What projects qualify

A qualified clean hydrogen project must meet all the following conditions as confirmed in writing by NRCan:

• The hydrogen will be produced from an eligible pathway
• Based on the most recent project plan, the expected carbon intensity is determined in accordance with the principles set out in subsection 127.48 (6) (calculation of carbon intensity) of the Income Tax Act and can reasonably be expected to be achieved based on the project’s design
• If the project is intended to produce clean ammonia, you have demonstrated:
  • That the project can reasonably be expected to have sufficient production capacity to satisfy the needs of the ammonia production facility, and
  • The feasibility of transporting hydrogen between the facilities, if the hydrogen production facility and its ammonia production facility are not co-located

On this page

• What is eligible clean hydrogen property
• Determination of capital cost

What is eligible clean hydrogen property

Eligible clean hydrogen property is property situated in Canada that:

• • Is acquired and becomes available for use on or after March 28, 2023, for a qualified clean hydrogen project situated in Canada
  • Has not been used, or acquired for use or lease, by any person or partnership for any purpose whatever before you acquired it
• Used all or substantially all to produce hydrogen through electrolysis of water
  • Examples – Property used to produce hydrogen through electrolysis of water

    • Electrolysers
    • Rectifiers
    • Purification equipment
    • Water treatment and conditioning equipment
    • Equipment used for hydrogen compression and storage
• Used all or substantially all to produce hydrogen from eligible hydrocarbons
  • Examples – Property used to produce hydrogen from eligible hydrocarbons

    • Pre-reformers
    • Auto-thermal reformers
    • Steam methane reformers
    • Pre-heating equipment
    • Syngas coolers
    • Shift reactors
    • Purification equipment
    • Fired heaters
    • Water treatment and conditioning equipment
    • Equipment used in hydrogen compression and storage of hydrogen
    • Oxygen production equipment
    • Methanators
• Clean ammonia equipment, means equipment used solely for the purpose of producing ammonia
  • Examples – Clean ammonia equipment for

    • Converting hydrogen into ammonia
    • Heat recovery and conversion
    • Nitrogen generation
    • Feed storage (unless the feed is stored hydrogen) and feed compression
    • On-site refrigeration, transportation and storage of ammonia
• Dual-use electricity and heat equipment
• Dual-use hydrogen and ammonia equipment
• Project support equipment
• Equipment that is physically and functionally integrated with the property described above and that is ancillary equipment used solely to support the equipment described above within a hydrogen or ammonia production process as part of certain systems
  • Examples – Systems used to produce hydrogen or ammonia

    • An electrical system
    • A feed supply system
    • A fuel supply system
    • A liquid delivery and distribution system
    • A cooling system
    • A process material storage and handling and distribution system
    • A process venting system
    • A process waste management system
    • A utility air or nitrogen distribution system
• Equipment used for system safety and integrity, or as part of a control or monitoring system solely to support the equipment described above
• Property used solely to convert another property that would not otherwise be described above if the conversion causes the other property to satisfy the description of equipment above

The following properties are excluded for the purposes of the Clean Hydrogen ITC:

• Property included in Class 57 or 58 of Schedule II of the Income Tax Regulations
• Equipment used for the off-site transmission, transportation or distribution of hydrogen or ammonia
• Equipment used to prepare hydrogen for transport, including liquefaction equipment and equipment used to compress hydrogen to levels suitable for transportation
• An automotive vehicle or related refuelling or charging equipment
• A building or other structure
• Construction equipment, furniture or office equipment
• Equipment used for off-site storage

Determination of capital cost

The capital cost of property generally means your cost of acquiring the property and includes:

• Legal, accounting, engineering or other fees incurred to acquire the property
• Site preparation, delivery, installation, testing, or other costs incurred to put the property into service
• In the case of a property that you manufacture for your own use, material, labour and overhead costs reasonably attributable to the property, but not any profit which might have been earned had the asset been sold

The capital cost of eligible clean hydrogen property must be reduced by:

Amounts of assistance that are repaid in a tax year or are no longer expected to be received in the year may be added to the capital cost of eligible clean hydrogen property for determining the Clean Hydrogen ITC for the year.

The cost of certain property that is used in both hydrogen and ammonia production will be allocated separately between the categories for such equipment.

The capital cost of eligible clean hydrogen property does not include:

• Expenditures incurred for a preliminary clean hydrogen work activity, meaning work that is preliminary to the acquisition, construction, fabrication or installation of eligible clean hydrogen property, including but not limited to, a preliminary activity that is:
  • Obtaining permits or regulatory approvals
  • Performing front-end design or engineering work, including front-end engineering design studies (or equivalent studies as determined by the Minister of Natural Resources) but excluding detailed design or engineering work in relation to eligible clean hydrogen property
  • Conducting feasibility studies or pre-feasibility studies (or equivalent studies as determined by the Minister of Natural Resources)
  • Conducting environmental assessments
  • Clearing or excavating land
• A portion of the capital cost of certain eligible clean hydrogen property that is not used all or substantially all to support a qualified clean hydrogen project
  •  In general, the included portion is the proportion of the output from the equipment that is expected to be used in the project relative to the total output from the equipment, with each determined over the first 20 years of the project’s operations

Refer to: Technical and Equipment Guidance – Clean Hydrogen ITC

If any part of the capital cost of a taxpayer’s eligible clean hydrogen property is unpaid on the day that is 180 days after the end of the taxation year of a taxpayer in which the property became available for use, that part of the cost is added to the capital cost of the property at the time it is paid.