On 16 December 2024, the Canadian federal government released its 2024 Fall Economic Statement (FES) coinciding with the resignation of Chrystia Freeland, the now-former finance minister, from Justin Trudeau’s cabinet.
Highlights
- A key focus of the economic statements released by the Department of Finance over recent years has been investment tax credits (ITCs) aimed to stimulate investment in Canada’s renewable sector. The government has already implemented four of its six major ITCs.
- The FES reiterates the government’s commitment to implementing the remaining ITCs (e.g., the Clean Electricity ITC and EV Supply Chain ITCs) and provides further specifics.
- From a broader project finance perspective, the effective period for two existing capital cost allowance (CCA) tax incentive measures (e.g., AII and immediate expensing) has been extended to 2033 (with phasing out starting from 2030).
- So where are we at with the ITCs?
Tax Incentives Delivered
The government has delivered four of its six major economic ITCs as follows:
- Carbon Capture, Utilisation, and Storage (CCUS) ITC available as of 1 January 2022;
- Clean Technology ITC available as of 28 March 2023;
- Clean Hydrogen ITC available as of 28 March 2023; and
- Clean Technology Manufacturing ITC available as of 1 January 2024.
Tax Incentives In Progress:
- Clean Electricity ITC*: Announced in Budget 2023, this ITC is a refundable credit equal to 15% of the capital cost of eligible investments in equipment related to low-emitting electricity generation, electricity storage, and the transmission of electricity between provinces and territories and is available retroactively from 16 April 2024;
- EV Supply Chain ITC: Businesses can already claim the Clean Technology Manufacturing tax credit to cover 30% of the cost of their investments in eligible new machinery and equipment used to manufacture EVs, EV batteries, and certain EV components. However, Budget 2024 reflected its intent to introduce a 10% tax credit for eligible building property related to three segments of the EV supply chain: EV assembly, EV production, and cathode active material production.? The FES provides more detail on this 10% tax credit effective as of 1 January 2024, with draft legislation expected to be released in 2025;
- Waste Biomass inclusion*: The government has previously proposed to expand the eligibility of the Clean Technology ITC to include generating heat or electricity from waste biomass;
- Polymetallic Mining inclusion*: The government has previously proposed for polymetallic mining projects to be eligible for the Clean Technology Manufacturing ITC; and
- Hydrogen – Methane Pyrolysis inclusion: The FES proposes that the Clean Hydrogen ITC be expanded to include hydrogen produced from methane pyrolysis.
* Draft legislation for these proposals has already been released with legislation expected to be introduced in Parliament in late 2024/early 2025.
Operis’s Thoughts
The impact of these ITCs is evident in the flow of private capital into Canada’s renewable energy sector, with numerous projects both underway and on the horizon.? While certain incentives have yet to be formally enacted, the government has provided assurances on key aspects of these tax credits (e.g., retroactive eligibility), instilling the confidence investors need.
In its ongoing efforts to remain competitive with the U.S., the Canadian government continues to fine-tune and expand the scope of these incentives. ?The adjustments made to eligibility criteria, informed by public consultations, demonstrate the government’s responsiveness to market needs and reflect a strategic approach to enhance the attractiveness of Canada’s clean energy landscape.
- Which new tax measures discussed in the FES may impact the project finance sector?
The FES proposes to extend the availability of certain tax incentives:
- Accelerate Investment Incentive (“AII”): Under current legislation, the AII provides enhanced first-year capital cost allowance (CCA) for most depreciable capital property, with a phase-out starting in 2024 until it is fully eliminated in 2027.
- Immediate expensing: Under current legislation, immediate expensing is available for manufacturing or processing machinery and equipment, clean energy generation and energy conservation equipment and zero-emission vehicles. The immediate expensing measures are phasing out for property that becomes available for use after 2023 and before 2028.
The FES seeks to restore both measures, with phasing out beginning in 2030 and both being fully eliminated from 2034 onwards.
How can Operis help?
At Operis, our tax and accounting team not only have the technical expertise but hands-on experience with financial models which allow us to deliver tailored insights and solutions that are both accurate and practical for clients in the project finance sector. We understand the nuances of these tax measures and their practical application to projects.
If you’d like to explore how these ITCs or tax measures may impact your business, please don’t hesitate to get in touch with our team to discuss how we can support you. Reach out to
Henry Le Maistre
, our Senior Tax & Accounting Manager at [email protected] or [email protected].
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