Your reporting responsibilities

On this page

• Annual carbon intensity reporting
• Penalty for failure to file annual carbon intensity report
• Repaying credit amounts to the CRA

Annual carbon intensity reporting

If you claimed the Clean Hydrogen ITC for a qualified clean hydrogen project, you must file a compliance report with the CRA and NRCan within 180 days after the end of each operating year for a project in prescribed form including:

• The actual carbon intensity of the hydrogen produced during the operating year
• The kilograms of hydrogen that were produced by the project during the operating year
• Any shutdown time of the project for the year
• For the 5th operating year, the compliance report must include a report that verifies the actual carbon intensity of the hydrogen produced during each operating year of the compliance period, prepared by a qualified verification firm for the project
• Any information required in guidelines published by NRCan including the Validation and Verification Guidance – Clean Hydrogen ITC

Penalty for failure to file annual carbon intensity report

If you do not file an annual carbon intensity compliance report for a project, you are liable to a penalty for each report you do not file. The amount will not exceed the total of all clean hydrogen tax credits you deducted in respect of the project.

For each project, the penalty is calculated as:

• 4% of the Clean Hydrogen ITC for the project deducted in a tax year that ended before the deadline to file the compliance report, divided by 365
• Multiplied by the number of days during which the failure continues

Repaying credit amounts to the CRA

You may have to repay credit amounts you have already received.

Recovery tax – change in carbon intensity

At the end of the compliance period of a qualified clean hydrogen project, if the average actual carbon intensity is higher than the most recent expected carbon intensity that was used to determine the Clean Hydrogen ITC, you will be subject to recovery tax in the tax year in which the compliance period ends.

The recovery tax payable is determined by a formula applied to each eligible clean hydrogen property forming part of the project.

The formula is (A – B) × C, where:

• Variable A is the specified percentage that was applied to the capital cost of the eligible clean hydrogen property in determining a clean hydrogen tax credit
• Variable B is the specified percentage that would have applied to the capital cost of the property if the expected carbon intensity were equal to the average actual carbon intensity of the project
• Variable C is the capital cost of the property on which the clean hydrogen tax credit was deducted

The recovery tax is zero if the difference between the average actual carbon intensity and the expected carbon intensity of the project is 0.5 or less. This exception is intended to provide some tolerance and flexibility for variations in a project’s carbon intensity that are unanticipated or outside of your control.

NRCan will review each of the compliance reports and the CRA, in consultation with NRCan, may make a determination or redetermination of the actual carbon intensity of the hydrogen produced in the clean hydrogen project for any operating year during the compliance period of the project.

Interest on recovery tax

For the purpose of applying interest to an amount payable because of a recovery tax, your balance-due day for the tax year is deemed to be the balance-due day of the tax year for the related Clean Hydrogen ITC. This may create a liability for interest from the tax year in which the tax credit was originally claimed.

Recapture of Clean Hydrogen ITC

If you acquired an eligible clean hydrogen property in the year or any of the preceding 20 calendar years, and you became entitled to a Clean Hydrogen ITC for the capital cost or a portion of the capital cost, of the property, you will have to calculate a recapture of Clean Hydrogen ITC if in the tax year you:

Recapture does not apply on the disposition of a property if the property was previously converted to a non-hydrogen or ammonia use or exported from Canada, which ensures that recapture is not triggered twice for the same property.

Where recapture applies in respect of an eligible clean hydrogen property, you must add to the tax otherwise payable for the year the amount determined by the formula (A – B) × (C ÷ D), where:

• Variable A is the amount of your clean hydrogen tax credit in respect of the property
• Variable B is the portion of any recovery tax you previously paid in respect of the property
• Variable C is the amount, not exceeding the original capital cost of the property, equal to either the proceeds of disposition of the property or the fair market value of the property, depending on the circumstances
• Variable D is the capital cost of the property on which the Clean Hydrogen ITC was deducted

Election – sale of clean hydrogen project

You may make an election to avoid recapture in certain circumstances.

The election may be available where a qualifying taxpayer (the vendor) disposes of all or substantially all of its properties that are part of a qualified clean hydrogen project of the taxpayer to another taxable Canadian corporation (the purchaser).

The vendor and the purchaser must jointly elect in prescribed form on or before the day that is earliest of the day the vendor or the purchaser is required to file a return for the tax year in which the transaction occurred. If this election is made, the purchaser will assume the relevant tax history of the vendor so that recovery and recapture taxes under section 127.48 can apply appropriately.