Canada’s CT ITC is a refundable tax credit introduced by the Canadian government to encourage investment in clean technology.
It applies to eligible equipment acquired and made available for use between March 28, 2023, and December 31, 2034.
Eligible property includes:
– Equipment used to generate electricity from solar, wind and water energy
– Stationary electricity storage equipment that does not use any fossil fuel in operation (such as batteries and pumped hydroelectric storage)
– Active solar heating equipment, air-source heat pumps and ground-source heat pumps
– Non-road zero-emission vehicles and related charging and refueling equipment that is used primarily for such vehicles
– Equipment used exclusively for the purpose of generating electrical energy or heat energy (or a combination of both), solely from geothermal energy, unless it is part of a system that extracts fossil fuels for sale
– Concentrated solar energy equipment
– Small modular nuclear reactors
Credit rates are separated by date ranges of the tech property’s availability and whether you choose to elect into the labour requirements and meet them.
Date the clean technology property becomes available for use:
From March 28, 2023 to December 31, 2033
– Rate if Elected into Requirements: 30%
– Rate if not Elected into Requirements: 20%
From January 1, 2034 to December 31, 2034
– Rate if Elected into Requirements: 15%
– Rate if not Elected into Requirements: 5%
To claim credits under the CT ITC, you must be:
– A taxable Canadian corporation of any size, from small businesses to large enterprises. Corporations can claim the credit directly or as members of a partnership.
OR
– A mutual trust fund that is a real estate investment trust (REITs). REITs can claim the credit directly or as members of a partnership.
The labour requirements under the CT ITC include the prevailing wage and apprenticeship requirements. Under these requirements, covered workers must be paid prevailing wages. Additionally, apprentices in Red Seal trades must perform at least 10% of the project’s total labour hours.
The labour requirements under Canada’s Clean Technology Investment Tax Credit (CT ITC) apply to work performed on or after November 28, 2023. This work excludes clean economy ITC claimed for the acquisition of off-road zero emission vehicles, or the acquisition and installation of low carbon heat equipment.
The responsibility for meeting prevailing wage requirements falls on the taxpayer claiming the credit; typically a taxable Canadian corporation or a qualifying partner in a partnership. Claimants that delegate work to contractors or subcontractors may still face liability for non-compliance if said contractors don’t meet the requirements.
To meet the prevailing wage requirements, claimants must:
– Pay covered workers their rate owed corresponding with an eligible collective agreement.
– Communicate to employees that prevailing wage requirements are active in a manner that is easily visible and accessile by covered workers. This notice must also be in plain, understandable language and formatting.
Covered workers include employees of the claimant or a contractor or subcontractor under the claimant whose work is:
– In the preparation or installation of specified property at a designated work site and,
– Manual or physical in nature
Covered workers exclude administrative, clerical or executive employee and business visitors.
Eligible collective agreements are used to determine the prevailing wage rates under the CT ITC. These include:
Multi-Employer Collective Bargaining Agreements
The most recent agreement negotiated between a trade union affiliated with Canada’s Building Trades Unions (CBTU), and employers across a region or province. The agreement must apply to the specific trade and geographic area where the clean technology work is being performed.
Project Labour Agreement (PLA)
A PLA established with a trade union in accordance with applicable provincial laws. This PLA must cover the work associated with the eligible clean technology investment, provides wages and benefits to covered workers in the relevant trade that are at least equal to those in the most recent CBTU-affiliated multi-employer agreement (excluding overtime), and serve as a substitute for the multi-employer agreement, had it not been in place.
Elligible collective agreements for Quebec are defined as a collective agreement negotiated in accordance with applicable provincial law.
To meet the apprenticeship requirements, claimants must:
– Demonstrate reasonable efforts to ensure apprentices registered in a Red Seal trade work at least 10% of total labour hours worked during the year
– Red Seal workers must have performed at the designated work site of the claimant on the preparation or installation of specific property
“Claimants are deemed to have exerted reasonable efforts if, at least every 4 months, the claimant completes all of the following:
1. Advertise
Post a genuine job ad seeking enough Red Seal apprentices to meet the required labour hours at the designated worksite. The ad must include a commitment to support Red Seal trade apprenticeships and state it’s open to both current employees and new hires.
The posting must appear on the Government of Canada Job Bank, and on at least two other websites.
The job ad must stay posted either continuously throughout the year or at least for 30 consecutive days.
2. 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.
3. 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.
4. 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 you fail to meet the prevailing wage and apprenticeship requirements after electing into them, you may face an addtion 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.
2. 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.