The Clean Technology Investment Tax Credit (ITC)
The Clean Technology Investment Tax Credit (ITC) is a tax credit that was announced in the Fall Economic Statement of 2022. The Federal Budget for 2023 has been updated to reflect its inclusion. It tries to encourage investments in emissions-producing energy generating and storage technology, such as geothermal energy equipment. The proposed law, which has been issued on August 4, 2023, is consistent with previous pronouncements and adheres to the existing ITC system provided in the Income Tax Act.
To be eligible for the ITC, the property must include zero-emission electricity generation technologies, non-fuel electricity storage systems, specific solar heating equipment, equipment solely used for generating electrical energy or heat from geothermal sources, and zero-emission non-road vehicles. Furthermore, this qualified property must be located in Canada and designed
only for use in Canada.
The tax credit will be accessible for a period of ten years beginning on March 28, 2023 (Budget Day). After 2034, it will be gradually phased down, with a 15% credit rate in that year. There will be no further credit issued after that year. Claimants for the Clean Technology ITC include taxable Canadian businesses and partnerships, individuals, and tax-exempt entities. Individuals must complete a form with their yearly income tax return for the year in which they buy qualified property in order to claim the Clean Technology ITC.
When a taxpayer claims the ITC, it is treated as a payment made against their tax burden for that year in the amount of the ITC. If a claimant files late, they have one year from the initial filing deadline to submit again. However, the Minister lacks the power to accept a filed return/form after that date.
If the taxpayer converts property obtained with Clean Technology ITC for clean technology use and exports it from Canada or disposes of it within 20 calendar years of acquisition, the recapture rules apply. The amount of recapture is estimated by multiplying the claimed ITCs by a fraction. The numerator of this fraction indicates the revenues from the property’s fair market value, while the denominator represents the taxpayers expense in obtaining it. In the case of a Canadian company, the recapture amount is added to the corporations tax obligation for the year in which the disposal, conversion, or export occurs.
Overall, while the ITC can provide a much-needed tax break to Canadians (both individuals and corporations), it is brand new, and as such, does not come without its complications. If you intend to benefit from the ITC, have any questions about its implementation, or tax law in general, please give us a call!
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.