Clean economy investment tax credits

The federal government is encouraging Canadian businesses to make capital investments in the clean economy to help ensure Canada stays competitive globally and to support Canada's goal to achieve net-zero emissions by 2050. As part of this initiative, the government is offering various refundable investment tax credits (ITCs) to Canadian businesses exploring opportunities to invest in clean energy in Canada related to clean technology, clean electricity, clean hydrogen, clean technology manufacturing, electric vehicle (EV) supply chains and carbon capture, utilization and storage.

The introduction of these ITCs is welcome news for many Canadian businesses, as the KPMG Business Survey - Federal Budget 2024 Edition found that 83 percent of small to medium-sized businesses are seeking more assistance and incentives to decarbonize, and are looking to federal (46 percent) and provincial (46 percent) funding and incentive programs to access the capital needed to finance emissions reduction.

Regardless of whether your organization plans to or has already started investing in clean energy, or simply plans to see if it may be eligible, it's critical to understand the tax credits that may be available, the project validation requirements, and funding options available.

For property that is acquired and becomes available for use from March 28, 2023, to December 31, 2034.

Status: Enacted

Who is eligible? Taxable Canadian corporations including taxable Canadian corporations that are members of partnerships. Real estate investment trusts (REITs) are also eligible for the Clean Technology ITC.

Eligible investments: Applies to the capital cost of clean technology property including certain systems and equipment used for:

• Generating electricity or heat from solar, wind, water, geothermal, nuclear, and waste biomass systems
• Stationary electricity storage systems that don't use fossil fuels
• Low-carbon heating, such as air- and ground-source heat pumps
• Non-road zero-emission vehicles and the equipment to charge or refuel these vehicles

Credit available as of April 16, 2024 for projects that began construction after March 27, 2023 and before 2035.

Status: Proposed

Who is eligible? Taxable Canadian corporations including taxable Canadian corporations that are members of partnerships. Certain Crown corporations, corporations owned by municipalities and Indigenous communities, and pension investment corporations are also eligible for the Clean Electricity ITC.

Eligible investments: Applies to new projects and refurbishing existing facilities using certain systems and equipment used for:

• Generating electricity from certain solar, wind, water, geothermal, nuclear and waste biomass systems
• Generating electricity from qualified natural gas energy system
• Stationary electricity storage systems that don't use fossil fuels
• Transmission between provinces and territories

For eligible property that is acquired and becomes available for use after December 31, 2023 and before 2035.

Status: Enacted

Who is eligible? Taxable Canadian corporation including taxable Canadian corporations that are members of partnerships.

Eligible investments: Applies to the capital cost of certain machinery and equipment used in:

• Qualified zero-emission technology manufacturing activities, among other things, including renewable energy conversion or storage equipment
• Extracting, processing or recycling critical minerals and related control systems

Available only to Clean Technology Manufacturing ITC claimants.

For eligible property that is acquired and becomes available for use after December 31, 2023 and before 2035.

Status: Proposed

Who is eligible? Only Clean Technology Manufacturing ITC claimants may be eligible for Electric Vehicle Supply Chain ITC.

Eligible investments: Applies to the cost of buildings used in key segments of the electric vehicle supply chain including:

• Electric vehicle assembly
  
• Electric vehicle battery production
• Cathode active material production

For eligible expenses to acquire or install eligible equipment incurred after 2021 and before 2040.

Status: Enacted

Who is eligible? Taxable Canadian corporations including taxable Canadian corporations that are members of partnerships.

Eligible investments: Applies to capital investments in supporting adoption of CCUS technologies that involve eligible equipment used in carbon:

• Capture
  
• Transportation
• Utilization
• Storage capacity

For property that is acquired and becomes available for use after March 27, 2023 and before 2035.

Status: Enacted

Who is eligible? Taxable Canadian corporations including taxable Canadian corporations that are members of partnerships.

Eligible investments: Applies to purchasing and installing eligible equipment for eligible projects producing hydrogen.

Our Tax, ESG, and Advisory teams collaborate to help you optimize your organization's ITC claims in several different ways, including to assist with:

• Identifying opportunities: We can help prepare you for upcoming opportunities through tailored information sessions, structural planning, economic impact study, and customized financial modelling and financing alternatives.
• Analyzing your qualifications and eligibility: We can help guide you through the relevant eligibility criteria, technical analysis of legislation, requirements for qualified projects, and estimates of potential claims and grants.
• Preparing and submitting your claim: We can assist with the entire process for ITC claims and funding applications including preparation of calculations and support for the length of the projects.
• Supporting your claim post submission: We can help support you through any tax or grant related audit activities, safeguard claims from clawback rules, and review financing compliance.

With these recent ITC announcements, now is the time to seize opportunities to invest in clean energy and technology projects to help gain a competitive advantage and propel your organization forward.

KPMG in Canada surveyed 534 Canadian companies between February 3 and February 27, 2024, using Sago's Methodify online research platform. All respondents are business owners or executive-level decision makers. Thirty-one per cent are leaders of companies with $500 million to $1 billion in annual gross revenue; 14 per cent, between $300 million to $499 million; 35 per cent, between $100 million and $299 million; 19 per cent, between $99 million to $10 million and the remaining one per cent, below $10 million. Seventy-five per cent of the companies are privately held and 25 per cent are publicly traded. Forty-two per cent are family-owned businesses.