Following the initial announcement of the Clean Economy Investment Tax Credits (ITCs) in Budget 2021, continuous updates have been made to the tax credit offerings, credit amounts, terms of eligibility, and stacking restrictions. Several consultations have been held to allow Canadians to provide feedback on the terms of the credits, which include Carbon Capture, Utilization, and Storage (CCUS), Clean Technology (CT), Clean Hydrogen (CH), and Clean Technology Manufacturing (CTM). This blog will go through the types of Clean Economy ITCs, how to determine project eligibility, and how to access and claim the credits.
Who is Eligible for the Clean Economy ITCs?
Taxable Canadian corporations are eligible to claim Clean Economy ITCs, as well as mutual fund trusts in certain instances (REITs). However, further requirements must be met to qualify for each individual credit. Eligibility requirements for the credits are as follows:
| Tax Credit | Eligible Dates for Project Expenditures | Eligibility Criteria | Eligible Activities |
| CCUS | January 1, 2022 – December 31, 2040 | Taxable Canadian corporations, including partnerships | Costs for carbon capture, transportation, and storage, and usage of captured carbon. |
| Clean Technology | March 28, 2023 – December 31, 2034 | Taxable Canadian corporations, or a mutual fund trust that is a real estate investment trust, including partnerships. | Specific types of property, which can include solar, wind and water electricity generation, solar, air-source, or ground-source heat pumps, small modular nuclear reactors, and non-road zero-emission vehicles and related infrastructure |
| Clean Hydrogen | March 28, 2023 – December 31, 2034 | Taxable Canadian corporations, including partnerships. | Equipment used to produce hydrogen through electrolysis of water or eligible hydrocarbons, as well as clean ammonia equipment, dual-use electricity and heat equipment, dual-use hydrogen and ammonia equipment, project support, safety, and monitoring equipment. |
| Clean Technology Manufacturing | January 1, 2024 – December 31, 2034 | Taxable Canadian corporations, including partnerships. | New machinery and equipment for clean technologies for use in Canada. |
Calculating the Credit
The credit rate available for each program depends on several factors, including the achievement of labour requirements, the type of credit, and the type of project/property being claimed. Ranges for each credit can be found in the table below:
| Tax Credit | Legislation Introduced | Effective Date | Tax Credit Rate |
| CCUS | Fall 2023 | January 1, 2022 | 37.5-60% |
| Clean Technology | Fall 2023 | March 28, 2023 | 30% |
| Clean Hydrogen | Early 2024 | March 28, 2023 | 15-40% |
| Clean Technology Manufacturing | Early 2024 | January 1, 2024 | 30% |
- Projects with involve direct carbon capture from the ambient air are eligible for the full 60% CCUS ITC rate, while projects which capture carbon from other sources are eligible for a 50% rate. Other related expenditures in carbon transportation, storage, or use, are eligible for a 37.5% credit. These rates will be halved for activities performed in 2031 and later.
- The CT ITC rate can be up to 30% of the capital cost of property that is acquired and used up until December 31, 2033. The rate will be lowered to 15% for property acquired and used in 2034.
- For the CH ITC, the full 40% rate is only available to projects with an expected carbon intensity of 0.75 or less. For projects with an expected carbon intensity of less than two, but greater than 0.75, a 25% credit is available. Finally, projects with expected carbon intensities between 2 and 4 are eligible for a 15% rate. For property available for use in 2034, these rates will be halved.
- The CTM ITC rate will be reduced from 30% to 20% in 2032, 10% in 2033, and 5% in 2034.
Labour Requirements
All companies will be required to meet specific labour requirements in order to claim the maximum credit rate for the CCUS, CT, and CH investment tax credits (they do not apply to CTM). These requirements do not apply to costs related to off-road zero emission vehicles or low carbon heat equipment. Companies that fail to meet these requirements will have a reduced credit rate of 10 percentage points less than the standard tax rate. For instance, a company ordinarily eligible for a 30% tax credit would receive a rate of 20% if they fail to meet all the requirements.
In order to receive full credit rates, companies must meet:
- Prevailing wage requirements, which are set out according to a collective agreement applicable to the relevant employees. This must be clearly communicated with employees.
- Apprenticeship requirements, which require apprentices to take part in at least 10% of Red Seal work completed at work sites.
Claiming the Credit
Once your business has determined the rate you are eligible for, you can claim the credit through either a corporate tax return or trust tax return. Multiple credits may be claimed for the same projects, provided that different types of eligible property are claimed for each individual credit (i.e., no overlap between claims). All Clean Economy ITCs are to be claimed through Schedule 31 (T2SCH31). Until Schedule 31 is updated, these credits are claimed through line 780 of the T2 Corporation Income Tax Return. In addition to submitting claim amounts, claimants are required to specify details on how claims were calculated. Until the form for this is released, returns for each project should include a list of eligible costs, credit calculations with the ITC rate applied to expenditures, labour requirement details, and information on any property disposition.
- The claim for CCUS ITC is at line 200 of Schedule 31. Partners must file a T5013 Statement of Partnership Income.
- The claim for CT ITC is at line 155 of Schedule 31. For partnerships, each member must file a T5013 Statement of Partnership Income.
- The CH ITC is claimed through line 140 of Schedule 31. Partners must file a T5013 Statement of Partnership Income.
- The CTM ITC can be claimed at line 170 of Schedule 31. All partners need to file a T5013 Statement of Partnership Income.
Learn More
To determine your eligibility, calculate your rate, prepare your documentation, and file your claim, contact one of our experts to guide you through the process from start to finish.