis of water or from natural gas (provided CO2 emissions are abated through CCUS), as well as certain equipment for hydrogen compression and on-site storage. Certain equipment used to convert clean hydrogen to clean ammonia will also benefit from a fixed 15% credit.
  • The level of credit depends on the carbon intensity (CI) of the produced hydrogen. CI of a particular project would need to be assessed according to standards set by Environment and Climate Change Canada and verified by the federal government (with ongoing annual verification requirements).
  • The Clean Hydrogen ITC will be dependent on the satisfaction of labour conditions concerning (i) prevailing wage requirements and (ii) apprenticeship requirements. The tax credit rate for each tier is proposed to be reduced by 10% if the labour conditions are not satisfied.
  • Available in respect of eligible property that is acquired and becomes available for use on or after 2023 Budget Day and prior to 2035 (with a transitional phase-out in 2034). 

Clean Technology ITC

(30%)
  • The Clean Technology ITC was originally announced in the 2022 Fall Economic Statement as a 30% refundable tax credit available in respect of the capital costs of (i) clean electricity generation systems (i.e., solar, wind, hydro, nuclear), (ii) electricity storage systems, (iii) low-carbon heat and electricity equipment, and (iv) industrial zero-emission vehicles.
  • Budget 2023 expanded the Clean Technology ITC to include certain geothermal equipment that is used primarily to produce geothermal energy or heat energy (or both) solely from geothermal sources.
  • The Clean Technology ITC will be dependent on the satisfaction of labour conditions concerning (i) prevailing wage requirements and (ii) apprenticeship requirements. The tax credit rate is proposed to be reduced to 20% if the labour conditions are not satisfied.  
  • The Clean Technology ITC (for both geothermal properties and those other properties previously announced) is generally available in respect of eligible property that is acquired and becomes available for use on or after Budget Day 2023 and prior to 2035 (with a transitional phase out in 2034, rather than starting in 2032 as previously announced). 

Clean Technology Manufacturing ITC

(30%) 
  • A 30% refundable tax credit in respect of the capital costs of property (i.e., machinery and equipment) that is used in (among certain other things):
    • manufacturing of (i) renewable energy equipment (i.e., solar, wind, geothermal), (ii) nuclear energy equipment, (iii) grid-scale electrical storage equipment, (iv) zero-emission vehicles, (v) batteries, fuel cells, recharging systems for vehicles, and (vi) hydrogen production equipment (among other things);
    • processing and recycling of nuclear fuels; and
    • extraction and processing activities related to lithium, cobalt, nickel, graphite, copper and rare earth elements.
  • Available in respect of eligible property that is acquired and becomes available for use on or after January 1, 2024 and prior to 2035 (with a transitional phase out starting in 2032).

 Carbon Capture, Utilization and Storage (CCUS) ITC

(18.75% to 60%)

  
  • Budget 2023 expands the CCUS ITC framework previously released in 2022, though further details are to be released in the coming months.
  • CCUS ITC now includes:
    • geological storage in British Columbia (in addition to Alberta and Saskatchewan);
    • certain “dual use equipment” that is used for CCUS as well as another process (with the ITC to be pro rated); and
    • refurbishment costs incurred after completion of a project.
  • Budget 2023 also includes details regarding ongoing Climate Risk Disclosure and Knowledge Sharing Reports that will be required to be prepared and publicly shared by certain taxpayers who have claimed the CCUS ITC.
  • The CCUS ITC will be dependent on the satisfaction of labour conditions that are yet to be announced.
  • Available in respect of eligible expenses incurred after January 1, 2022. 
 Clean Electricity ITC

(15%)

  
  • Budget 2023 announces an intention to introduce a 15% refundable tax credit for investments in (i) non-emitting electricity generation systems (i.e., wind, solar, hydro, nuclear), (ii) abated natural gas-fired electricity generation, (iii) electricity storage systems, and (iv) equipment used for transmission of electricity between provinces and territories.
  • The Clean Electricity ITC will be dependent on satisfaction of labour conditions concerning (i) prevailing wage requirements and (ii) apprenticeship requirements. The tax credit rate is proposed to be reduced to 5% if the labour conditions are not satisfied. 
  • The Department of Finance will be engaging with stakeholders to develop the design and implementation of the Clean Electricity ITC.
  • The Clean Electricity ITC is intended to be available as of the federal budget day in 2024 for projects that begin after 2023 Budget Day.