CRA issues guidance on new cleantech investment tax credits

Tax credits expected to drive new demand for Canadian cleantech solutions.

The Canada Revenue Agency (CRA) has issued guidance on two investment tax credits (ITCs) aimed at incentivizing the adoption of cleantech in Canada.

The ITCs in question include the Carbon Capture, Utilization, and Storage (CCUS) ITC and the Clean Technology ITC, which were passed by the Senate on Wednesday as part of Bill C-59, which implemented the federal government’s Fall Economic Statement released in November 2023. Both the CCUS and Clean Technology ITCs will be administered by the CRA and Natural Resources Canada (NRCan).

“It’s imperative that we continue to align incentives to catalyze innovation.”

Sen. Colin Deacon

The federal government passed two additional cleantech ITCs: one focused on clean hydrogen, and another for cleantech manufacturing. Those ITCs are part of Bill C-69, which received royal assent on June 20. The CRA has yet to issue detailed guidance on those ITCs as of press time, though all four are listed on the CRA’s Clean Technology Investment Tax Credit page online.

In a speech this week to the Senate at Bill C-59’s third reading, Sen. Colin Deacon defended the new ITCs as crucial for expediting Canada’s transition to a green economy.

“With the federal government’s goal of reaching net-zero by 2050, including attaining net-zero electricity by 2035, it’s imperative that we continue to align incentives to catalyze innovation,” Deacon said.

The new ITCs are also hoped to be a boon for Canadian cleantech startups. Bryan Watson, senior vice president of Venbridge and managing director of CleanTech North, who has been a strong advocate for these incentives, told BetaKit he expects these new ITCs will drive significant demand for Canadian cleantech solutions.

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“This is a huge step forward for Canada’s greener future,” Watson told BetaKit, adding that it will encourage adoption of green technologies across different regions and sectors, and help companies scale up manufacturing.

The road to enacting the CCUS into law has been a long one. Initially proposed in Budget 2021, the CCUS credit underwent three years of consultations, drafts, and revisions.

The CCUS is aimed at encouraging the investment of capital into projects related to carbon capture, transportation, utilization and storage capacity in Canada. The credit rates for this ITC vary depending on the type of expenditure and the year of acquisition. Companies can claim between 18.75 percent and 60 percent of eligible CCUS expenditures, according to the CRA.

The Clean Technology ITC is a refundable tax credit for capital invested in the adoption and operation of new clean technology. Eligible property for the tax credit includes zero-emission vehicles for non-road use, such as mining, and equipment used to generate electricity from resources such as solar, wind, and water. This ITC was first introduced in Budget 2023, along with the tax credits for clean hydrogen and cleantech manufacturing.

According to the CRA’s guidance, the Clean Technology ITC rate covers up to 30 percent of the capital cost of available cleantech property for use between Mar. 28, 2023, and Dec. 31, 2033. The rate may be up to 15 percent for property acquired during that period, but made available for use in 2034. 

RELATED: Despite strong 2022 for cleantech, EDC report finds Canada lags peers on R&D spending, funding, converting startups to scaleups

Watson believes these tax credits will be key for the adoption of Canadian cleantech innovation. “There are business models where it could be a benefit directly as well, but fundamentally, it’s going to [lead to] demand generation for our clean technology companies,” he added.

Canada is home to over 2,000 cleantech firms, and this year, 13 of those companies were named to the 2024 Global Cleantech 100 list. Despite the apparent success of the sector, many experts and organizations have pointed to a gap in the Canadian cleantech sector’s ability to convert startups into scale-ups. 

In a Q&A for RBCx earlier this year, Peter McArthur, former vice president and national cleantech lead at RBCx, noted that cleantech customers’ “reluctance” to take on the potential technology risk of a cleantech product is a major barrier to cleantech adoption in Canada.

“Healthy conservatism can sometimes bleed into a realm of complete risk-aversion, creating significant investment challenges for cleantech innovators who are often tackling problems and creative concepts within a new frontier of innovation,” McArthur noted in the Q&A.

In a 2022 joint op-ed for BetaKit, Watson and McArthur both argued that these credits are unique from others like the Scientific Research and Experimental Development (SR&ED), which are based on the experimental R&D costs and overhead companies incur. These cleantech ITCs, on the other hand, are generated based on the capital cost of investing in cleantech.

“This is a major shift, which should result in clean technologies being rapidly adopted, ideally those developed by Canadian companies,” Watson and McArthur wrote at the time.

Feature image courtesy of Wikimedia Commons.

Isabelle Kirkwood

Isabelle Kirkwood

Isabelle is a Vancouver-based writer with 5+ years of experience in communications and journalism and a lifelong passion for telling stories. For over two years, she has reported on all sides of the Canadian startup ecosystem, from landmark venture deals to public policy, telling the stories of the founders putting Canadian tech on the map.

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