Navigating Canada’s Clean Economy Investment Tax Credits

Canada’s clean economy investment tax credits (ITCs) are no longer just a federal budget talking point; they’re now a practical planning issue for businesses, project developers, lenders, Indigenous and municipal stakeholders, and the CPAs who advise them. The opportunity is particularly relevant for BC CPAs, because many local industries—real estate, manufacturing, mining, forestry, shipping, utilities, technology, and infrastructure—are already making capital investment decisions that may intersect with these incentives.

At a high level, the federal clean economy ITCs are refundable tax credits intended to support investments in Canada’s transition to net-zero emissions. The term “refundable” is particularly important. Unlike a non-refundable credit, which can only reduce tax otherwise payable, a refundable credit can generate a cash refund even when the claimant has little or no current tax liability. This feature significantly enhances the value of the incentives for capital-intensive projects, where the anticipated credit may represent an important component of the project’s overall financing and economic viability.

The clean economy regime now includes five principal federal credits that recently received royal assent: the Clean Technology ITC; the Clean Technology Manufacturing ITC; the Clean Electricity ITC; the Carbon Capture, Utilization, and Storage ITC; and the Clean Hydrogen ITC. The relevant Income Tax Act (the Act) provisions for these ITCs are generally found in sections 127.45, 127.49, 127.491, 127.44, and 127.48, respectively. Bill C-15 extended the prescribed form filing deadlines for these credits to the later of one year after the taxpayer’s filing due date or December 31, 2026.

The main federal credits

One of the most common misconceptions about the clean economy ITCs is that they are meant to serve as incentives for green projects. In reality, they are primarily depreciable asset-based tax incentives. For CPAs, then, the critical question is not whether a project is environmentally beneficial, but whether the underlying property satisfies the legislative requirements for a particular credit.

Determining eligibility requires a detailed review of the depreciable assets involved, including their capital cost allowance (CCA) classification, available-for-use status, location, and intended use. In many cases, these asset-level characteristics are more important in determining eligibility than the broader environmental objectives of the project itself.

Clean Technology ITC

For many BC businesses, the most common entry point into the clean economy ITC regime is the Clean Technology ITC. This credit, which is available for taxable Canadian corporations, can provide a refundable tax credit of up to 30% of the capital cost of qualifying clean technology property that is acquired and available for use between March 28, 2023, and December 31, 2033. The statutory definition of “clean technology property” is found in subsection 127.45(1) of the Act. The credit rate is scheduled to decrease to 15% for 2034 before phased out; and it is reduced by 10% where applicable labour requirements are not satisfied.

Eligible property may include a range of specified assets, such as: certain Class 43.1 and Class 43.2 clean energy generation and conservation equipment; Class 56 non-road zero-emission vehicles and the equipment to charge or refuel these vehicles; equipment used to generate electricity or heat from solar, wind, water, and geothermal energy or waste biomass systems; small nuclear energy property; stationary electricity storage systems that don’t use fossil fuels; low-carbon heating equipment, such as air- and ground-source heat pumps; and certain refurbished properties.

As a practical matter, determining eligibility requires a careful review of the assets acquired and their applicable CCA classifications.

Clean Technology Manufacturing (CTM) ITC

For BC mining and processing businesses, the CTM ITC provides a refundable tax credit of up to 30% of the capital cost of investments in new machinery and equipment—acquired on or after January 1, 2024, and before 2032—that are used to manufacture or process clean technologies, and extract, process, or recycle critical minerals. The CTM ITC then phases down to 20%, 10%, and 5% before ending on January 1, 2035.

The asset-class references for CTM property are broader than the asset-class references for clean technology property and include certain machinery and equipment used in qualified zero-emission technology manufacturing activities. Among other things, this includes renewable energy conversion or storage equipment that may be included in CCA classes 8, 10, 12, 38, 41/41.2, 43, 43.1, 43.2, 53, and 56, subject to detailed statutory wording and exclusions. Bill C-15 relaxed aspects of the CTM use test for certain mining-related activities.

Generally, to qualify for the CTM ITC, businesses must acquire eligible property for use in a CTM context, either in connection with “qualified zero-emission technology manufacturing activities” or “qualifying mineral activity.”¹ Property may be eligible for the CTM ITC where it is used entirely or substantially (generally, 90% or more) in mineral extraction and specified processing activities carried on at a mine or well site, and where the property is used primarily to produce qualifying materials (i.e., more than 50% of its outputs are qualifying materials).

To value those outputs, businesses must elect to use either the specified fair market value method or the safe harbour price method for each CTM property. Businesses must file this election using the prescribed form, and the election is binding for all relevant taxation years. In addition, where the property is used, or is to be used, in those mineral extraction or specified processing activities carried out at a mine or well site, businesses must also file a prescribed certification from an independent engineer or geoscientist to qualify for the CTM ITC claim.

Clean Electricity ITC

The Clean Electricity ITC is a 15% refundable credit, with a reduced 5% rate where applicable labour requirements are not met, that is available for certain eligible investments in clean electricity property, including but not limited to: equipment used to generate electricity from solar, wind, and water energy; fixed-location electrical or pumped hydroelectric storage property; qualified natural gas energy systems; qualified interprovincial transmission equipment; nuclear energy property; waste biomass electricity generation equipment; and certain refurbishment property. The credit has been available since April 16, 2024, for projects that began construction on or after March 28, 2023, and before 2035.

Carbon Capture, Utilization, and Storage (CCUS) ITC and Clean Hydrogen ITC

The CCUS ITC and Clean Hydrogen ITC are generally more specialized refundable credits, but they can be significant for large industrial, energy, cement, forestry, and resource projects.

The CCUS ITC is available to Canadian corporations that incur qualified carbon capture, carbon transportation, carbon storage, or carbon use expenditures after 2021 and before 2041. This credit can range from 37.5% to 60% of the expenditure, depending on the property type, timing, and applicable statutory rate. The eligible property would generally be classified into Class 57 (capture, transportation, and storage property) and Class 58 (carbon use property).

The Clean Hydrogen ITC can range from 15% to 40%, depending on the project’s carbon intensity and whether its carbon intensity and labour compliance requirements are satisfied. The key definition here is “eligible clean hydrogen property,” as stated in subsection 127.48(1) of the Act. The rules may apply to purchasing and installing eligible equipment for eligible projects producing hydrogen; this equipment must be acquired and made available for use on or after March 28, 2023, and before January 1, 2035.

Labour requirements and audit reality

Several clean economy ITCs are subject to labour requirements, if the claimant would like to benefit from the full credit rate. These requirements generally consist of a prevailing wage component and an apprenticeship component.

Under the prevailing wage requirement, covered workers must be paid in accordance with an eligible collective agreement or receive compensation that is at least equivalent to that provided to comparable workers under such an agreement. Under the apprenticeship requirement, at least 10% of total labour hours worked by individuals in Red Seal trades must be performed by registered apprentices, subject to certain relieving provisions. Failure to satisfy the labour requirements generally results in a 10 percentage point reduction in the applicable ITC rate.

From a practical perspective, labour compliance should not be viewed as an exercise for tax filing season. The necessary processes and documentation, including contractor agreements, payroll support, and apprentice-hour tracking, often need to be established during project planning and construction.

Given the significant level of scrutiny the CRA applies to clean economy ITC claims, taxpayers should maintain contemporaneous documentation supporting technical eligibility, asset-level costs, government assistance calculations, and labour requirement compliance. In many cases, the supporting documentation is just as important as the tax filing itself in defending a claim under audit.

Other considerations

CCA grind

In general, most clean economy ITCs reduce the property’s undepreciated capital cost for tax purposes, resulting in a lower CCA base.

Recapture rules

Each of the clean economy ITCs is subject to recapture rules. As a result, a taxpayer may be required to repay all or a portion of a previously claimed credit if the property is disposed of, exported from Canada, converted to a non-qualifying use, or otherwise ceases to meet the applicable eligibility requirements during the recapture period.

A BC lens: Provincial credits

BC businesses should also consider provincial incentives. The BC Clean Buildings Tax Credit is a refundable ITC for qualifying retrofits that improve the energy efficiency of eligible commercial buildings and multi-unit residential buildings with four or more units. The credit equals 5% of qualifying expenditures paid on the retrofit, and the qualifying retrofits must be certified by the Ministry of Finance and completed before April 1, 2027.

BC manufacturers should also consider the newly announced BC Manufacturing and Processing ITC from the 2026 BC Budget. This ITC is a 15% temporary refundable corporate credit applicable to eligible investments made by Canadian-controlled private corporations in buildings, machinery, and equipment used for manufacturing and processing, subject to exclusions. It applies to qualifying investments made after March 31, 2026, with eligible investments capped at $2 million annually, producing a maximum annual refund of $300,000, shared across associated corporate groups. The 15% rate applies until March 31, 2031, after which it will phase down by 2.5% per year until being fully phased out after March 31, 2036.

Practical takeaway

The clean economy ITCs can be significant, but they are not automatic. Determining the appropriate CCA class for a particular property acquired is only the starting point. Eligibility may still be affected by factors such as prior use, Canadian-use requirements, government assistance adjustments, labour compliance obligations, and supporting documentation. 

The strongest clean economy ITC claims are typically where tax, accounting, engineering, procurement, and project teams are engaged early. Accordingly, CPAs should proactively ask clients whether planned or recent capital expenditures involve technologies such as renewable energy, energy storage, hydrogen, carbon capture, clean technology manufacturing, critical minerals, and/or energy-efficient buildings.

Devon Pannu, CPA, CA, is a senior manager in tax at KPMG in Vancouver, where she specializes in Canadian corporate tax with a focus on industrial markets.

Jacqueline Gustafson is an executive director in KPMG’s western region tax incentives practice. She specializes in investigating and determining the eligibility of scientific research and experimental development work for tax incentives, preparing technical reports submitted to the CRA, and investigating eligibility for clean economy tax incentives and other forms of funding programs available in Canada and abroad.

This article was originally published in the September/October 2026 issue of CPABC in Focus.

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