Clean technology manufacturing and processing, as well as critical mineral extraction and processing, are poised to receive a boost with the introduction of the Clean Tech Manufacturing ITC.
This refundable investment tax credit, proposed in the budget, aims to incentivize businesses to invest in eligible property associated with eligible activities. Let’s explore the details of this tax credit, including the activities that qualify, benefits, and phase-out schedule.
Eligible Activities for Clean Tech Manufacturing ITC
The Clean Tech Manufacturing ITC covers a wide range of activities related to clean technology manufacturing and processing, including:
- Manufacturing of renewable energy equipment, such as solar, wind, water, or geothermal equipment
- Manufacturing of nuclear energy equipment
- Processing or recycling of nuclear fuels and heavy water
- Manufacturing of nuclear fuel rods
- Manufacturing of electrical energy storage equipment used for grid-scale storage or ancillary services
- Manufacturing of equipment for air- and ground-source heat pump systems
- Manufacturing of zero-emission vehicles, including conversions of on-road vehicles
- Manufacturing of batteries, fuel cells, recharging systems, and hydrogen refueling stations for zero-emission vehicles
- Manufacturing of equipment used to produce hydrogen from electrolysis
- Manufacturing or processing of upstream components, sub-assemblies, and materials that are purpose-built or designed exclusively for other eligible clean technology manufacturing and processing activities, such as anode and cathode materials used for electric vehicle batteries
- Extraction and certain processing activities related to critical minerals essential for clean technology supply chains, including lithium, cobalt, nickel, graphite, copper, and rare earth elements, both before and after the prime metal stage or its equivalent.
Benefits of Clean Tech Manufacturing ITC
The Clean Tech Manufacturing ITC offers businesses a refundable tax credit equal to 30% of the capital cost of eligible property associated with eligible activities. This tax credit provides a significant incentive for businesses to invest in clean technology manufacturing and processing, as well as critical mineral extraction and processing. It can help offset the costs of machinery and equipment used in these activities, making them more financially viable.
Tax Integrity Rules and Phase-out Schedule
Tax integrity rules would apply to recover a portion of the tax credit if eligible property is subject to a change in use or is sold within a certain period of time. Additionally, the Clean Tech Manufacturing ITC would be gradually phased out, starting with property that becomes available for use in 2032. It would no longer be in effect for property that becomes available for use after 2034.
Claiming Multiple Tax Credits
Businesses can only claim one of the Clean Tech Manufacturing ITC, Clean Tech ITC, Clean Electricity ITC, or Clean Hydrogen ITC for a particular property if it is eligible for more than one of these tax credits. However, they can claim both the Atlantic Investment Tax Credit and the Clean Tech Manufacturing ITC.
Exception for Battery Cells or Modules
It’s important to note that the Clean Tech Manufacturing ITC would not be available for property used in the production of battery cells or modules if such production benefits from direct support through a Special Contribution Agreement with the Government of Canada.
Conclusion
Clean tech manufacturing ITCs can be a valuable incentive for businesses engaged in eligible activities related to the manufacturing of clean technology products or components. These tax credits can help reduce the costs of manufacturing clean tech products, enhance competitiveness, and promote environmental sustainability. However, it’s important for businesses to carefully review the specific eligibility criteria, requirements, and limitations of clean tech manufacturing ITCs in their jurisdiction, and seek professional advice if needed to ensure compliance and maximize the potential benefits of these tax credits.
