Jeremy Scott Tax Law

Two men and a woman consider investing as they look at a model for Canadian renewable energy.

In Canada, the government offers a variety of tax benefits to individuals and businesses that engage in renewable energy projects. These incentives can promote sustainable practices and provide financial advantages for those involved in the green energy sector. By investing in renewable energy sources like solar, wind, or hydroelectric power, individuals and companies can contribute to a cleaner environment and reduce their tax burden. The Canadian government’s support for renewable energy initiatives through tax benefits highlights its commitment to promoting a greener and more sustainable future for everyone. If you have additional questions about investing in renewable energy or reducing your tax burden in other ways, a seasoned Canadian tax lawyer with Jeremy Scott Law may be able to assist you. Call (902) 403-7201 to schedule a consultation and learn more about your legal tax options. 

New Canadian Renewable Energy Tax Incentives 101

There are five refundable tax credits that have been proposed that Canadian businesses and individuals may be able to take advantage of by investing in renewable energy. These investment tax credits (ITC) are for clean technology, clean hydrogen, clean electricity, clean electricity manufacturing, and carbon capture, utilization, and storage. 

ITCs can be used to reduce income tax paid. These credits are refundable, which means they are treated as amounts that have been paid by the taxpayer. If no more tax is payable that year, it will be refunded to the taxpayer. These ITCs are currently draft legislation, but there are existing tax credits that businesses can take advantage of, such as investing in solar facilities, geothermal projects, or standalone energy storage technology projects.

Clean Technology ITC

The Clean Technology ITC is a tax credit for a maximum of 30% of investments in property that is eligible, acquired and available for use on or after March 28, 2023 but before 2034. Eligible properties available in 2034 will get a credit of up to 15%. 

The Government of Canada defines clean technology for the purposes of this tax credit as any service or good that is designed with its predominant purpose as contributing to remedying or preventing any type of environmental damage. For the tax credit, clean technology also includes any good or service that is more resource efficient or less polluting than its normal equivalent product that serves a similar purpose. 

Carbon Capture, Utilization, and Storage ITC

The Carbon Capture, Utilization and Storage (CCUS) ITC is a credit for expenses acquired beginning January 1, 2022 through December 31, 2030 of a maximum of 60% of qualified carbon capture expenses to capture carbon directly from the air, a maximum of 50% to capture carbon from all other capture methods, and a maximum of 37.5% of qualified expenses for carbon transportation, qualified expenses for carbon storage, and qualified expenses for carbon use. From January 1, 2031 to December 31, 2040, those percentages are reduced by half. 

The Department of Finance Canada indicates the amount for the CCUS ITC will be determined by the type of equipment modified by the ratio of CO2 expected to be stored using eligible methods. The ITC would then be reduced based on the proportion of CO2 expected to go to ineligible uses. This credit may also help to offset any carbon tax paid by some businesses.

Clean Hydrogen ITC

In the Government of Canada’s Hydrogen Strategy for Canada, Canada foresees being able to use hydrogen for transportation, feedstock for industry, heat for industry and buildings, power generation, and exportation to other countries. To encourage investment and growth in the hydrogen industry, the government developed the Clean Hydrogen Investment Tax Credit. 

This credit would be as much as 40% of investments in hydrogen-producing projects that become available for use on or after March 23, 2023 and before 2034. For projects available in 2034, this credit would be reduced by half. After 2034, the credit would no longer be available. Investing in clean hydrogen appears to be an ideal investment in Canadian renewable energy, but you may want to consult with a tax lawyer like Jeremy Scott Law to learn more about this and other investment options to reduce your tax burden as much as possible. 

Clean Electricity ITC

The Clean Electricity ITC would encourage investment in projects that generate clean electricity, store it without using fossil fuels, and/or transmit it between provinces or territories. The Government of Canada would provide a maximum 15% tax credit for projects that meet labour requirements, including creating apprenticeship opportunities and paying the prevailing wages. If the labour requirements are not met, the credit would be reduced to 5%. The credit would be available as of the day the 2024 budget is delivered for projects started on or after March 28, 2023. As with the other credits, after 2034, the credit would no longer be available. 

The Canadian government would provide this credit for eligible investments in non-emitting energy generating systems such as wind, concentrated solar, wave, hydro, tidal, nuclear power, or natural gas-fired electricity generation with emissions reduction technologies assuming compatibility with a net-zero grid by the year 2035. Additionally, stationary storage systems that do not require the use of fossil fuels, such as batteries, compressed air storage, or pumped hydroelectric storage, and equipment used for the transmission of clean electricity between provinces and territories qualify. The credit would also apply to both new projects and refurbishing existing facilities. 

Clean Technology Manufacturing ITC

The Clean Technology Manufacturing ITC offers as much as 30% of the investment in eligible properties to be used in manufacturing clean technology and extracting or processing critical mineral if the property is gained and availableto be used at any point in 2024 through 2031. The credit reduces to 20% for 2032, 10% for 2033, and 5% for 2034 before becoming unavailable. 

The Office of the Parliamentary Budget Officer identifies eligible property for clean technology manufacturing to include new machinery and equipment used in manufacturing or processing key clean technologies and extracting, processing, or recycling key critical minerals. Eligible activities include extracting, processing, or recycling critical minerals, manufacturing nuclear or  renewable energy equipment, recycling or processing nuclear fuels or heavy water, grid-scale electrical energy storage equipment manufacturing, zero-emission vehicles manufacturing, and manufacturing or processing of specific upstream materials and components for those activities. 

Is There Anything Else To Know About These Credits?

When investing, most people seek to make the most of their investment. Canadian renewable energy can be a good investment, both for the return on the investment and for the tax credits. However, investors should be aware that even if a property is eligible for multiple tax credits, they will generally only be able to claim one credit per eligible property. Therefore, if a property is eligible for multiple credits, investors may wish to consult with a tax lawyer to decide which credit to claim. Investors may also wish to go over any existing tax credits they receive for solar or geothermal projects to learn how the new credits may impact the existing credits.

How Can a Canadian Tax Lawyer Help You?

Exploring the tax benefits of Canadian renewable energy reveals a wealth of opportunities for individuals and companies alike. By leveraging government incentives and tax credits, Canadians can reduce their tax liabilities and contribute to a more sustainable future. Partnering with a knowledgeable Canadian tax lawyer can provide invaluable guidance on navigating complex tax regulations and maximizing available benefits. With the right expertise, you can harness these tax advantages to drive innovation, growth, and environmental stewardship in the renewable energy sector. If you need more information about tax credits or have other tax questions related to investing, consider contacting an experienced tax lawyer with Jeremy Scott Law. Call (902) 403-7201 for a consultation about your tax options.