Finance is asking for feedback on recently proposed investment tax credits related to clean hydrogen and clean technologies, which were introduced in the 2022 Federal Fall Economic Update. Finance announced two new public consultations on December 1, 2022 in which it is asking the public to provide input on the design of the Clean Hydrogen Investment Tax Credit and the labour conditions to be met to receive the maximum tax credit rate under both the Clean Technology and Clean Hydrogen Investment Tax Credits. These credits are proposed to apply to eligible investments made as of the date of the 2023 federal budget. Finance says it will accept comments on these credits until January 6, 2023.
Background
In the 2022 Federal Fall Economic Update, Finance announced it would launch a consultation on a refundable Clean Hydrogen Investment Tax Credit, which will provide a top tax credit of at least 40% for eligible investments (depending on carbon intensity), and will be phased out after 2030. To receive the maximum rate, claimants will have to meet certain labour conditions. The proposed Clean Hydrogen Investment Tax Credit will be available for eligible investments made as of the date of the 2023 federal budget.
Finance also announced a refundable Clean Technology Investment Tax Credit for 30% of the capital cost of certain eligible clean technology equipment. The proposed credit will be available for the capital cost of property that is acquired and that becomes available for use on or after the day that the 2023 federal budget is released, as long as it has not been used for any purpose before its acquisition. The following types of equipment are eligible for the credit:
- Electricity Generation Systems, including solar photovoltaic, small modular nuclear reactors, concentrated solar, wind, and water (e.g., small hydro, run-of-river, wave, and tidal)
- Stationary Electricity Storage Systems that do not use fossil fuels in their operation (e.g., batteries, flywheels, supercapacitors, magnetic energy storage, compressed air energy storage, pumped hydro storage, gravity energy storage, thermal energy storage)
- Low-Carbon Heat Equipment, including active solar heating, air-source heat pumps, and ground-source heat pumps
- Industrial zero-emission vehicles and related charging or refueling equipment, such as hydrogen or electric heavy-duty equipment used in mining or construction.
The credit will be gradually phased out between 2032 and 2035. To receive the maximum rate, claimants will have to meet certain labour conditions, or may only be able to claim the credit at a 20% rate. Finance announced that it would provide further details on these conditions in the 2023 federal budget after consulting with stakeholders.
Clean hydrogen Investment tax credit consultation
In one consultation, Finance advises that it is seeking input on the design of the Clean Hydrogen Investment Tax Credit. In particular, Finance invites participants to comment on the credit, including to respond to specific questions on:
- What would constitute an appropriate carbon intensity-based system for Canada
- What levels of support would be appropriate for each carbon intensity tier (including the proposed top rate of at least 40%)
- How Finance should consider eligibility for certain necessary equipment external to a facility under the Clean Hydrogen Investment Tax Credit or other investment tax credits
- Whether the government’s Fuel Life Cycle Assessment Model is appropriate for calculating the life cycle carbon intensity of clean hydrogen production, and other issues related to this calculation.
Labour conditions for clean technology and clean hydrogen investment tax credits
Finance also announced a separate consultation on establishing labour conditions to be met to receive the maximum tax credit rate for the investment tax credits for clean technologies and clean hydrogen. Finance invites participants to comment on potential labour conditions, including to consider specific questions on:
- How the labour conditions of paying prevailing wages and creating apprenticeship opportunities should be accounted for in Canada
- How employers could demonstrate compliance with the labour conditions
- Whether there should be a threshold of investment required (or other metrics such as number of workers) for the labour conditions to apply, and if so, the appropriate threshold
- How to deal with special circumstances involving subcontracted work and specific exemptions from the conditions.
For more information, contact your local KPMG adviser.
Information is current to December 5, 2022. The information contained in this publication is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act upon such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's National Tax Centre at 416.777.8500
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