By Sadira Jan, Dave Randell, Graham Haynes & Tyler Callahan

On November 30, 2023, the Federal Government tabled Bill C-59, entitled An Act to implement certain provisions of the fall economic statement tabled in Parliament on November 21, 2023 and certain provisions of the budget tabled in Parliament on March 28, 2023 (“Bill C-59”).

Bill C-59 proposes amendments to the Income Tax Act (Canada) which will implement certain “clean economy” priorities discussed in Budget 2023 and the 2023 Fall Economic Statement, including the Clean Technology Investment Tax Credit (the “CTITC”).

The CTITC is one of five new federal “clean economy” tax incentives being introduced[1]. We previously discussed the proposed terms of the CTITC shortly after the 2022 Fall Economic Statement, and in this article provides an update on the changes and clarifications provided by Bill C-59.

Overview

The CTITC is a proposed refundable tax credit which allows “qualifying taxpayers” to claim an income tax credit of up to 30% of the capital cost of “clean technology property”, which they acquired on or after March 29, 2023, and before January 1, 2035.

Applicability 

Bill C-59 expands the definition of qualifying taxpayer to include, besides taxable Canadian corporations and taxable Canadian corporations that are a member of a partnership, mutual funds trusts that are real estate investment trusts.

Eligible Purchases

Bill C-59 defines “clean technology property” to include:

• equipment used to generate electricity from solar, wind and water energy;
• stationary electricity storage equipment, excluding any equipment that uses fossil fuels in operation;
• active solar heating equipment, air-source heat pumps, and ground-source heat pumps;
• non-road zero-emission vehicles plus related charging or refueling equipment;
• equipment used to generate electricity and/or heat solely from geothermal energy, excluding any equipment that extracts fossil fuels for sale;
• concentrated solar equipment; and
• small modular nuclear reactors.

Notwithstanding the above, Bill C-59 also requires that the clean technology property:

• be situated in Canada and intended for use exclusively in Canada;
• be new, or was not acquired or used for any purpose before it was acquired by the taxpayer (based on the available for use rules in the Income Tax Act (Canada)); and
• if the property is to be leased:
  • the lessee must be a qualifying taxpayer;
  • the property must be leased in the lessor’s ordinary course of carrying on a business in Canada; and
  • the lessor’s principal business must be selling or servicing property of that type, or leasing property, lending money or purchasing financial assets representation all or part of the sale price of merchandise or services or any combination thereof.

Credit Amount

Bill C-59 provides that new clean technology property purchased by an eligible taxpayer after March 28, 2023, and before January 1, 2034, will be eligible for a CTITC of up to 30% of the equipment’s capital cost while such property purchased in the final year of the program, between December 31, 2033, and January 1, 2035, will be eligible for a CTITC of up to 15% of the equipment’s capital cost. New clean technology property purchased by a taxpayer on or after January 1, 2035, will not be eligible for a CTITC.

Notwithstanding the foregoing, there are some limitations on the amount of the CTITC that can be claimed by an eligible taxpayer, and these include the following:

• Government Assistance: the amount of the CTITC claimed must be reduced by any governmental or non-governmental assistance that can reasonably be considered to be in respect of the clean technology property, provided there is a mechanism for capital cost add-back;
• Unpaid Amounts: the amount of the CTITC claimed must be reduced by any cost not paid within 180 days of the end of the taxation year in which a CTITC is claimed, provided there is a mechanism for adding-back such amounts to the capital cost of the clean technology property in the event it is repaid (or no longer expected to be received); and
• Labour Requirements: all applicable credit percentages must be reduced by 10% if the taxpayer does not meet certain labour requirements (detailed below).

Labour Requirements

There are two primary labour requirements set out in Bill C-59 which must be met in order to obtain the full benefit of the CTITC.

First, all workers employed in the preparation or installation of clean technology property must be unionized and compensated pursuant to a collective agreement in accordance with the workers’ skill, experience, and the work required. Workers must be notified of the fact that the work site is subject to the wage requirement in plain language, such that workers will be able to report non-compliance with the wage requirement.

Second, reasonable efforts must be made to ensure that apprentices registered in a Red Seal trade work at least 10% of the total hours worked by Red Seal workers at the site. If the collective agreement does not permit at least 10% of the total hours worked to be completed by apprentices, as many apprentices as permitted by law must be involved with the work being completed.

Employers should be aware that a stakeholder who attempts to claim the full amount of a CTITC without complying with the labour requirements may be subject to tax penalties.

Looking Forward

As with all Federal legislation, the Act must go through a first, second, and third reading before Parliament and the Senate before receiving Royal Assent and officially becoming law. As of the date of this publication, Bill C-59 has completed its first reading before Parliament. If Bill C-59 receives Royal Assent, the CTITC provisions summarized in this article will be effective as of March 28, 2023.

Atlantic Canadian businesses will be able to benefit from both the CTITC and the existing Atlantic Investment Tax Credit on certain capital expenditures. The Atlantic Investment Tax Credit, for reference, was established in March, 2012, and provides a refundable credit of up to 10% of the value of new qualified property purchased in the Atlantic Provinces and the Gaspé Peninsula which includes, among other things, energy generation and conservation property.

This client update is provided for general information only and does not constitute legal advice. If you have any questions about the above, please contact a member of our Tax Group or our Energy Group.

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[1] The others include: the carbon capture, utilization, and storage investment tax credit, the clean electricity investment tax credit, the clean hydrogen investment tax credit, and the clean technology manufacturing tax credit.