The federal government set out skeletal parameters of the new refundable investment tax credits (ITCs) for Canada's clean energy and hydrogen industries in its Fall Economic Statement, leaving many specifics open for stakeholder input. While final details won't be released until next spring's 2023 federal budget, Osler partners Edward Rowe, Co-Chair, Tax, Colena Der, Tax, and Jake Sadikman, Commercial, discussed their expectations for the design of the credits, how they compare to similar incentives in the United States and particular issues to address during consultation.
The Clean Technology ITC would provide a 20–30% refundable credit, based on the capital cost of qualifying equipment, with the higher rate available if certain prescribed labour conditions are satisfied. How these labour requirements will translate to the contractual structures present in Canada remains to be seen, but will be an area of focus during the consultation. The Clean Hydrogen ITC would provide a refundable credit of at least 40% of eligible expenditures, dependent on meeting labour requirements as well as carbon intensity parameters expected to be in line with the proposal in the U.S. Inflation Reduction Act.
One major outstanding question — and consideration for industry participants — is how these tax credits will interact with the Canadian infrastructure investment climate, where typically tax-exempt entities like municipalities, First Nations and pension funds play major roles. They may also affect partnership structures where parties have different tax profiles.
Interested stakeholders are encouraged to submit feedback during the government's consultation process regarding the types of technologies eligible for the ITCs, the labour requirements and other aspects unique to Canada's energy transition economy.
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