The Federal government announced a 30% Tax Credit (CT Credit) in the spring budget. This has a significant impact on the return on investment (ROI) for our clients. This tax incentive can be stacked with other incentives or rebates you may be eligible for, further reducing the costs and strengthening the ROI.
This incentive is directed at businesses, agricultural operations, farms, industry, high-power use manufacturing and any business entity that has registered a GST number.
Below are details on the 2023 Federal Government announcement.
Clean Technology Investment Tax Credit
Budget 2023 also expands on, and provides additional details in respect of, the Clean Technology Investment Tax Credit (“CT Credit”) first announced in FES 2022.
The CT Credit is a refundable tax credit equal to 30% of the cost of eligible property that is acquired, and becomes available for use, on or after Budget Day 23 and before 2035. The CT Credit rate is reduced to 15% in 2034 and will be eliminated in 2035.
FES 2022 provided the following list of eligible property for the CT Credit:
Electricity Generation Systems, including solar photovoltaic, small modular nuclear reactors, concentrated solar, wind, and water (small hydro, run-of-river, wave, and tidal);
Stationary Electricity Storage Systems that do not use fossil fuels in their operation, including but not limited to: batteries, flywheels, supercapacitors, magnetic energy storage, compressed air storage, pumped hydro storage, gravity energy storage, and thermal energy storage;
Low-Carbon Heat Equipment, including active solar heating, air-source heat pumps, and ground-source heat pumps; and
Industrial zero-emission vehicles and related charging or refueling equipment, such as hydrogen or electric heavy duty equipment used in mining or construction.
Budget 2023 expands the initially proposed list to include equipment described in subparagraph (d)(vii) of Class 43.1 and used primarily for the purpose of generating electrical energy, heat energy, or both, solely from geothermal energy. Examples of such equipment would include piping, pumps, heat exchangers, steam separators, and electrical generating equipment. It is important to note that equipment used for geothermal energy projects that co-produce fossil fuels are not eligible for the CT Credit.
As is the case for the CH Credit, eligibility for the full CT Credit rate is dependent on adherence to certain prescribed labour requirements. The CT Credit rate is reduced to 20% (or 10% in 2034) for businesses that fail to meet the prescribed requirements, which are discussed in more detail below.
Clean Electricity Investment Tax Credit
Budget 2023 proposes a new Clean Electricity Investment Tax Credit (“CE Credit”), a refundable 15% tax credit for eligible investments in;
Non-emitting electricity generation systems: wind, concentrated solar, solar photovoltaic, hydro (including large-scale), wave, tidal, nuclear (including large-scale and small modular reactors);
Abated natural gas-fired electricity generation (which would be subject to an emissions intensity threshold compatible with a net-zero grid by 2035);
Stationary electricity storage systems that do not use fossil fuels in operation, such as batteries, pumped hydroelectric storage, and compressed air storage; and,
Equipment for the transmission of electricity between provinces and territories.
The CE Credit is proposed to become available on Budget Day 2024 for projects that did not begin construction prior to Budget Day 23. The CE Credit is scheduled to remain in effect through 2034, and no phase-out period was referenced in the budget materials.
Eligibility for the full CE Credit rate will be dependent on adherence to certain labour requirements, the details of which will be determined following consultation by the government with labour unions and other stakeholders. Failure to adhere to the prescribed labour requirements would see the applicable CE Credit rate reduced to 5%.
Access to the credit will also require a commitment by a competent authority that the federal funding will be used to lower electricity bills, and a commitment to achieve a net-zero electricity sector by 2035. Additional details regarding these commitments and any other requirements can be expected to emerge following consultations between the federal government and its provincial and territorial counterparts.