Clean Technology Investment Tax Credit

Transcript

Slide 1 – Title Page

• Hello everyone and thank you for joining us for today’s presentation on the Clean Technology Investment Tax Credit.

• Before I begin, I’d like to encourage you to visit our Clean Economy Investment Tax Credits pages on Canada.ca. There, you’ll find all the information, links, and resources you need to help you with your Clean Economy Investment Tax Credit claim

Slide 2 – Contact us

• We want to ensure you can access the support you need in a timely manner. Following today’s presentation, if you have any questions or concerns regarding your projects or claims, please contact our Fraser Valley and Interior Tax Services Office.

• I would like to highlight that the contact at this office is not a general CRA phone line. You will be able to connect with Clean Economy specialists that have the knowledge, tools and resources to answer your specific questions.

Slide 3 – Subscribe to our mailing list

• For up-to-date information on the Clean Economy program, including news, legislative updates, and information on upcoming webinars, scan the QR code to subscribe to our electronic mailing list.

Slide 4 – 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 credits 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, and the Electric Vehicle Supply Chain ITCs.

• Today, we’ll be taking a closer look at the Clean Technology ITC.

Slide 5 – 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.

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

Slide 6 – A closer look at the Clean Technology ITC

• I will now turn it over to my colleague, (name), who will discuss the Clean Technology ITC in more detail.

Slide 7 – 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.

• The credit 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, which we will discuss later on in the session.

• 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.

Slide 8 – Who can claim?

• 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 mutual fund trusts is something that is unique to the Clean Technology credit.

Slide 9 – To qualify, in addition to other limitations, clean technology property must:

• 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.

Slide 10 – Leasing Clean Technology property

• If you are leasing Clean Technology property to another entity, there are two main conditions that must be met.

• The entity you are leasing to must be a taxable Canadian corporation, a mutual fund trust that is a real estate investment trust, or a partnership in which all the members are taxable Canadian corporations.

• And, you must be leasing the property in the ordinary course of carrying on your business in Canada, where the principal business is any, or a combination of certain activities, such as:
  • Selling or servicing property of that type
  • Leasing property
  • Or lending money

• Here to speak about the technical guidance for clean technology, I’ll turn it over to my colleague XXX from NRCan.

Slide 11 – Clean Technology property

• 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 charging and refueling equipment that is used primarily for such vehicles. I would like to note that for the previous two categories of property that I mentioned, the labour requirements do not apply to the acquisition of off-road zero emission vehicles, or the acquisition and installation of low carbon heating equipment.

Slide 12 – Clean Technology property

• Turning back to eligible property, this also includes:
  • 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

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

Slide 13 – Technical guidance

• For most categories of Clean Technology property, NRCan has published technical guidance which applies conclusively with respect to engineering and scientific questions of eligibility. This is also accessible through our web pages.

• Where available technical guidance is insufficient taxpayers are invited to contact NRCan’s Class 43.1/43.2 Secretariat with general enquiries.

• For more certainty, taxpayers may also apply to NRCan for a written technical opinion which is:
  • an opinion as to whether equipment meets the engineering and scientific requirements of Clean Technology property
  • a voluntary process / not required to file a Clean Technology ITC claim
  • not legally binding on the CRA

Slide 14 – How to claim

• Now, we’ll talk about how to claim the Clean Technology credit.

Slide 15 – 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.

• 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, since NRCan provides technical guidance to help determine the potential eligibility of a project, 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 16 – How to claim: Corporations

• The requirements are slightly different depending on whether you’re an individual corporation, a member of a partnership, or a mutual fund trust that is a real estate investment trust.

• All corporations can claim the Clean Economy ITCs when they file their T2 annual return, using the method normally used to file.

• For individual corporations, there are two items that must be attached to the T2:

• The first item that you must attach to your T2 is Schedule 75 for the Clean Technology ITC, which you’ll use to calculate your ITC. You’ll also use that form to provide details related to the calculation of your ITC, including information about the eligible property, any ITC recapture amounts, and information related to the labour requirements.

• The second is Schedule 31, the investment tax credit schedule for corporations. Where you’ll complete line 155 of Schedule 31.

Slide 17 – How to claim: Member of partnerships

• Partnerships are required to include a T5013 Statement of Partnership Income, and a T5013 Schedule 75 on which you’ll need to provide each member’s allocated share for the year of the ITC; the labour requirements election, attestation, and addition to tax, and the ITC recapture, if applicable.

• Each member of the partnership must attach these forms to their T2, along with the T2 Schedule 75 and Schedule 31.

Slide 18 – How to claim: Trusts

• If you are a mutual fund trust that is a real estate investment trust, you will claim the Clean Technology ITC when you file your T3 Trust Income Tax and Information Return, using the filing method you normally use. You will include the ITC amount on field 881 (line 57).

• Attached to your T3, you must include a completed Form T1098 on which you’ll provide details on how the ITC was calculated, any recapture amounts, and information about the labour requirements.

Slide 19 – Additional information

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

Slide 20 – Labour requirements

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

• 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
  • 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 21 – Communicating the prevailing wage requirements

• To claim the regular tax credit rate for the Clean Technology ITC, you must do both of the following at the time of filing your claim:
  • Elect to meet the labour requirements for each installation taxation year, and
  • Attest that you have met the labour requirements for each installation taxation year and for each designated worksite.

• To ensure you are meeting the prevailing wage requirements, you must communicate to the workers that:
  • The designated worksite is subject to prevailing wage requirements, and
  • How workers can advise the CRA of any failure to pay the prevailing wages

• You must communicate this information either electronically, or in a notice or poster.

• The information must be visible and accessible to all covered workers, and it must be in plain language.

Slide 22 – How the labour requirements affect the credit rate

• As mentioned, if you elect to meet the labour requirements, you can claim the Clean Technology ITC at the regular rate.

• 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, for example, 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 on an annual basis for every claim, that you have met the labour requirements.

Slide 23 – Consequences for non-compliance

• There are consequences for not complying with the labour requirements if you have elected and attested to meet them, and claimed the credit at the regular rate.

• If you have not paid the prevailing wages, you will be liable to pay a dollar amount per day for each day in the installation taxation year, for each covered worker that was not paid the prevailing wage, except when gross negligence applies.

• You may also be liable to pay a corrective measure in the form of a top-up amount to each covered worker.

• If you have not been grossly negligent, you will still be able to claim the ITC at the regular credit rate, even if the addition to tax provisions for prevailing wage apply.

• If the apprenticeship hours have not been met, you will be liable to pay a dollar amount multiplied by the difference between the total hours of labour that were required to be performed by apprentices registered in a Red Seal trade, and the total hours of labour that were actually performed by apprentices registered in Red Seal trades, plus any other hours of labour for which you met the apprenticeship requirements.

• If you have not been grossly negligent, you will still be able to claim the ITC at the regular credit rate, even if the addition to tax provisions for apprenticeship requirements apply.

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 that 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 capital cost of the property, which would have an impact on the ITC amount.

• 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 financial assistance, you should contact us to discuss your project or claim.

Slide 26 – After you claim

• Once you have filed your claim, it is possible that the CRA may require further information about your project or expenditures.

• We may ask you to provide documentation verifying your expenses, or confirming that you have met various requirements, including the labour requirements, if you have elected and attested to meet them.

• Once we have reviewed the additional information you provide, we will issue a written summary of the review findings.

• If we determine that no change is required, there will be no further action on your part.

• If, however, we determine that changes need to be made, you will have 30 days to respond to the summary of review findings, before the changes are confirmed and your return is assessed or reassessed.

Slide 27 – Income inclusion

• Normally, claiming an ITC requires you to add the ITC amount to your income if there is no reduction in the undepreciated capital cost, or UCC, of the property.

• However, pursuant to paragraph 12(1)(t) of the Income Tax Act, a claimant may choose not to reduce the UCC balance of the property, and instead include the ITC amount claimed, in their income.

• In this example here, a company purchases $1 million dollars of eligible clean technology property, and qualifies for the regular ITC rate of 30%, which equals $300 thousand dollars.

• If there is a reduction in the UCC balance, that $300 thousand would reduce the capital cost of the property to $700 thousand dollars in the year allowed.

• If, however, there is no reduction in the UCC balance, and the claimant includes the ITC amount in the year received to their income, as in option 2, the capital cost of the property would remain at $1 million, resulting in a higher capital cost allowance base.

Slide 28 – Recapture of credit

• If you converted your clean technology property to a non-clean technology use, exported it from Canada, or disposed of it in the taxation year, or any of the preceding 10 calendar years, any credit you received may have to be recaptured.

• The amount will be calculated based on the value of the property that was used prior to its conversion, exporting or disposal.

• This recapture amount will not exceed the Clean Technology ITC amount associated with the particular property.

Slide 29 – 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 Technology Investment Tax Credits.