Top tips for Canadian manufacturers on clean technology tax credits and government incentives

Opportunities abound — on the heels of federal and provincial budget announcements — for those looking to retool for the future.

In brief:

• This year’s federal budget’s focus on clean technology offers subsidies to manufacturers planning to transform their operations to be more sustainable, while contributing to a modern Canadian economy for the future.
• Aligned with Canada’s 2030 Emissions Reduction Plan objectives, up to 40% in tax credits will be available to hydrogen, solar and geothermal producers to upgrade systems and help Canada meet its net-zero goals for 2050.
• Ensuring a deep and thorough understanding of incentives offered will allow organizations to take advantage of available support, including the possibility of stacking federal and provincial offerings where relevant.

This year’s federal budget announcement offered significant opportunities for those in the advanced manufacturing and mobility sector, with a concentrated focus on clean technology manufacturing topping the list. With green incentives expected to help the country meet net-zero emissions for 2050, there will clearly be ample opportunities for the electric vehicle or solar panel manufacturers of our world. But what about businesses not central to clean economy plans, or those operating outside of zero-emission technology industries — what’s in it for them?

Organizations thinking this year’s budget incentives don’t apply to them need to think again — especially in the manufacturing sector. While details have yet to be finalized, incentives identified to date have been broad, with something seemingly applicable to most businesses looking to retool for the future.

In addition to provincial perks, like Ontario’s newly released 10% refundable corporate income tax credit available to Canadian-controlled private corporations and designed to create jobs and enhance innovation, these incentives can be just the boost manufacturing businesses need to help them get future-ready, regardless of their size.

For those looking to upgrade technologies or equipment, invest in projects that contribute to a greener economy or help reduce their carbon footprint to meet their own net-zero targets, there’s never been a better time. There’s likely to be some incentive an organization can benefit from, whether investing in buildings, machinery and equipment for use in manufacturing or processing, or for those in the business of extracting minerals critical to clean technologies, directly manufacturing clean technologies or continuing traditional manufacturing operations.

A deeper dive

On budget day, Minister of Finance Chrystia Freeland introduced her “Made in Canada” plan for clean energy, with a goal of inviting investment and reshaping the Canadian supply chain. Newly introduced tax credits are expected to support and advance net-zero efforts and help “build big things,” like opportunities anticipated as part of the Ontario government’s announced $16 billion investment in the electric vehicle sector.

With tax credits ranging from 15% to 40% available to producers of hydrogen, solar and geothermal energy, opportunities will be far reaching — and not just for the manufacturers, but for those that support them. As a natural resource-rich country, Canada is well positioned to be a reliable supplier of the key materials and minerals needed to support clean technologies like electric vehicles — including lithium, cobalt, nickel, graphite, copper and rare earth elements.

There will be ample opportunity not only for organizations mining and processing these materials, but also for businesses serving those industries producing clean electricity — from wind, solar and hydro to wave, tidal and even nuclear, which has been added to the mix for 2023. And for those adopting clean technologies as part of their strategy to reduce emissions — including traditionally heavy polluters — incentives like the federal government’s 30% refundable investment tax credit (ITC) on property investments for clean technologies can help manufacturers get or stay in the game.

And whether a company manufactures zero-emission equipment, components and storage, recycling-related products or converting equipment — just some of the applicable uses for the ITC — that game is about to get much, much bigger.

The future is now

The following three considerations are a good start to help leaders identify every opportunity to capitalize on this year’s incentives to add value to their organizations, today and down the road.

1.      It’s time to act. If you've been reluctant to invest in clean initiatives and technologies like geothermal, solar, wind, water, clean hydrogen or battery storage because technology costs have been prohibitive, now’s the time to act. These incentives will not only increase the return on investment now and in the future but will increase cash flow for your business.  

2.      Know before hitting go. When making investments, it's important to understand what’s available for your business, and which incentive is right for you. Federal and provincial budgets include several proposed incentives, including discretionary grants, loans and tax credits, with factors to consider prior to investing, like timing, approval of purchases, the refundable nature of incentives and which ones can be combined to move you closer to your goals. Planning ahead can allow for documentation alignment, while coordinating with project management and budgeting teams to fully optimize incentives available to you.  

3.      Make the most of assets. Tax positioning of assets can help optimize incentives. Most of the proposed incentives are equipment or capital based and rely on costs being allocated to the appropriate capital cost allowance class for depreciation purposes. A detailed review of costs, through cost segregation, can optimize the benefits available.     

From clean technology adoption, electricity, hydrogen and manufacturing Investment ITCs available nationally, to additional incentives rolling out provincially, there is much to consider. This includes eligibility, timing and, in some cases, which incentives can be doubled up to get the greatest bang for the buck. A good example is the clean hydrogen ITC, for example, which can be claimed in addition to the Atlantic ITC.

Be sure to sign up for EY Tax Alerts, which provide the latest updates, so you don’t miss out. Contact us to learn more about our Advanced Manufacturing and Mobility practice, and how we can help with similar initiatives in the coming year and down the road.