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Canada’s Clean Technology Investment Tax Credit (Overview)

Image showing two colleagues discussing data working and tablet, laptop with on Construction Site project, green energy and solar panel concept.
Two colleagues discussing data working and tablet, laptop with on Construction Site project, green energy and solar panel concept.

Table of Contents

Intro

The Clean Technology Investment Tax Credit (CT ITC) is a refundable credit designed to reward businesses that invest in eligible clean tech equipment, from solar panels and heat pumps to zero-emission vehicles and energy storage systems. In this blog, we’ll break down how the credit works, who qualifies, the labour requirements (prevailing wage and apprenticeship), penalties, and best practices.

What is the CT ITC?

The CT ITC is a refundable tax credit for investments in new clean technology (CT) property in Canada. These properties can include the construction of:

  • equipment to generate electricity from solar, wind, and water energy,
  • stationary electricity storage equipment that does not use any fossil fuel in operation,
  • EV charging equipment,
  • and more (see the list of the other property types)

What are the Labour Requirements?

The Labour Requirements include 1) the Prevailing Wage Requirements and 2) the Apprenticeship Requirements. Each of these two requirements have their own segments that work toward compliance (see Canada Labour Standard Regulations (C.R.C., c. 986) and Clean Economy Tax Credits: Labour Requirements, as updated by Bill C-59). The segments under the Prevailing Wage Requirements include:

  • Paying Prevailing Wages and
  • Proper Recordkeeping

The segments under the Apprenticeship Requirements include:

  • Apprentice Workforce Target Percentage
  • Proof of a Reasonable Effort
  • Proper Recordkeeping

Prevailing Wage Requirements – Paying Prevailing Wages

All contractors are expected to pay workers for their work on the preparation or installation. Contractors should note that if they’re bringing in subcontractors or tiered contractors, these parties will have to be informed of their responsibility to pay prevailing wages. Prevailing wages are set by an eligible collective agreement (ECA) that applies to the covered workers.

A “covered worker” is one that meets the following. They are a worker:

  • Who is performing under the preparation or installation of a clean technology property,
  • Whose work duties are primarily manual or physical in nature, and
  • Who is not an administrative, clerical or executive employee, or a business visitor to Canada (within the meaning of section 187 of the Immigration and Refugee Protection Regulations)

An eligible collective agreement (ECA) is:

  • The most recent multi-employer collective bargaining agreement negotiated with a trade union that is an affiliate of Canada’s Building Trades Unions (CBTU) for a given trade in a region or province.
  • A project labour agreement established with a trade union in accordance with applicable provincial law that covers the work associated with the investments eligible for specified tax credits. It includes the wages and benefits for covered workers in a given trade that are at least equal to the regular wages (without taking into account overtime) and benefits provided. This is pulled from the most recent multi-employer collective bargaining agreement negotiated with a trade union that is an affiliate of the CBTU that would have applied had the project labour agreement not been in place.

If the covered workers you are using do not have an available eligible collective agreement, then the prevailing wage requirements are met if the covered workers are compensated in an amount at least equal to the amount of wages (without taking into account overtime) and benefits (vacation, pension, health, and welfare) required to be provided for employees under an ECA that most closely aligns with the covered worker’s scope of work and location.

The collective agreements can be accessed through sources like the Canada’s Building Trades Unions website, or directly from trade unions that are affiliates of the CBTU.

The CBTU site provides a portal that allows you to access collective agreements. First, you’ll navigate to the site, click on “Get Access Now”, register or log in, and locate the collective agreements from there.

Contractors are required to communicate to their employees that prevailing wages are in effect for the project, and they must also provide direction for how employees can report to the CRA (Canada Revenue Agency) any failures to pay prevailing wages.

Prevailing Wage Requirements – Proper Recordkeeping

To verify that contractors are properly paying prevailing wages for this project, contractors are being instructed to maintain payroll records for all covered workers, alongside the ECA or project labour agreement used to determine applicable wage rates. The ECA that is used must have some kind of basis for why it was chosen. When documenting the ECA used, it is important to note:

  • The name(s) of the ECAs obtained
  • The list of ECAs that were used to determine compensation, including regular wages and benefits
  • Reasoning why certain agreements and/or wage schedules within those agreements were or were not used
  • The ECA is active and not expired

Contractors must also note:

  • The efforts made to ensure sub-contractors were aware of the requirements.
  • The efforts made to ensure sub-contractors conveyed the labour requirements to any tiered contractors.
  • Whether a project labour agreement that covers the work associated with the ITC was signed.
  • How the information was communicated to covered workers.
  • If projects were under construction prior to November 28, 2023, that a review was made to verify that prevailing wage requirements were met starting from November 28, 2023.

Apprenticeship Requirements – Apprentice Workforce Target Percentage

The apprenticeship requirement notes 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. A Red Seal worker is a skilled tradesperson who has received certification, so an apprentice would be one undergoing the process of training to receive certification.

The 10% labour hours percentage threshold must be met or surpassed across the cumulative hours by all covered work on the project. A lower percentage may be applicable if there is a law or collective agreement that restricts the percentage of apprentices below 10%. For the lower percentage exemption, you must make efforts to come as close as possible to meeting the 10% without breaking the other applicable rules.

For example,

  • An employer required 11 electricians to complete an installation. Under an applicable collective agreement, at the most, there can only be 1 apprentice for every 10 journeypersons on site.
  • If they all work the same number of hours per day, then the highest possible percentage of hours performed by apprentices would be 9%.
  • The employer would still be compliant with the apprenticeship requirements because it is required by the collective agreement.

Contractors must also abide by any applicable apprentice supervision requirement under their union agreement. At minimum, a daily 1:1 ratio of journeymen to apprentices should be practiced if not otherwise indicated by a union agreement to prevent potential unsupervised apprentice violations.

Apprenticeship Requirements – Proof of a Reasonable Effort

The basis of the apprenticeship requirement is that a “reasonable effort” is made to meet or exceed the 10% threshold. In the event that the 10% is not met, a contractor must have proof that they demonstrated attempts to meet the percentage requirement. Under this “deeming rule” the following are required to be met at least every 4 months:

  • Advertise
    • Post a bona fide job advertisement, seeking sufficient apprentices to perform those hours of labour at the designated work site.
    • The advertisement must include a commitment to facilitate participation of apprentices in a Red Seal trade program, and a statement that the job opportunity is open to both existing employees and new hires.
    • This job advertisement must be open and readily accessible on the Job Bank website of the Government of Canada and at least 2 other websites either on a continuous basis throughout the year or for at least 30 days from the time of posting.
  • Communicate
    • Communicate with a trade union and at least one secondary school or post-secondary educational institution for the purpose of facilitating the hiring of the apprentice positions described in the job advertisement.
    • If the designated work site is outside of Quebec, the trade union must be an affiliate of Canada’s Building Trades Unions (CBTU).
    • If the designated work site is in Quebec, the trade union must be recognized under applicable provincial law.
  • Confirm
    • Receive a confirmation in writing from the trade union that the trade union has provided as many apprentices as reasonably possible for work at the designated work site during the installation year, unless the trade union fails to respond within 5 business days of a request.
  • Consider
    • Review and duly consider all applicants received in response to the advertisement for apprenticeship opportunities that are offered directly by you, and take reasonable steps to ensure that other applicants are reviewed and duly considered.

If the percentage requirement is not met, and there is no valid proof of a reasonable effort made to acquire apprentices, then the contractor may be deemed non-compliant with the apprenticeship requirements.

Penalties

If you fail to meet the prevailing wage and apprenticeship requirements after electing into them, you may face an addition to tax for prevailing wages not paid, addition to tax for apprenticeship hours not met, and a gross negligence penalty.

Prevailing Wage Penalty

  1. Daily Penalty for Underpayment

If a covered worker was not paid the prevailing wage during the installation taxation year, you will be subject to a daily penalty of $20 per affected worker per day, unless gross negligence is determined.

This rate applies for 2023 and will be adjusted annually for inflation starting in 2024.

  • Corrective Measure: Top-Up Amount

You may also be required to pay a top-up amount to each affected worker, as determined in a notification from the Minister. This top-up represents the difference between:

  • The prevailing wage that should have been paid, and
  • The actual wage paid during the year plus interest

You have one year from the date you receive the notification to pay this amount in full. Failure to pay this amount in the time due results in a penalty of 120% of the top-up amount determined for each covered worker.

If you have not been grossly negligent, you will still be able to claim the ITC at the regular credit rate, even if the above addition to tax provisions for prevailing wage apply.

Apprenticeship Penalty

  1. Penalty for Apprenticeship Hour Shortfalls

If you do not meet the required number of apprentice labour hours in Red Seal trades, you will be liable to pay a dollar amount multiplied by the difference between the total hours of labour that were required to be performed by apprentices registered in a Red Seal trade, and the total hours of labour that were actually performed by apprentices registered in Red Seal trades, plus any other hours of labour for which you met the apprenticeship requirements.

For example, the 2023 dollar amount is $50.

  • $50 (2023 rate) × (Required apprentice hours − Actual apprentice hours performed by registered Red Seal apprentices)
  • Minus any additional hours that exceeded the required threshold (if applicable)

The $50 base amount will be adjusted annually for inflation starting in 2024.

Sample Calculation:

Required apprentice hours: 1,000

Actual apprentice hours: 800

Shortfall: 200 hours

Penalty: 200 × $50 = $10,000 (adjusted if after 2023)

If you have not been grossly negligent, you will still be able to claim the ITC at the regular credit rate, even if the above addition to tax provisions for prevailing wage apply.

Gross Negligence Penalty

If you intentionally fail to meet the prevailing wage or apprenticeship requirements, or if your failure occurs under circumstances amounting to gross negligence, the following consequences apply:

Disqualification from Full Credit

  • You will be disentitled to the regular tax credit rate.
  • You may claim only the reduced credit rate, even if you initially elected to meet the labour requirements.

50% Penalty on Credit Overclaim

  • You must pay a penalty equal to 50% of the difference between the amount of CT ITC claimed at the regular rate, and the amount you would have been entitled to under the reduced rate.

If gross negligence is determined, you will not be subject to the usual daily penalties, top-up payments, or apprenticeship hour shortfall taxes. Additionally, the 50% penalty and reduced rate are your only consequences under tax law in this case.

Getting Support

Verifying that all requirements are met is essential to avoid credit reductions and costly penalties. We understand that gathering comprehensive documentation across every facet of your project can be overwhelming. That’s where Alliant steps in.

Our team takes the weight off your shoulders by embedding our advanced technology and tailored solutions directly into your workflow. We help you stay ahead of compliance challenges through proactive monitoring and hands-on support.

Whether you need training, on-demand consulting, or full-scale oversight from inception to completion, Alliant delivers end-to-end guidance exactly where you need it most. If you have any questions, feel free to contact us.