The new Carbon Capture, Utilization, and Storage (CCUS) Investment Tax Credit (ITC) presents a fantastic opportunity for cleantech and sustainable businesses in Canada. This refundable tax credit is designed to support investments in technologies and infrastructure that capture, utilize, and store carbon dioxide, helping to reduce greenhouse gas emissions and promote a cleaner economy. Here’s everything you need to know to help you apply for the CCUS ITC and optimize your cashflow.
What is the CCUS ITC?
The CCUS ITC is a refundable tax credit available to taxable Canadian corporations. It aims to encourage investment in carbon capture, utilization, and storage projects. Eligible expenditures can receive up to:
60% for capturing carbon directly from the air
50% for capturing carbon from other sources
37.5% for transporting, storing, or utilizing captured carbon
The credit applies to expenditures incurred between January 1, 2022, and December 31, 2030. From January 1, 2031, to December 31, 2040, the rates are halved, and no credits are available after 2040.
Qualified CCUS Expenditures:
– Equipment that:
is not expected to be used for hydrogen production, natural gas processing or acid gas injection.
is not oxygen production equipment
is used solely for capturing carbon dioxide directly from the ambient air or that would otherwise be released into the atmosphere,
prepares or compresses captured carbon for transport
generates or distributes electrical energy and/or heat energy that solely supports a qualified CCUS project, unless the equipment uses fossil fuels and emits carbon dioxide
is transmission equipment that solely supports a qualified CCUS project
collects, recovers, treats and/or recirculates water that solely supports a qualified CCUS project
is monitoring and control equipment
property that is physically and functionally integrated with the foregoing equipment (exceptions apply)
a building or other structure all or substantially all of which is used, or to be used, for the installation or operation of Eligible CCUS Equipment
is integrated Property or monitoring and control equipment relating to the foregoing
is property that is used solely to convert property into any of the foregoing or refurbish any of the foregoing.
is to be used solely for transportation of captured carbon
to be used solely for using carbon dioxide in industrial production
& others!
Eligibility
Only taxable Canadian corporations can claim.
The credit is for incurred qualifying expenditures for a “qualified CCUS project”.
your project must meet specific labour requirements
Qualified CCUS Projects
Are expected to support carbon capture in Canada for a period that is minimum equal to the total CCUS project review period for the project.
Has a projected eligible use percentage of at least 10% during each of the specified periods.
Has received an initial project evaluation in respect of the project from NR Can
Are not projects that operated to service a unit for which the commissioning date was before April 8, 2022.
Was not undertaken for the purpose of complying with emission standards.
Eligible “CCUS projects” support a “CCUS process” by
capturing carbon dioxide that would otherwise be released into the atmosphere or capturing carbon dioxide from the ambient air (such carbon dioxide is referred to a “captured carbon”);
transporting captured carbon; or
storing or using captured carbon.
Additionally, the project must have a project plan that:
reflects a front-end engineering design study (or equivalent)
contains information required by NR Can
Describes the quantity of captured carbon that the CCUS project is expected to support for storage or use in each calendar year
Is filed with NR Can before the first day of commercial operations.
Important Notes
The Minister of Natural Resources (NR Can) will issue a project evaluation for the project.
The project must be for at least 20 years.
Minimum 10% of captured carbon must be stored or used in an eligible use.
The credit given will depend on the percentage of captured carbon expected to be stored or used in an approved manner.
A knowledge sharing requirement is mandated for large ($250 million) qualified projects.
How to apply?
1. Identify Eligible Projects
Ensure your project supports the capture of carbon dioxide that would otherwise be released into the atmosphere, transport the captured carbon, or store/use it in a beneficial way.
2. Prepare a Project Plan
The plan should describe the expected quantity of captured carbon and its intended use, either for storage or utilization. It must be submitted to the Minister of Natural Resources before commercial operations begin.
3. Determine Qualified Expenditures
Identify and categorize your project’s expenditures. Qualified expenditures include:
Carbon capture equipment
Compression and preparation equipment
Transportation and storage infrastructure
Utilization systems
Ensure these items are used solely for the CCUS process and meet the eligibility criteria.
4. File Your Claim & Reap the Rewards
When you file your annual tax return, include the details of your qualified expenditures and the project plan. If your credit exceeds your tax payable, you will receive a refund, as this is a refundable tax credit.
Additional Considerations
Ensure ongoing compliance with the CCUS project plan and monitor the eligible use percentage. The credit can be subject to recapture if the property is converted to non-CCUS use, exported from Canada, or disposed of within a specific period. Additionally, ensure to stay updated. Legislation and guidelines around CCUS ITC can evolve.
Ready to embrace the opportunity?
The CCUS ITC not only offers substantial financial support but also positions your business as a leader in sustainable practices. By investing in carbon capture, utilization, and storage technologies, you contribute to environmental stewardship while optimizing your cash flow and fostering growth.
