There appears to be much to be excited about as far as cleantech initiatives go following the release of last week’s federal budget. But there is also a multitude of questions that still need to be answered, particularly when it comes to how best, and how quickly, companies will be able to collect the billions of dollars in tax credits.
That issue formed the cornerstone of Part Two of a webinar on tax credits held on Monday that was hosted by CleanTech North and moderated by Bryan Watson, its managing director. He was joined by Jigna Shah, a partner at Deloitte Canada’s global investment and innovation incentives practice, Jonathan Garbutt, a barrister and solicitor with Dominion Tax Law, and Lynn Cote, national cleantech lead at Export Development Canada.
As far as positives go, Watson, who is also a senior vice president of business development for Venbridge, a financial services company that specializes in the financing of filed accrued tax credits, said the fact cleantech dominated much of the discussion by both politicians and outside organizations alike is a definite win.
In an interview with IT World Canada prior to the webinar, he said a review of past federal budgets revealed that the first time the word ‘cleantech’ was mentioned occurred in the 2017 edition.
“From going from one to two mentions of the word to being the central focus of the budget, that’s a hell of a mountain moved. There are definite positives in the 2023 budget and a lot (the federal government) should be applauded for.”
The down side, he said, revolves around two key issues: how quickly will tax credits be available, and what companies will qualify for such subsidies.
“If you were gently listening to the budget last week and you are still scratching your head, don’t worry, you are in very good company,” said Cote. “A lot of people are trying to figure out what does it all mean. As usual, the devil will be in the details.”
Despite the lack of detailed information on tax credits and how they will work, Shah said that “no matter what stage of the business you are in and what you are doing – whether you are the one actually manufacturing the clean tech or implementing and using it – there will be a cleantech credit that you can take advantage of.”
A grey area for Watson that still needs to be clarified involves software and hardware elements within a cleantech offering, and whether they would qualify for a similar type of subsidy.
An example of that would be the use of artificial intelligence (AI) that manages the fuel consumption and load balancing to restrict or eliminate the use of excess fuel in a railway system. “That type of a software-based cleantech company doesn’t figure anywhere in (the budget) as far as we can tell,” he said.
Even if an AI company qualifies, it has still not been determined what or how many government agencies will oversee the release of said tax credit.
According to a release issued today by Steven Guilbeault, federal minister of environment and climate change, there has “never been a more impactful budget in the history of Canada to fight climate change and create a clean, electrified economy.
“This budget outlined over $80 billion in new measures to fight climate change, starting with five major new tax credits to accelerate clean tech in Canada. This brings the total of everything we are doing to fight climate change to $200 billion. The investments in the new and expanded Clean Tax Credits we are proposing in Budget 2023 will help create middle-class jobs and long-term economic growth while contributing to building the net-zero industries of tomorrow.”
The five credits, which will total $60 billion over the next 10 years, are as follows: Clean Electricity Investment Tax Credit, Clean Technology Manufacturing Tax Credit, Clean Hydrogen Investment Tax Credit, Carbon Capture, Utilization, and Storage Investment Tax Credit and the Clean Technology Investment Tax Credit.
The problem, noted Garbutt, is that the budget “does not allocate any additional funds to the Canada Revenue Agency, or Natural Resources Canada (NRCan), or any other organization to run this mega program.
“The CRA has no further or additional funding to develop any new programs to be able to implement these tax credits,” he said. “Therefore, the only thing they’re going to be able to do, because they have no additional money, is piggyback on their existing programs.
“That means that for the taxable entities, these credits will be delivered through the Income Tax Act, they’ll be delivered through the income tax system, which means you’ll have to file a tax return, your tax return for corporate entities is six months after the end of the fiscal year in which you made the investment. So that’s six months out.
“And then you have to file and claim these tax credits back. And that will take three to four months in the ordinary course. This is not necessarily money that’s coming up front.”
Garbutt added that despite these and other shortcomings, “the last thing that we want is for the Government of Canada to say that they’re going to develop a new software program, because we all know how that went.”
Watson, meanwhile, said his hope is to organize a third webinar in which “we can have somebody from CRA and somebody from NRCan here with some of those details, because I think everybody would really like to hear, from the source, how this is going to roll out.”