Clean Technology Manufacturing Investment Tax Credit

Transcript

Slide 1 – Title Page

• Hello! Thank you for joining today’s presentation on the Clean Technology Manufacturing Investment Tax Credit.

• Before I begin, I’d like to 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 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 Manufacturing 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.

• 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.

• 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 credit, and the Clean Hydrogen credit. For both of those credits, they serve as the authority on scientific, engineering, and technical matters.

• That being said, they are also involved in reviewing projects as part of the claim process and they issue the initial project evaluation to the taxpayer.

• 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 6 – A closer look at the Clean Technology Manufacturing ITC

• Now, let’s take a closer look at the Clean Technology Manufacturing ITC.

Slide 7 – Clean Technology Manufacturing

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

• The credit rate will differ depending on when the property is acquired and available for use.

• From January 1, 2024 to December 31, 2031, the CTM 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 claim the CTM credit, you must be a taxable Canadian corporation, which includes corporations that are members of a partnership.

• The labour requirements that apply to the other three active credits do not apply to the CTM ITC.

Slide 8 – What property qualifies

• To qualify for the ITC, CTM property must:
  • meet additional leasing requirements if the property is leased to another person or partnership, which can be found on our web pages
  • not have been used, or acquired for use or lease, for any purpose before the taxpayer acquired it
  • 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

Slide 9 – Types of CTM property

• CTM property must be included in certain capital cost allowance classes, with certain qualifications and exceptions. In general, property would be considered eligible if it 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

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

Slide 10 – Leasing CTM property

• If you are leasing CTM 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 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

Slide 11 – CTM use

• CTM property that qualifies must be used in one of the following two ways:
  • All or substantially all for activities that meet the definition of qualified zero-emission technology manufacturing activities and that are performed in connection with the manufacturing or processing of photovoltaic solar arrays, or wind turbine towers, or
  • In a qualifying mineral activity producing all or substantially all qualifying materials

Slide 12 – Qualifying mineral activity

• Qualifying mineral activity falls into 5 distinct categories:
  • The extraction of resources from a mineral deposit or tailing pond
  • A mineral processing activity that is:
    • Performed at a mine site, well site, tailing pond, mill, smelter or refinery, and
    • Occurs prior to, or as part of a process that is intended to:
      • Increase the purity of at least one qualifying material, or
      • Produce a material with non-trace amounts of a single qualifying material
  • It can also be a recycling activity
  • A synthetic graphite activity
  • Or a spherinozation of graphite or coating of spheronized graphite

Slide 13 – Qualifying materials

• Qualifying materials include:
  • lithium
  • cobalt
  • nickel
  • copper
  • rare earth metals
  • and graphite

Slide 14 – Determination of capital cost

• The capital cost of property generally means the taxpayer’s full cost of acquiring the property and includes:
  • Legal, accounting, engineering or other fees to acquire the property
  • Site preparation, delivery, installation, testing or other costs to put the property into service
  • And, in the case of a property that a taxpayer manufactures for their 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.

• We will discuss this a little bit more later, but it is important to note that the capital cost of CTM property must be reduced by the amount of any government assistance or non-government assistance received by the taxpayer.

• For more information, please visit our webpages.

Slide 15 – How to claim

• Now we’ll take a look at the claim process for the CTM ITC.

Slide 16 – CTM claim process

• The CTM claim process is fairly straightforward.

• The taxpayer will submit their ITC claim to the CRA, along with their annual T2 return.

• The CRA will review the ITC claim and determine eligibility of expenses. Once a determination has been made, the CRA will advise the taxpayer.

Slide 17 – How to claim: Corporations

• The requirements are slightly different depending on whether you’re an individual corporation, or a member of a partnership.

• 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 is Schedule 31, the investment tax credit schedule for corporations.

• If you are claiming the CTM credit, you’ll complete line 170 of Schedule 31. The same amount also goes on line 780 of the T2.

• The second thing a corporation needs to provide, is Schedule 76, Clean Technology Manufacturing Investment Tax Credit.

Slide 18 – How to claim: Partnerships

• The CTM ITC can be allocated only to members of a partnership that are taxable Canadian corporations.

• A partnership that allocates the CTM ITC to its corporate members must provide each member with a completed T5013 Statement of Partnership Income.

• Schedule 76, Clean Technology Manufacturing Investment Tax Credits, must also be completed and included. Until an electronic software version of the form is available for use, you must attach a copy of the PDF form with your return

• You will also include a copy of the notification in writing that you received from the partnership, for any allocated amounts related to the CTM ITC.

Slide 19 – Additional information

• And finally, I’ll briefly discuss some additional information and requirements when claiming the CTM ITC

Slide 20 – 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 CTM 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 21 – 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 a variety of factors, including the type of assistance, and the ITC being claimed.

• If you have received financial assistance, please contact our Fraser Valley and Interior Tax Services Office to discuss your project or claim.

Slide 22 – 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.

• 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 23 – 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 manufacturing 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 24 – Recapture of credit

• If you converted your CTM property to a non-CTM 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 CTM ITC amount associated with the particular property.

Slide 25 – 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 Manufacturing Investment Tax Credit.