Canada's Clean Economy Investment Tax Credits: Key Updates And Practical Insights

On November 27, 2025, our firm hosted an Energy Innovators Roundtable titled "Powering up Canadian clean investment: Canada's investment tax credits are here." The panel brought together leading voices in tax and energy, including Paul Carenza (Partner, Gowling WLG), Laura Gheorghiu (Partner & Practice Group Leader, Tax, Gowling WLG), Thomas J. Timmins (Partner & Leader, Energy Practice Group, Gowling WLG), Etienne Lecompte (Managing Director, LCAB), and Martha Breithaupt (Partner, Credits & Incentives, BDO). The discussion focused on Canada's five main clean economy investment tax credits (ITCs), with emphasis on their practical application, compliance with labour requirements, documentation, and project structuring.

This article also summarizes insights from the Canadian Tax Foundation's Annual Tax Conference in Calgary (November 30 – December 2, 2025), where officials from the Department of Finance, the Canada Revenue Agency (CRA), and Natural Resources Canada (NRCan) provided updates on administration and policy direction for the clean economy ITCs.

Highlights from the Energy Innovators Roundtable

Success with the clean economy ITCs depends on meticulous planning, contemporaneous documentation, and a fit-for-purpose legal structure from the outset. Several themes emerged:

• Rigorous audit: Because these ITCs are fully refundable and claimants may be foreign-owned, the CRA has been auditing 100% of claims. One-third of all claims filed as of January 2025 have been denied for issues like ineligible property, wrong credit selection, inadequate documentation, or other non‑compliance. Claimants are typically given only 10 days to respond to audit queries, underscoring the need to be "audit‑ready" at filing with organized, contemporaneous support.
• Strict labour requirements: Four of the five ITCs are subject to prescribed labour requirements. Correct wage rates must apply to every covered worker, including those on site for only one day. Detailed tracking and early, consistent documentation are essential to substantiate compliance during audit.
• Structure dictates success: The legal structure of a project has profound implications for accessing the ITCs. A taxable Canadian corporation often provides a cleaner path than a limited partnership, where these ITCs may not be fully accessible due to the at-risk amounts of limited partners or the presence of non‑taxable partners (such as Indigenous entities). Early structuring and tax planning are critical to preserve and maximize credit value.
• Slow uptake and underutilization: These ITCs are significantly underutilized, with the government disbursing far less than the budgeted $10 billion per year.
• Canadian content: Budget 2025 signalled the launch of a new Buy Canadian Policy which includes a Canadian content "requirement." It remains unclear how this might affect the clean economy ITC regime. A bonus credit for Canadian content layered on top of the base ITCs could be a welcome addition.
• Canada Infrastructure Bank and Canada Growth Fund: The proposed exception allowing Canada Infrastructure Bank and Canada Growth Fund financings to be included in capital cost calculations for the Clean Electricity ITC is a welcome development that could materially enhance project economics. First, it enables claimants to recover associated costs upfront, rather than under the standard rules where recovery is deferred until the financing is repaid. Second, it provides added certainty for these financing arrangements, especially given the CRA's past reluctance to rule on limited partnership financings involving the at-risk rules in tax shelter contexts.

Key takeaways from the Canadian Tax Foundation Conference

Speakers highlighted robust growth prospects for Canada's clean energy sectors and reaffirmed continued policy commitment. From a macro perspective, demand growth remains strong. Jackie Forrest, Executive Director at ARC Energy Research Institute, underscored the significant growth potential across clean energy sectors needed to meet future demand. Trevor McGowan, Associate Assistant Deputy Minister (Legislation), Tax Policy Branch, Department of Finance, confirmed that the clean economy ITCs remain part of the government's strategy for the Canadian economy going forward.

On administration, the CRA and NRCan representatives reported meaningful progress since last year and shared practical data. Four ITCs are currently accessible, with the Clean Technology ITC and the Carbon Capture, Utilization, and Storage (CCUS) ITC showing the strongest uptake. Claims have been filed across provinces and regions, including 337 from Ontario (approximately $431.9 million), 182 from Quebec (approximately $37.7 million), 170 from Alberta (approximately $486.9 million), and 71 from British Columbia (approximately $45.9 million). Eighteen projects have been submitted for clean hydrogen and CCUS ITCs, representing about $8.6 billion in total capitalization.

Outcomes to date suggest substantial room for improvement, particularly with careful planning and expert support. One-third of claims are accepted as filed, one-third accepted with adjustments, and one-third denied, largely due to legislative non-compliance. Six common issues were identified: ineligible property, "not available for use" timing issues (a frequent basis for adjustments), inadequate supporting documentation, personal use (for example, personal EVs), government assistance received and not accounted for, and non-compliance with labour requirements.

CRA and NRCan representatives emphasized the importance of well-organized, complete submissions, careful adherence to technical guidance, and strict compliance with labour requirements. They recommended early involvement of legal advisors, particularly for partnership structures where allocation mechanics and partner status can materially affect credit availability.

NRCan, as the technical authority, works closely with the CRA and expects to release new technical guidance for the Clean Technology ITC in the coming weeks or months.

CRA Roundtable: Labour attestations and penalties

At the CRA Roundtable, the CRA noted that a claimant attesting to meeting labour requirements for the clean economy ITCs without taking reasonable steps to verify contractor compliance could trigger the gross negligence penalty under subsection 127.46(9) of the Income Tax Act (Canada). This underscores the imperative of robust contractor diligence and documentation protocols across the project lifecycle.

Looking ahead

Canada's clean economy ITCs remain central to the country's industrial and climate strategy. Realizing their full value, however, requires disciplined planning, precise documentation, and legal structures aligned to the legislative framework.

For more detail on the major clean economy ITCs as previously announced, please see our bulletins for Budget 2022, Budget 2023, Fall Economic Statement 2023, Budget 2024, and Budget 2025, as well as our summary tables for the four ITCs enacted in Bill C‑59 and Bill C‑69.

Read the original article on GowlingWLG.com

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.