RC115 NovDec 2024 - Magazine - Page 34
LEGAL
“The Clean Economy ITCs are designed to reduce the carbon footprint of
many industrial and power generation projects and have the potential
to transform the Canadian economy over their lifetime.”
EXTRA CREDIT
Harnessing the power of clean economy investment tax credits
by Brendan Sigalet, Geoff Stenger and Greg Johnson
VER THE PAST TWO AND A HALF YEARS, the Canadian
government has proposed six di昀昀erent major
investment tax credits (ITCs) that are aimed at
incentivizing the decarbonization of the economy
in Canada (the Clean Economy ITCs). Four of the
Clean Economy ITCs are now enacted.
These ITCs are a powerful incentive for business, as
among other things, the Clean Economy ITCs are generally 100 per cent refundable to project proponents. However,
the legislation enacting them is complex and the certainty
of ITC availability is critical for projects depending on
ITCs. There are numerous steps which should be taken in
order to optimize the ITC entitlement for a given project
when it comes to:
Determining the eligibility of a project for ITCs;
Ensuring compliance of the project with labour
requirements;
Where applicable, ensuring that a project plan is 昀椀led;
Reviewing the timing of the receipt of any ITCs; and
Reviewing potential risk mitigation options available for
the project.
O
Brendan Sigalet is an Associate
with Bennett Jones LLP, in Calgary.
He has a general tax law practice
with a focus on corporate tax and
transaction structuring, with an
expertise on the tax aspects of
energy transition deals, including
renewable energy, carbon capture,
and hydrogen projects.
Geoff Stenger is a Partner and
Head of Capital Projects Industry
Team with Bennett Jones in Calgary.
His practice is primarily focused
on project development, energy,
infrastructure and construction law.
Greg Johnson is a Partner with
Bennett Jones LLP in Calgary.
His practice, acting for clients
in the energy industry, focuses
on corporate tax, corporate
reorganizations, mergers and
acquisitions and private equity.
34
The clean economy ITCs
The carbon capture, utilization, and storage ITC (the
CCUS Tax Credit) is aimed at encouraging investment in
carbon capture, utilization, and storage (CCUS) infrastructure. Eligible expenditures include those that are solely
aimed at CCUS as well as certain dual-use equipment. The
speci昀椀ed percentage (i.e., the topline ITC rate) in respect
of this ITC depends on the nature of the CCUS equipment,
and is generally 50 per cent for carbon capture equipment
(60 per cent for direct air capture equipment), and 37.5
per cent for transportation, storage, or use equipment.
The CCUS Tax Credit is only available for CCUS projects
which put the captured carbon to an “eligible use”, which
currently only includes dedicated geological storage or
RENEW CANADA – NOVEMBER/DECEMBER 2024
the use of captured carbon in producing concrete. The
amount of CCUS Tax Credit that can be claimed is dependent on the percentage of carbon captured and put to an
eligible use in a given project. An “eligible use” does not
include enhanced recovery for oil and gas activities (this
is expressly considered an “ineligible use” pursuant to
the legislation).
The clean technology ITC (the Clean Tech ITC) is a 30
per cent ITC aimed at certain types of renewable energy
generation (excluding large scale nuclear and hydro) and
storage. It is available for renewable energy production
equipment, low carbon heat and electricity equipment,
electricity storage equipment, and industrial zero emission vehicles (ZEVs).
Another ITC which covers similar equipment to the
Clean Tech ITC is the clean electricity ITC (the Clean
Electricity ITC). The Clean Electricity ITC has not yet
been enacted; however it will be a 15 per cent ITC, which
will generally cover the same renewable energy production equipment and electricity storage equipment
as the Clean Tech ITC, as well as large scale nuclear and
hydro equipment, interprovincial electricity transmission
equipment, and natural gas power generation equipment
where abated with carbon capture. It will also apply to
the refurbishment of existing equipment.
The clean technology manufacturing ITC (the CTM
ITC) is a 30 per cent ITC, available for the capital cost of
certain equipment involved in either clean technology
manufacturing (i.e., manufacturing batteries, ZEVs, etc.),
or the extraction of certain critical minerals considered essential to the anticipated decarbonization of the economy.
The CTM ITC is intended to operate in tandem with the
zero-emission technology manufacturing tax deduction
and the critical mineral exploration tax credit, the discussion of which is outside the scope of this article.
For certain electric vehicle (EV) supply chain business-
RENEWCANADA.NET
