Following Canada’s announcement of its 2030 Emissions Reduction Plan on March 29, 2022, for achieving a net-zero economy by 2050, the Budget establishes a refundable investment tax credit for Carbon Capture, Utilization and Storage beginning in 2022.
The CCUS Tax Credit incentivizes the expansion of CCUS technologies to reduce emissions in high-emitting sectors.
Eligible equipment must be used solely to capture, transport, store or use CO2 in Canada and be part of an “eligible CCUS project.” An eligible project captures CO2 either directly from, or before release to the atmosphere, which must then compress, transport and use the captured CO2 for an “eligible use.” Projects that reduce emissions to achieve legislative compliance, such as the Regulations Limiting Carbon Dioxide Emissions from Natural Gas-fired Generation of Electricity, are not considered as eligible CCUS projects.
For storage in concrete, the process must have federal approval and must demonstrate that at least 60 percent of the CO2 is mineralized and locked into the concrete.
Notably, use of CO2 for enhanced oil recovery is not an eligible use and puts Canada at a competitive disadvantage with the United States .
Further, the Budget outlines four new capital cost allowance classes that will be enacted in combination with the CCUS Tax Credit.
The CCUS Tax Credit can be claimed in the taxation year that the cost for the eligible equipment is incurred even if that is prior to the eligible equipment being available for use .
We would also note that the CCUS Tax Credit has certain transferability restrictions—namely, that a subsequent purchaser of eligible equipment cannot claim the CCUS Tax Credit if the credit has already been claimed by a previous owner.
Projects expected to have eligible expenses exceeding $100 million over the project lifecycle will require an initial project tax assessment to identify the expenses eligible for the CCUS Tax Credit based on the proposed project’s design.
However, the CCUS Tax Credit represents a significant opportunity for high-emitting businesses that have limited technologies to implement for meeting annually increasing federal emissions standards, such as in the oil and gas sector.
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