By Margret Nellissery, BRC-Canada Analyst

To help Canada achieve net zero by 2050, the Canadian government launched six new refundable investment tax credits (ITCs). These ITCs will support Canadian innovation, create sustainable jobs and help Canada stay competitive in securing investments for clean energy initiatives.  

These six ITCs are collectively called the Clean Economy Investment Tax Credits and include the carbon capture, utilization and storage investment tax credit (the CCUS ITC), the clean technology investment tax credit (the Clean Tech ITC), the clean hydrogen investment tax credit (the Clean Hydrogen ITC), the Clean Technology Manufacturing tax credit (the CTM ITC), the Clean Electricity investment tax credit (CE ITC) and the Electric Vehicle Supply Chain investment tax credit. The ITCs provide support ranging from 15 to 60 per cent of eligible capital costs, depending on the type of technology.

Most of the six ITCs are available only to taxable Canadian corporations and apply to qualifying expenses that the corporation incurs when purchasing (not leasing) new property for use within Canada. The ITCs are calculated as a percentage of these qualifying expenses and paid directly by the government. They are refundable, meaning eligible claimants can receive the credit even if they do not owe taxes. A taxpayer can only claim one "green" ITC for the same expenditure, even if more than one could apply.

This blog will look into the Clean Tech, Clean Electricity, and Clean Technology Manufacturing ITCs as they relate directly to solar and wind projects.

Clean Technology Investment Tax Credit  

The purpose of the clean tech ITC is to help companies invest in adopting or operating clean technology that helps reduce emissions. This ITC provides a refundable tax credit of up to 30 per cent of investments to eligible taxable Canadian corporations.  

The tax credit is eligible for capital investments in equipment for generating different forms of clean energy, including solar, wind, water and geothermal sources and even stationary electricity storage systems that do not use fossil fuels (like batteries and pumped hydroelectric storage).  

The credit is available for eligible property or technology acquired and available for use on or after March 28, 2023, and before 2034. For technology that becomes available for use in 2034, this tax credit would be up to 15 per cent. Those that become available for use after 2034 will not receive any tax credits.  

Clean Electricity Investment Tax Credit  

This tax incentive is designed to incentivize investments in clean energy equipment by providing a tax credit based on the capital cost of eligible property. Although the draft legislation of this ITC is expected in fall 2024, this credit is designed to lower the capital cost of purchasing or upgrading clean energy equipment by providing a credit equal to 15 per cent of the capital cost of "eligible property."

Like the Clean Technology ITC, the Clean Electricity ITC promotes the adoption of renewable energy by reducing the financial burden of acquiring or upgrading non-emitting electricity generation systems. Eligible property in this tax credit includes non-emitting electricity generation systems like wind, solar, hydro, nuclear, geothermal energy and energy storage systems that do not rely on fossil fuels. The ITC also supports the development of infrastructure that transmits electricity between provinces and territories, such as electrical transmission equipment and structures, fostering a more interconnected and resilient clean energy grid across Canada.  

The Clean Electricity ITC will apply to eligible properties acquired and ready for use between April 16, 2024, and 2035, provided construction did not start before March 28, 2023. This tax credit can also be applied for provincial and territorial Crown corporations, but the eligibility depends on the guidelines provided in Budget 2024.  

This ITC is available to various types of Canadian corporations, including taxable Canadian corporations, provincial and territorial Crown corporations (subject to specific conditions), corporations owned by municipalities, corporations owned by Indigenous communities and pension investment corporations.  

While the Clean Technology ITC and the Clean Electricity ITC provide tax credits for investments in renewable energy and storage, it is important to understand the differences between them. The Clean Technology ITC offers a higher maximum credit of 30 per cent and is only available to taxable entities, whereas the Clean Electricity ITC extends eligibility to both taxable and non-taxable entities. Unlike the Clean Technology ITC, which is limited to wind, solar, geothermal and energy storage systems, the Clean Electricity ITC also allows eligible entities to claim credits for transmission projects.  

Clean Technology Manufacturing Investment Tax Credit  

This ITC incentivizes companies to invest in manufacturing products for clean energy technologies and provides a refundable tax credit of 30 per cent for investments in eligible property used in the extraction, manufacturing and processing of clean technology products.  

Eligible properties under this tax credit include equipment or properties used to manufacture, extract, or process clean energy technologies. For example, the equipment used to process and manufacture solar, wind, and storage systems would fall under this category. Equipment and properties used for extracting and processing critical minerals will also be included in this tax credit.  

The credit is available for eligible property acquired and available for use in 2024 to 2031. and would reduce from 2031 until 2034. Like the Clean Technology ITC, this tax credit is also eligible only for taxable Canadian corporations.    

The three ITCs could have potential repayment obligations if the eligible property has been converted to an ineligible use, exported from Canada, or disposed of within 10 years of its first acquisition. It is also important to highlight that one of the main objectives of the Clean Economy ITCs is to create good-paying, sustainable jobs across different regions and sectors. So, the complete value of the ITCs detailed below can only be accessed by corporations that meet the labour requirements outlined in Bill C-59. These include paying workers certain wages and creating apprenticeship opportunities.  

The three ITCs detailed above from the Clean Economy tax credits are a strategic policy tool aimed at accelerating Canada's transition to clean energy while ensuring that the economic benefits of this transition are broadly shared and that environmental standards are strictly maintained. Amidst external factors like inflation and varying interest rates, these tax credits can help continue the momentum of wind and solar development in Canada.