Clean Economy investment tax credits

Transcript

Slide 1 – Title Page

• Hello! Thank you for joining today’s presentation on the Clean Economy Investment Tax Credits.

• Before I begin, I would like to highlight that the content in this presentation is valid as of today’s date. To ensure you have the most up to date information moving forward, I encourage you to visit the Clean Economy Investment Tax Credits pages on Canada.ca. There, you’ll find all the information, links, and resources you need.

Slide 2 – How to contact us

• Following this presentation, if you have any questions or concerns regarding your projects or claims, please contact our Fraser Valley and Interior Tax Services Office.

• The Tax Services Office is best equipped with the tools and resources to help you with your specific Clean Economy Investment Tax Credits inquiries.

Slide 3 – Growing a clean economy

• Beginning in 2021, the Federal Government announced a series of six refundable Clean Economy Investment Tax Credits, commonly referred to as ITCs. These ITCs are intended to help Canada transition to clean energy while growing the economy and supporting green innovation. They will also provide businesses and other investors with the certainty they need to invest and build in Canada.

• The Government of Canada expects to provide more than $93 billion in tax incentives by 2034.

• At this time, eligible businesses can claim four of these credits, which include:
  • Clean Technology
  • Clean Technology Manufacturing
  • Carbon Capture, Utilization, and Storage
  • and Clean Hydrogen

• The other two credits that have been announced, but are not yet available to claim are the Clean Electricity ITC, and the Electric Vehicle Supply Chain ITC.

• Today, we’ll be taking a closer look at the four available credits.

Slide 4 – Roles and Responsibilities

• The CRA is responsible for administering the Clean Economy ITCs, as well as delivering the credit payment amounts.

• Depending on the specific ITC, a claimant would file their ITC claim with their annual T2 Corporation Income Tax Return or their T3 Trust Income Tax and Information Return.

• Once the claim has been submitted, the CRA then audits the tax credit claim to determine the eligibility of expenses. If the claimant has elected to meet the labour requirements, the CRA will also ensure that all requirements have been met, in order to receive the regular tax credit rate. Upon completing the audit of the tax credit claim, the CRA will deliver the credit payment, or in the case where there is tax owing, the credit will be used to reduce the amount owed.

• I would also like to highlight the important role that Natural Resources Canada has in the administration of certain Clean Economy ITCs.

• The legislation for each credit defines the roles and responsibilities of both the CRA and Natural Resources Canada, also known as NRCan. Their role varies depending on the credit.

• NRCan is most involved with the Carbon Capture, Utilization and Storage, and the Clean Hydrogen credits. For both of those credits, NRCan serves as the authority on scientific, engineering, and technical matters.

• That being said, NRCan is also involved in reviewing projects as part of the claim process and they issue the initial project evaluation to the taxpayer. We will take a closer look at NRCan’s role for those two credits later in the presentation.

• For the Clean Technology credit, NRCan provides scientific and engineering guidance on clean technology property, if requested by the CRA or the taxpayer.

• And for the Clean Technology Manufacturing credit, there is no legislated role for NRCan.

Slide 5 – Overview of the Clean Economy ITCs

• Now, let’s take a closer look at each of the available ITCs.

Slide 6 – What is the Carbon Capture, Utilization, & Storage ITC?

• The Carbon Capture, Utilization and Storage, or CCUS ITC is a refundable tax credit that applies to eligible expenditures incurred for a qualified CCUS project, from January 1, 2022, to December 31, 2040.

• For this credit, the rate may be up to 60% for qualified CCUS expenditures incurred from January 1, 2022, to December 31, 2030.

• From 2031 to 2040, the rate may be up to 30%.

• To claim this credit, you must be a taxable Canadian corporation, including those that are members of a partnership. You can avoid claiming the reduced tax credit rate by choosing to meet certain labour requirements, which I will expand on later in the presentation.

Slide 7 – CCUS regular rates

• The regular rates for CCUS vary from 18.75%, all the way up to 60%. The rate depends on the category of expenditure, as well as the date the expenditure was incurred.

Slide 8 – Carbon Capture, Utilization, & Storage qualified projects & expenditures

• When we talk about a CCUS project, we consider it to be a project that intends to support a CCUS process, which includes:
  • Capturing CO₂that would otherwise be released into the atmosphere
  • Capturing CO₂directly from the ambient air
  • Transporting captured carbon, and
  • Storing or using captured carbon

• In terms of qualified CCUS expenditures, there are four categories:
  • Capturing qualified carbon capture expenditures
  • Qualified carbon transportation expenditures
  • Qualified carbon use expenditures
  • Qualified carbon storage expenditures

• To be eligible for this credit, qualified expenditures must be:
  • For a qualified CCUS project, and
  • Incurred to acquire property described in capital cost allowance Class 57 or Class 58, or as described in the definition of dual-use equipment

• For more information on capital cost allowance classes and qualified CCUS projects and expenditures, please visit our web pages on Canada.ca.

Slide 9 – Carbon Capture, Utilization and Storage Claim Process

• This is a simplified process map for the Carbon Capture, Utilization and Storage tax credit.

• A claimant would start by referencing the expertise of NRCan to better understand their eligibility and get an idea of what could potentially qualify.

• Then, they submit their application to NRCan for screening. NRCan screens the application and the CRA determines the number of CCUS projects in the submission.

• The claimant would then share the CRA’s decision with NRCan, so they can carry out a full review. If NRCan approves the application in full, they will provide an assessment to the claimant to submit to the CRA.

• Finally, the CRA audits the tax credit claim which is filed with the claimant’s annual T2 return, makes a determination and delivers the credit payment, or in the case where there is tax owing, the credit is used to reduce the amount owed.

Slide 10 – Clean Hydrogen

• The next credit that is currently available is the Clean Hydrogen Investment Tax Credit. This is a refundable tax credit for eligible clean hydrogen property that has been acquired as of March 28, 2023 and that becomes available for use on or before December 31, 2034.

• You can receive up to 40% of the capital cost of eligible clean hydrogen property that is acquired and that becomes available for use from March 28, 2023, up to December 31, 2033.

• For property acquired and available for use in 2034, you may receive up to 20%.

• To benefit from this credit, you must be a taxable Canadian corporation, which includes those that are members of a partnership. Employers who elect to meet the labour requirements can avoid claiming the reduced tax credit rate.

Slide 11 – Clean Hydrogen rates

• In addition to the date the property was acquired and becomes available for use, the regular credit rate also depends on the expected carbon intensity. This rate ranges from 7.5% to 40%.

Slide 12 – Eligible Clean Hydrogen property

• For clean hydrogen property to be considered eligible, it must be situated in Canada. Generally, it includes property that is:
  • Used all or substantially all to produce hydrogen through electrolysis of water
  • Used all or substantially all to produce hydrogen from eligible hydrocarbons
  • Clean ammonia equipment, meaning equipment used solely for the purpose of producing ammonia
  • Dual-use electricity and heat equipment
  • Dual-use hydrogen and ammonia equipment
  • Project support equipment

• You can access more details on eligible clean hydrogen property on our web pages.

Slide 13 – Clean Hydrogen Claim Process

• The process for the Clean Hydrogen tax credit is quite similar, in terms of NRCan’s involvement.

• NRCan will screen the application and the CRA will assess how many Clean Hydrogen projects are included within that submission.

• The CRA’s project determination will then be shared with NRCan for technical review and, if approved, NRCan will provide a qualified project plan confirmation for the claimant to share with the CRA.

• CRA will audit the claim to determine eligibility of expenses and, as we have mentioned, deliver the claim payment or use it to reduce amount owing.

Slide 14 – What is the Clean Technology Manufacturing ITC?

• The Clean Technology Manufacturing ITC is a refundable tax credit to encourage the investment of capital for clean technology manufacturing and processing and critical mineral extraction and processing in Canada from January 1, 2024 to December 31, 2034.

• The rate will differ depending on when the property is acquired and available for use. However, it should be noted that the labour requirements do not apply to the Clean Technology Manufacturing credit.

• From January 1, 2024 to December 31, 2031, the Clean Technology Manufacturing credit offers up to 30% of the capital cost of eligible property associated with eligible activities.

• In 2032, the credit rate will be reduced to 20%, then down to 10% in 2033, and in its final year, 2034, eligible businesses could receive 5% back.

• To be able to claim the Clean Technology Manufacturing credit, you must be a taxable Canadian corporation, which includes corporations that are members of a partnership.

Slide 15 – Types of Clean Technology Manufacturing property

• Clean Technology Manufacturing property must be included in certain capital cost allowance classes, with certain qualifications and exceptions. In general, eligible property falls in the following categories:
  • Machinery and equipment used for manufacturing or processing, such as industrial robots used to manufacture electric vehicles or vats used to process cathode active materials
  • Certain tangible property attached to buildings and other structures used for manufacturing or processing, or property that is required for machinery or equipment, such as ventilation systems used to remove chemical fumes or specialized electrical wiring used to provide power to solar panel manufacturing equipment
  • Certain property used for mineral extraction and processing, such as equipment used to crush rock containing copper ore or kilns used to calcinate nickel ore
  • Certain specialized tooling, such as moulds used to cast copper ingots at smelters or cutting parts of a machine used to cut solar cells
  • Non-road vehicles and automotive equipment that is fully electric or powered by hydrogen, such as electric vehicles designed for use in factories or hydrogen-powered vehicles designed for extracting rock from mine sites

• In order to qualify, alongside other limitations, Clean Technology Manufacturing property must:
• Be property that is situated in and intended for use exclusively in Canada
• Not have been used, or acquired for use or lease, for any purpose before the taxpayer acquired it
• Meet additional leasing requirements if the property is leased to another person or partnership, which can be found on our web pages
• Not be an excluded property, which concerns any property used in the production of battery cells or modules if the production has or expects to benefit from support under a contribution agreement with the Government of Canada

• We invite you to visit our web pages for further details on what types of property could be eligible for this tax credit.

Slide 16 – CTM claim process

• The CTM claim process is relatively simple. The taxpayer submits the claim to the CRA, who then reviews and determines the eligibility of expenses and advises the taxpayer.

Slide 17 – What is the Clean Technology ITC?

• The Clean Technology ITC is a refundable tax credit for capital invested in the adoption and operation of new Clean Technology property in Canada from March 28, 2023, to December 31, 2034.

• Like the Clean Technology Manufacturing credit, the rate depends on when the property is acquired and becomes available for use. It also depends on whether or not you elect to meet the labour requirements.

• For the Clean Technology credit, you can receive up to 30% of the capital cost of clean technology property that is acquired and that becomes available for use from March 28, 2023 to December 31, 2033.

• In 2034, you will be able to receive up to 15%. After 2034, the credit will no longer be available.

• To be able to claim the Clean Technology credit, you must be either a taxable Canadian corporation, or a mutual fund trust that is a real estate investment trust. This also includes corporations or trusts that are members of a partnership.

• The other available credits are only offered to taxable Canadian corporations. So, the inclusion of a mutual fund trust is something that is unique to the Clean Technology credit.

Slide 18 and 19 – Clean Technology property

• To qualify, in addition to other limitations, Clean Technology property must be equipment that is situated in and intended for use only in Canada. It must also not have been previously used or acquired for use or lease, for any purpose before it was obtained by the taxpayer.

• If you lease the property to another person or partnership, additional leasing requirements must be met, which you can find on our web pages.

• Eligible clean technology property includes but is not limited to:
  • Equipment used exclusively for the purpose of generating electrical energy or heat energy, solely from geothermal energy, unless it’s part of a system that extracts fossil fuels for sale
  • Active solar heating equipment, air-source heat pumps and ground-source heat pumps
  • Non-road zero-emission vehicles and related hydrogen refueling equipment that is used primarily for such vehicles
  • Stationary electricity storage equipment that does not use any fossil fuel in operation
  • Equipment used to generate electricity from solar, wind and water energy
  • Concentrated solar energy equipment
  • Small modular nuclear reactors

• Please note that labour requirements do not apply to a clean technology ITC claimed for the acquisition of off-road zero emission vehicles, or the acquisition and installation of low carbon heating equipment.

• For the full list of eligible Clean Technology property, please visit our web pages.

Slide 20 – Clean Technology claim process

• As outlined in this process map, NRCan’s expertise is available to you prior to submitting a claim for the Clean Technology ITC.

• Like the CTM, the three main steps in this claim process are:
  • The taxpayer submits the ITC claim to the CRA with their T2 return
  • The CRA reviews the ITC claim
  • Then, the CRA determines the eligibility of expenses and advises the taxpayer

• However, a taxpayer may choose to consult NRCan’s technical guidance prior to submitting a claim with the CRA.

• Likewise, upon receiving a claim, CRA may also consult NRCan on scientific and engineering matters.

Slide 21 – Additional information

• And finally, I’ll briefly discuss some additional information and requirements when claiming a Clean Economy ITC.

Slide 22 – Labour Requirements

• As previously mentioned, there are certain labour requirements that apply to three of the available Clean Economy credits.

• Two key aspects of the labour requirements are the prevailing wage requirements and the apprenticeship requirements.

• The prevailing wage requirements are generally met by compensating covered workers at a designated work site, with an eligible collective agreement that applies to the workers.

• Covered workers are individuals, other than a trust, who are engaged in the preparation or installation of specified property at a designated worksite and whose work is primarily manual or physical in nature.

• The apprenticeship requirements can be met by making reasonable efforts to ensure that apprentices registered in a Red Seal trade work at least 10% of the total hours worked annually by Red Seal workers at a designated work site of the claimant.

• For both requirements, work concerns the preparation or installation of specified property.

• These labour requirements also:
  • Apply to specified property prepared or installed on or after November 28, 2023 and
  • Do not apply to a clean economy credit claimed for the acquisition of off-road zero emission vehicles, or the acquisition and installation of low carbon heat equipment

Slide 23 – How the labour requirements affect the credit rate

• If you elect to meet the labour requirements, you can claim the Clean Economy ITC you have selected at the regular rate.

• As a reminder, only claimants that choose to meet the labour requirements will be able to access the regular rate for each of these credits.

• If you choose not to meet the labour requirements, you will still be eligible to claim the credit you have selected, but at a reduced tax credit rate of 10 percentage points less than the regular tax credit rate.

• So, if the regular tax credit rate is 30% and you chose not to meet the labour requirements, the reduced tax credit rate would be 20%.

• It is your responsibility as the claimant to attest that you have met the labour requirements for each installation taxation year.

Slide 24 – Claiming one or more Clean Economy ITCs

• When it comes to claiming multiple clean economy ITCs there are some points to keep in mind.

• Generally, you can claim only one of the clean economy ITCs for the same eligible property.

• For example, you cannot claim the Clean Technology ITC if you claim the CCUS ITC on the particular property.

• However, you may claim multiple clean economy ITCs for the same project, if the project includes different types of eligible property.

Slide 25 – How do various types of assistance impact the ITCs?

• Government and non-government assistance may have an impact on the ITC as these amounts may reduce the capital cost of the property.

• The impact of financial assistance depends on both the type of assistance you have received, and the ITC that you are claiming. If you have received other financial assistance related to your project, you should contact us to discuss your project or claim.

• For the CCUS ITC, only non-government assistance is taken into consideration.

Slide 26 – Thank you

• We want to assure you that the CRA is here to help you on your clean economy journey. We can answer any questions related to labor requirements and claiming the credit. To reach us, please contact our Fraser Valley and Interior Tax Services Office weekdays from 8 am to 4 pm Pacific Time.

• For all other guidance, we encourage you to reach out to Natural Resources Canada.

• If you’d like to learn more about the clean economy credits, you can visit our website at Canada.ca slash clean economy credits.

• And that concludes the presentation on the Clean Economy Investment Tax Credits.