Electric Vehicle Supply Chain Tax Credit
On April 16th, 2024, the Federal Government released the 2024 Federal Budget. The Budget introduced various incentives aimed at advancing the Canadian government’s clean energy initiative and objective of achieving a zero-emission status by 2035. With transportation being one of the main sources of greenhouse gas emissions in Canada, this measure reflects Canada’s steadfast commitment to transitioning to a sustainable transportation paradigm, with the goal of achieving 100% zero-emission vehicle sales by 2035.
Among these incentives is the Electric Vehicle Supply Chain Investment Tax Credit (the “EV Supply Chain ITC”). This new credit builds upon the foundation of the Clean Technology Manufacturing Investment Tax Credit (CTM ITC), initially introduced in Budget 2023. The CTM ITC facilitates a 30% tax credit for businesses engaged in the manufacturing of electric vehicles or their components.
Claiming the ITC
The EV Supply Chain ITC provides a 10% tax credit on construction costs for three critical segments of the electric vehicle supply chain:
- Cathode active material production;
- Battery production; and
- Vehicle assembly.
To qualify for the EV Supply Chain ITC, a taxpayer must do one of the following:
- Claim the CTM ITC in the three segments of the electric vehicle supply chain listed above; or
- Claim the CTM ITC in two of the three segments of the supply chain listed above and hold a qualifying minority interest in an unrelated corporation that claims a CTM ITC in the other segment.
Availability
The EV Supply Chain ITC can be claimed on the cost of property acquired and available for use on or after January 1, 2024. However, the credit will gradually diminish, reducing to 5% in the years 2033 and 2034 before discontinuing after 2034.
This ITC will be available retroactively, so companies starting eligible projects now will be able to benefit from the EV Supply Chain ITC.
Honda Canada’s Investment
A recent example of the ITC’s impact on incentivizing businesses to invest in electric vehicle production in Canada can be depicted by Honda Canada.
Shortly after the budget was released, Honda announced a $15 billion investment in Canada’s electric vehicle supply chain. The commitment includes the construction of four electric vehicle and battery factories in Ontario. Leveraging the EV Supply Chain ITC, Honda stands to benefit from its investment across eligible supply chain segments.
Further insights regarding this tax credit will be available in the Fall 2024 Economic Statement.
Conclusion
In essence, the EV Supply Chain ITC represents a pivotal mechanism to create new jobs, encourage investments in Canada and ultimately advance Canada’s clean energy initiative.
**Disclaimer: This article provides information of a general nature only. It does not provide legal advice nor can it or should it be relied upon. All tax situations are specific to their facts and will differ from the situations in this article. If you have specific legal questions, you should consult a lawyer.
Michelle Kosarnia