Federal Government releases proposals relating to clean technology and resource tax incentives
On March 28, 2023, Canada’s Deputy Prime Minister and Minister of Finance, Chrystia Freeland, delivered the Liberal Government’s federal budget, “A Made-in-Canada Plan: Strong Middle Class, Affordable Economy, Healthy Future” (“Budget 2023”). Among other things, Budget 2023 proposes to:
- introduce the investment tax credit for clean hydrogen production (“CH Tax Credit”) proposed in the 2022 Fall Economic Statement, which is a between 15% and 40% refundable credit (depending on the carbon intensity of the hydrogen produced) available in respect of the cost of purchasing and installing eligible equipment;
- expand the availability of the Clean Technology Investment Tax Credit (“CTI Tax Credit”) proposed in the 2022 Fall Economic Statement, which is a 30% refundable credit, to certain geothermal energy systems;
- introduce a refundable tax credit for investments in clean technology manufacturing and processing, and critical mineral extracting and processing (“CTM Tax Credit”), which is available at a rate of 30% of the capital cost of eligible property associated with eligible activities;
- introduce a new credit to support investments in clean electricity generation and storage systems which will be available as of Budget Day 2024, the Clean Electricity Investment Tax Credit (“CEI Tax Credit”), at a rate of 15% for eligible investments in projects that commenced construction on or after March 28, 2023;
- expand, in respect of the temporary measure to reduce tax rates on qualifying zero-emission technology manufacturers, eligible activities to include certain nuclear manufacturing and processing activities and extend the availability of the reduced tax rates by three years;
- provide additional details regarding the investment tax credit for carbon capture, utilization, and storage (“CCUS Tax Credit”) previously proposed in Budget 2022;
- apply certain labour requirements to the availability of the CH Tax Credit, CTI Tax Credit, and CEI Tax Credit (with the government indicating that it also intends for labour requirements to apply to the CCUS Tax Credit, with details to be announced at a later date); and
- expand the flow-through share regime such that eligible exploration and development expenses incurred in relation to lithium from brine deposits can qualify as Canadian exploration expenses or Canadian development expenses that can be renounced to flow-through share subscribers and may entitle the subscriber to the Critical Mineral Exploration Tax Credit.
For a discussion of these tax measures and others in Budget 2023, please see McCarthy Tétrault’s Budget 2023 Commentary.