Canadians are becoming increasingly invested in the sustainability and ethical impact of business operations; and corporate stakeholders are looking for more transparency on how companies manage and integrate ESG risks and opportunities into their business strategy. Consequently, incorporating sustainable business practices that account for ESG factors has become a key focus for many Canadian organizations.
Environmental, social and corporate governance factors play an important role
in a company’s ability to create value.
Luckily for Canadian businesses, there are a growing number of tax and incentive programs that support the creation of ethical and sustainable business practices.
The Government of Canada has been clear in its intention to transition to a greener economy, and has set an GHG emissions reduction target of 40% below 2005 levels by 2030, and net-zero by 2050. The Canadian Net-Zero Emissions Accountability Act—which became law on June 29, 2022—legislates the commitment to achieving these goals.
The Canadian Government has also recognized the need to do more to help Canadian businesses accelerate decarbonization, and have announced numerous tax incentives over the past few years that are aimed at achieving this. In fact, there are almost 150 green incentives and programs available in Canada.
Many of these initiatives and programs target specific sectors, including:
- Manufacturing
Canadian manufacturers benefit from a number of programs aimed at adopting clean technologies, automating, and increasing energy efficiency.
- Mining
Canadian mining companies are offered significant incentives to reduce emissions. The recent Federal Budget also included a 30% tax credit to support the exploration of specific minerals used to produce parts for zero-emission vehicles, clean technology, and semiconductors.
- Transportation and logistics
A number of incentive programs have been announced to help vehicle fleet owners and the transportation industry transition to electric alternatives—including a new purchase incentive program for medium- and heavy-duty zero-emission vehicles for businesses.
Budget 2023: Clean Energy Incentives
The 2023 Federal Budget announced on March 28, 2023 provided details on some new and previously proposed clean energy tax credits, such as:
The Clean Hydrogen Investment Tax Credit
The Clean Hydrogen Investment Tax Credit (CH Credit) is a refundable tax credit intended to help offset the cost of purchasing and installing “eligible equipment” for qualifying projects that produce hydrogen through electrolysis or natural gas.
The Clean Technology Investment Tax Credit
First announced in 2022, the Clean Technology Investment Tax Credit (CT Credit) is a refundable tax credit equal to 30% of the cost of eligible electricity generation systems, stationary electricity storage systems, low-carbon heat equipment, and industrial zero-emission vehicles and related charging or refueling equipment.
The Clean Electricity Investment Tax Credit
The Clean Electricity Investment Tax Credit (CE Credit) is a refundable 15% tax credit for eligible investments in non-emitting electricity generation systems, abating natural gas-fired electricity generation, stationary electricity storage systems that do not use fossil fuels in operation, and equipment for the transmission of electricity between provinces and territories.
The Investment Tax Credit for Clean Technology Manufacturing
The Investment Tax Credit for Clean Technology Manufacturing (CTM&P Credit) is a 30% refundable investment tax credit aimed at equipment used for the manufacturing and processing of clean technology (such as solar, wind, water, geothermal and nuclear) including the manufacturing of zero-emission vehicles and batteries, fuel cells, recharging systems, and hydrogen refuelling stations for zero-emission vehicles. The credit also applies to the extraction and certain processing activities related to lithium, cobalt, nickel, graphite, copper, and rare earth elements.
The Investment Tax Credit for Carbon Capture, Utilization, and Storage
The Investment Tax Credit for Carbon Capture, Utilization, and Storage (CCUS Credit) was first introduced in the 2022 Federal Budget and proposes a 60% tax credit for investment in equipment to capture CO2 in direct air capture projects, a 50% tax credit for investment in equipment to capture CO2 in all other CCUS projects, and a 37.5% tax credit for investment in equipment for transportation, storage, and use.
Zero-Emission Vehicle Incentives
The Government of Canada offers point-of-sale incentives for individual Canadians to buy or lease a zero-emission vehicle (ZEV). Battery-electric, hydrogen fuel cell, and longer-range plug-in hybrid vehicles are eligible for up to a $5,000 rebate, and shorter-range plug-in hybrid electric vehicles are eligible for up to $2,500.
Sole proprietors and incorporated business owners can also claim enhanced Capital Cost Allowance (CCA) limits up to $55,000 for ZEVs used for business:
- 100% after March 18, 2019 and before 2024,
- 75% after 2023 and before 2026, and
- 55% after 2025 and before 2028.
The Role of the CPA
Even with the numerous tax incentives and programs provided and proposed by the Canadian government, realizing ESG and climate change goals is still a major undertaking for Canadian businesses. CPAs are well positioned to play an important role in helping organizations address many of the related risks, challenges, and opportunities associated with sustainable business practices.
In addition to ensuring that all reporting is accurate, transparent, and fully accounts for ESG factors; CPAs can also apply their business acumen, and skills in data analysis and risk assessment, to design internal systems and controls that better integrate ESG issues into a company’s financial and strategic decision-making processes.
The above content has been modified from an S+C Partners article written for and published in the Summer 2023 Edition of TGS Experience Magazine. S+C Partners is proud to be an independent member of TGS, an international network of professional business advisors.
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