The Canada Revenue Agency (CRA) has released guidance on two new investment tax credits (ITCs) aimed at encouraging clean technology adoption in Canada. These ITCs, which include the Carbon Capture, Utilization, and Storage (CCUS) ITC and the Clean Technology ITC, were recently approved by the Senate as part of Bill C-59, implementing the federal government’s Fall Economic Statement from November 2023. The administration of both ITCs (CCUS ITC & Clean Technology ITC) will be handled by the CRA and Natural Resources Canada (NRCan). In addition to these, the federal government has introduced two more cleantech ITCs: clean hydrogen and cleantech manufacturing. The CRA has not provided detailed guidance on these additional ITCs.
Senator Colin Deacon highlighted the importance of the new ITCs during a speech at the third reading of Bill C-59, emphasizing their role in accelerating Canada’s transition to a green economy. The Senator pointed out that to meet the federal goal of achieving net-zero emissions by 2050 and net-zero electricity by 2035, it is crucial to align incentives to encourage innovation.
These new ITCs are also expected to benefit Canadian cleantech startups significantly. Bryan Watson, Senior Vice President of Venbridge and Managing Director of CleanTech North, who has been a strong proponent of these incentives, expressed optimism about the expected increase in demand for Canadian cleantech solutions. Watson believes this development marks a significant step forward for Canada’s green future, promoting the adoption of green technologies across various regions and sectors and aiding companies in scaling up manufacturing.
The process of implementing the CCUS credit into law has been lengthy, starting with its introduction in Budget 2021 and spanning three years of consultations, drafts, and revisions. The CCUS ITC is designed to stimulate capital investment in projects focused on carbon capture, transportation, utilization, and storage within Canada. The credit rates for this ITC differ depending on the type of expenditure and the acquisition year, allowing companies to claim between 18.75% and 60% of eligible CCUS expenditure.
The Clean Technology ITC offers a refundable credit for capital investments in the adoption and operation of new clean technologies. This credit applies to eligible properties, including zero-emission vehicles for non-road applications, such as mining, and equipment used for generating electricity from solar, wind, and water resources. The Clean Technology ITC can cover up to 30% of the capital cost for cleantech properties used from March 28, 2023 to December 31, 2033. For properties acquired during this period but used starting in 2034, the rate may be up to 15%. Watson is confident that these tax credits will be crucial for the adoption of Canadian cleantech innovation, noting that while some business models may benefit directly, the primary impact will be in generating demand for clean technology companies.
Canada hosts over 2,000 cleantech companies, with 13 of them making it to the 2024 Global Cleantech 100 list this year. Despite the sector’s success, experts have highlighted difficulties in scaling up Canadian cleantech startups. In an RBCx Q&A session earlier this year, Peter McArthur, former Vice President and National Cleantech Lead at RBCx, mentioned that cleantech customers’ reluctance to embrace the technology risk of new products is a significant barrier to adoption in Canada. He noted that excessive risk-aversion creates investment challenges for innovators working on new technological frontiers.
In a 2022 joint op-ed for BetaKit, Watson and McArthur explained that these credits differ from others like the Scientific Research and Experimental Development (SR&ED) credits, which are based on experimental R&D expenses and overhead costs. In contrast, these cleantech ITCs are derived from the capital costs of investing in clean technology. They described this as a significant change expected to accelerate the adoption of clean technologies, particularly those created by Canadian companies.
Learn more about Clean Technology (CT) Investment Tax Credit (ITC): https://www.canada.ca/en/revenue-agency/services/tax/businesses/topics/corporations/business-tax-credits/clean-economy-itc/clean-technology-itc.html
