Federal Clean Technology Manufacturing tax credit valuable catalyst for green initiatives

New initiative provides 30 percent refundable credit for the cost of investing in a move towards clean technology for Canadian manufacturers

As the world transitions to an age of clean energy, the federal government has provided Canadian manufacturers with a catalyst for green innovation and growth: a new Clean Technology Manufacturing Investment (CTMI) Tax Credit.

Many countries are encouraging industrial innovations to support the emerging clean energy economy. The International Energy Agency estimates that if all countries meet their energy and climate pledges, the global market for clean energy technologies will be worth around US$650 billion annually by 2030 – more than triple what it is today.

Accelerating clean innovation in Canada is critical to achieving our country’s climate and environmental goals. This presents an opportunity for the country’s manufacturers to become leaders in clean energy technologies such as solar panels, wind turbines, EV batteries, and electrolysers for hydrogen and heat pumps as demand intensifies.

The federal budget released on March 28, 2023, demonstrates the Government of Canada’s commitment to supporting domestic green industries. Among the new initiatives introduced is the CTMI Tax Credit; a 30 percent refundable tax credit for the capital cost of investments in new machinery and equipment used to manufacture or process key clean technologies.

Canada’s mature mining industry has a variety of critical mineral deposits, which are considered the building blocks of clean energy technology. In support of this industry, the credit applies to extraction and certain processing activities relating to minerals considered essential for clean tech supply chains: lithium, cobalt, nickel, graphite, copper, and rare earth elements.

Along with extraction and processing of critical minerals, activities eligible for the credit include the manufacturing of:

• Nuclear energy equipment and fuel rods and processing or recycling of nuclear fuels and heavy water
• Solar, wind, water, or geothermal-renewable energy equipment
• Electrical energy storage equipment used to provide grid-scale storage or other ancillary services
• Equipment for air- and ground-source heat pump systems
• Zero-emission vehicles, including conversions of on-road vehicles, as well as batteries, fuel cells, recharging systems, and hydrogen refueling stations
• Equipment used to produce hydrogen from electrolysis
• Upstream components, sub-assemblies, and materials provided that the output would be purpose-built or designed exclusively to be integral to other eligible clean technology manufacturing and processing activities, such as anode and cathode materials used for electric vehicle batteries

The CTMI Tax Credit applies to property that is acquired and available for use beginning January 1, 2024. The credit will be phased out beginning in 2032 and eliminated after 2034.

What manufacturers should keep in mind is that this credit is only one piece of the government offering and that there are other investment tax incentives available.

First, numerous green tax and incentive programs are available across the country to help manufacturers enhance energy efficiency and adopt clean technologies. These government incentives can be combined to enhance the benefits of investing in clean tech. For example, in March, the Government of Ontario introduced a new Ontario Made Manufacturing Investment Tax Credit, enabling manufacturers in the province to receive a refundable tax credit of up to $2 million annually to “grow, innovate, become more competitive and create jobs.”

Second, investments that qualify for tax credits may also be eligible for accelerated deductions, allowing for a larger capital cost allowance deduction in the first year of acquiring an eligible depreciable asset.

Consider these clean energy incentives to be a catalyst for innovation. Clean tech ­– products, services, and production processes that reduce or eliminate negative environmental impacts throughout the lifecycle of a product – represent an unprecedented business opportunity for Canadian manufacturers. Global demand for clean innovations will continue to soar for the foreseeable future.

With the help of an MNP advisor, you can conduct a review of your business strategy, evaluate the options available to you, then adopt the right strategic approach to meet your goals.