Tax Insights: Finance releases draft legislation for the clean technology and CCUS investment tax credits

August 23, 2023

Issue 2023-25

In brief

On August 4, 2023, the Department of Finance released draft legislation for the clean technology investment tax credit (Clean Technology ITC) and revisions to previously released draft legislation for the carbon capture, utilization, and storage investment tax credit (CCUS ITC).

The Clean Technology ITC will provide a refundable investment tax credit (ITC) of up to 30% on eligible clean technology property acquired and available for use after March 27, 2023. The credit will be reduced to 15% in 2034 and fully phased out after 2034.

The CCUS ITC will offer a refundable ITC of up to 60% on capture equipment using direct ambient air, 50% on other capture equipment, and 37.5% on qualified carbon transportation, storage or usage equipment. Expenditures incurred after 2021 are eligible and the ITC rates will be reduced by half from 2031 to 2040 and fully phased out after 2040. Changes to the previous draft legislation include the addition of British Columbia as an eligible jurisdiction for geological storage, and new eligibility for dual-use equipment and refurbishment costs.

The draft legislation also includes labour requirements for these ITCs, which mirror similar provisions in the US Inflation Reduction Act. Failure to meet these labour requirements could result in the ITC rates being reduced by 10 percentage points.

The federal government has launched a public consultation on these proposals, with comments to be submitted by September 8, 2023.

In detail

Clean Technology ITC


The Clean Technology ITC, which was first announced in the federal government’s 2022 Fall Economic Statement, is intended to spur investment in non-fossil fuel energy adoption. The new credit is available in respect of the cost of “clean technology property” that must:

  • be situated in Canada and intended for use exclusively in Canada, and
  • not be used, or acquired for use or lease, for any purpose before being acquired by the taxpayer

The types of property that may qualify as clean technology property are:

  • equipment used to generate electricity from solar, wind and water energy described in subparagraphs (d)(ii), (iii.1), (v), (vi) or (xiv) of capital cost allowance (CCA) class 43.1 of Schedule II to the Income Tax Regulations
  • stationary electricity storage equipment described in subparagraphs (d)(xviii) or (xix) of class 43.1, but excluding equipment that uses fossil fuel “in operation”
  • active solar heating equipment, air-source heat pumps and ground-source heat pumps described in subparagraph (d)(i) of class 43.1
  • non‑road zero‑emission vehicles described in class 56, and charging or refueling equipment (described in subparagraph (d)(xxi) of class 43.1 or subparagraph (b)(ii) of class 43.2) used primarily for such vehicles
  • equipment used exclusively for the purpose of generating electrical energy or heat energy, or a combination of electrical energy and heat energy, solely from geothermal energy, described in subparagraph (d)(vii) of class 43.1, but excluding any equipment that is part of a system that extracts both (i) heat from a geothermal fluid, and (ii) fossil fuel for sale or use
  • concentrated solar energy equipment
  • small modular nuclear reactors

Taxable Canadian corporations are eligible for the Clean Technology ITC. As well, taxable Canadian corporations that are members of partnerships are able to claim an allocation of the credit on generally the same basis as certain other ITCs. Similar to the scientific research and experimental development (SR&ED) ITC, there is a recapture mechanism if within 20 calendar years of acquisition, the clean technology property is converted to a non‑clean use, exported from Canada, or otherwise disposed of by the taxpayer.


  • Time of acquisition – Clean technology property is deemed not to have been acquired by a taxpayer before the property has become available for use by the taxpayer, determined without reference to certain available‑for‑use rules that apply on the disposition of property. However, property acquired before March 28, 2023, but that becomes available for use after March 27, 2023, is ineligible for the Clean Technology ITC. Consequently, if a taxpayer acquired equipment before March 28, 2023, these expenditures are not eligible for the Clean Technology ITC.

Further, for property prepared or installed after September 30, 2023, the Clean Technology ITC rate will be reduced by 10 percentage points unless the ITC claimant elects to meet the labour requirements (discussed below).

  • Prescribed forms and application process – The procedural details for claiming the Clean Technology ITC are still outstanding; however, the references to class 43.1/43.2 in the definition of clean technology property, and statements in the 2022 Fall Economic Statement, suggest that eligible property must also qualify for class 43.1/43.2 CCA treatment.

It is unclear whether this will be a two-stage process (i.e. technical approval from the Natural Resources Canada (NRCan) Class 43.1 and 43.2 Secretariat, followed by an income tax filing to the Canada Revenue Agency [CRA]). Similarly, it is also unclear how NRCan and the CRA will divide their roles and responsibilities with respect to the new credit.

It is also unknown to what extent, if any, taxpayers may rely on the NRCan’s "Technical Guide to Class 43.1 and 43.2” and the eligible system boundaries for the different types of clean technology properties when developing their preliminary financial models to quantify the potential benefits from the Clean Technology ITC. The technical guide notes that it only covers scientific and engineering aspects and defers to the CRA on tax matters.

  • Other – Further items to consider include:
    • The Clean Technology ITC will not be treated as “government assistance” for purposes of the ITCs under section 127 of the Income Tax Act, such as the SR&ED ITC, and thus will not reduce the expenditures related to those ITCs. This treatment ensures that those ITCs are not reduced when the Clean Technology ITC is taken.
    • The Clean Technology ITC and clean electricity investment tax credit (Clean Electricity ITC), which was announced in the 2023 federal budget, will likely have overlapping eligible types of property. Since draft legislation has not been released for the Clean Electricity ITC, the differentiators between the two ITC regimes are not known.
    • It is unclear how partnerships whose members include a taxable Canadian corporation and a non‑taxable entity will be treated for these ITCs.
    • The forthcoming Clean Electricity Regulations may interact with both ITCs. It is unknown if thresholds for clean electricity in the proposed framework will be a future requirement of one or both of these ITCs.



Draft legislation for the CCUS ITC was originally released in August 2022; this release revises that legislation and expands the ITC’s eligibility to include dual use equipment. As with the Clean Technology ITC, only taxable Canadian corporations can access the CCUS ITC. Similarly, taxable Canadian corporations that are members of partnerships are able to claim an allocation of the credit on generally the same basis as certain other ITCs.

The August 2023 release introduces definitions for designated jurisdictions and dual-use equipment, knowledge sharing and reporting requirements, and rules relating to refurbishments:

  • Designated jurisdictions – For captured carbon dioxide to be stored in accordance with the requirements of the CCUS, it must be stored in dedicated geological storage in a designated jurisdiction. The designated jurisdictions are Alberta, British Columbia, Saskatchewan and any other jurisdiction in Canada or the United States designated by the Minister of the Environment.
  • Dual-use equipment – This is equipment verified by the Minister of Natural Resources as property (i) that would be described in subparagraphs (a)(iii) or (iv) of new CCA class 57 if its paragraph (a) were read without reference to the words “hydrogen production” and “solely,” and (ii) that:
    • collects, recovers, treats or recirculates water, or a combination thereof, in support of a CCUS project, or
    • produces electrical power, heat or a combination thereof, and more than 50% of either the electrical power or heat that is expected to be produced over the total CCUS project review period is expected to support (i) a qualified CCUS project, or (ii) hydrogen production that qualifies for the clean hydrogen investment tax credit (Clean Hydrogen ITC)

It also includes certain equipment described in paragraphs (d) or (e) or subparagraph (f)(i) of class 57.

  • Knowledge sharing and reporting requirements – These requirements are outlined and must be fulfilled for projects valued over $250 million in expenditures before the first day of operation. Operational reports are required annually, along with a construction and completion knowledge sharing report. An exempt corporation with an ownership interest of less than $20 million in a project is not subject to the knowledge sharing requirements.
  • Refurbishment credits – CCUS refurbishment tax credits are available for expenditures incurred after the first day of commercial operations of a CCUS project. Expenditures on refurbishment of a qualified CCUS project eligible for the credit are limited to 10% of total qualified CCUS expenditures incurred before the first day of commercial operations of the qualified CCUS project.


  • Qualified CCUS project – To qualify for the ITC, the projected eligible use percentage must be 10% or more for specified project periods. Eligible uses include dedicated geological storage in a designated jurisdiction and storage in concrete.

The explanatory notes provide an example calculation for a project involving enhanced oil recovery, which is an ineligible activity. The explanatory notes state that a “project that plans to use 20% of its captured carbon in enhanced oil recovery (and 80% in an eligible use) for the first and second project periods, but plans to use all of the captured carbon in the third and fourth periods for producing concrete using a qualified concrete storage process, would have a projected eligible use percentage of 80% for those first two periods and 100% for the third and fourth project periods.”

The projected eligible use percentage will be used to determine qualified carbon capture expenditures; the portion of carbon capture expenditures that qualify is based on the projected eligible use of these expenditures divided by the projected total use (i.e. ineligible use plus eligible use) of these expenditures.

  • Dual-use equipment – Careful examination will be needed to determine what constitutes property described in class 57 in cases when the equipment may satisfy the criteria to be dual‑use equipment, in particular when fossil fuel combustion is abated with CCUS. The 2023 federal budget introduced the Clean Electricity ITC and mentions that natural gas‑fired electricity generation abatement will qualify as an eligible activity, which could create potentially conflicting criteria between these two ITCs. A methodology for the dual use mass/energy balance calculations will need to be outlined in the forthcoming CCUS‑ITC technical guidance document, for not only the dual‑use criteria, but also for variable A in the dual‑use energy proportion calculation when determining qualified carbon capture expenditures.
  • Qualified carbon use expenditures – These are expenditures incurred for property described in new CCA class 58, which includes equipment used solely for using carbon dioxide in industrial production (including monitoring and control equipment and refurbished equipment). For the purposes of class 58, industrial production includes carbon dioxide storage for enhanced oil recovery.

The explanatory notes state that “[e]xpenditures will qualify only if they are expenditures to acquire property that is expected to support storage or use of captured carbon solely in a manner described in paragraph (b) of the definition of “eligible use” in subsection (1). That means the property must be expected to be used to support the storage or use of captured carbon to produce concrete using a qualified concrete storage process.” Accordingly, expenditures on class 58 property will not be subject to an allocation based on a projected eligible use percentage, “[u]nlike with other types of qualified expenditures for capture and transportation, there is no ability to prorate the expenditure to the extent that it relates in part to an eligible use and in part to an ineligible use.”

  • Implementation details – These are still outstanding. Further information is expected in the forthcoming CCUS-ITC technical guidance document.

Labour requirements


The draft legislation includes the labour requirements for the Clean Technology ITC, CCUS ITC, Clean Electricity ITC and Clean Hydrogen ITC. ITC claimants that make the required election and meet the specified labour requirements (in the prescribed form) will be eligible for the ITCs’s full rate; otherwise, the applicable ITC rate will be reduced by 10 percentage points. The labour requirements, which are proposed to take effect October 1, 2023, include paying prevailing wages, and using apprentices, for designated work sites in respect of individuals who are covered workers.

  • Application of the labour requirements – The rules apply in respect of covered workers at a designated work site. A covered worker is generally an individual:
    • who is engaged in the preparation or installation of specified property at a designated work site as an employee of an incentive claimant (see below)
    • whose work or duties in respect of the designated work site are primarily manual or physical in nature, and
    • who is not an administrative, clerical or executive employee, or a business visitor to Canada
  • Prevailing wage requirement – Each covered worker at a designated work site must be paid according to an eligible collective agreement, or an amount that is at least equal to wages and benefits as specified in a collective agreement that most closely aligns with the covered worker’s experience level, tasks and location.
  • Apprenticeship requirement – Reasonable efforts must be made to ensure that apprentices registered in a Red Seal trade work at least 10% of the total hours that are worked during the year by Red Seal workers at a designated work site of the ITC claimant.
  • Additional tax, payments and penalties – If the claimant has elected and attested in the prescribed form, and is subsequently notified about not meeting the labour requirements, they may be subject to:
    • a remedial top-up payment
    • additional tax for failing to meet those requirements, and
    • a potential penalty for gross negligence and/or for failing to pay the remedial top-up payment


  • Incentive claimant – The term “incentive claimant” is used throughout the draft legislation. An incentive claimant means a person, or a partnership at least one member of which, plans to claim or has claimed a specified ITC for a taxation year.
  • Verification and enforcement – The onus is on the incentive claimant to ensure that covered workers, including its own and those of third party vendors, meet the labour requirements in a given installation for a taxation year where preparation or installation work is conducted. Details relating to verification or enforcement were not discussed in the draft legislation; however, the incentive claimant must submit an attestation in prescribed form.

The takeaway

The federal government has only released draft legislation for two of the five “clean economy” ITCs (that were described in its 2023 budget, i.e. the Clean Technology ITC and the CCUS ITC) and for the proposed labour requirements associated with some of those ITCs. Although this draft legislation provides additional information on these credits, businesses that are planning to undertake capital projects still face significant uncertainties when attempting to develop economic and financial models and estimate their expected benefit. It is even more challenging for projects that are already underway, where the procurement of long-lead items in constrained supply chains must comply with the relevant ITC eligibility criteria and timeframes.

Contact us

Edward (Ted) C. Bell P.Eng

Edward (Ted) C. Bell P.Eng

Partner, PwC Associates, National Leader, SR&ED and Incentives, and National Leader Greenhouse Gas Verification Services, PwC Canada

Tel: +1 604 806 7705

Serene Cheung

Serene Cheung

Director, SR&ED and Government Incentives, PwC Canada

Tel: +1 403 509 7461

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Dean Landry

Dean Landry

National Tax Leader, PwC Canada

Tel: +1 416 815 5090