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2023 Federal Budget Proposes “Clean Technology Investment Tax Credit”

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Automotive Bulletin

On March 28, 2023, the federal government tabled the 2023 budget (“Budget 2023”), proposing “transformative investments to build Canada’s clean economy.”

Of particular importance to the automotive sector, Budget 2023 proposes a “Clean Technology Investment Tax Credit” equal to 30% of the capital cost of certain depreciable property used to manufacture or process clean technologies, including:

  • the manufacturing of zero-emission vehicles, including conversions of on-road vehicles;
  • the manufacturing of batteries, fuel cells, recharging systems, and hydrogen refuelling stations for zero-emission vehicles; and
  • manufacturing or processing of upstream components, sub-assemblies, and materials, provided that the output would be purpose-built or designed exclusively to be integral to other eligible clean technology manufacturing and processing activities, such as anode and cathode materials used for electric vehicle batteries.

The investment tax credit is expected to cost $4.5 billion over five years, starting in 2023-24, and an additional $6.6 billion from 2028-29 to 2034-35.

Budget 2023 also proposes to extend the availability of reduced tax rates for zero-emission technology manufacturers, as introduced in the 2021 federal budget, for another three years — with phase-outs proposed to now start in 2032. Similarly, Budget 2023 proposes to modify the phase-out of the Clean Technology Investment Tax Credit, for which certain non-road zero-emission vehicles and related equipment would be eligible, such that it would begin in 2034.

Budget 2023 comes in the wake of the United States’ Inflation Reduction Act, signed into law in August 2022. Representing an estimated US $369 billion in clean growth incentives, it is “the most significant action Congress has taken on clean energy and climate change in [America’s] history.”

When introducing Budget 2023, Canada’s Deputy Prime Minister and Minister of Finance stated that Canada was navigating “fundamental shifts in the global economy,” including efforts by “our friends and partners around the world — chief among them, the United States — [to invest] heavily to build clean economies and the net-zero industries of tomorrow.

Budget 2023 makes this point more starkly, referring to Canada’s role in “the accelerating global race to build net-zero economies,” and stating “[W]e will not be left behind.”

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