In April 2021, Canadian Deputy Prime Minister and Federal Finance Minister, Chrystia Freeland, delivered the Federal Budget 2021 – 2022 (Budget 2021): A Recovery Plan for Jobs, Growth, and Resilience.
It was the first federal budget for more than two years. It contained some announcements that could affect taxation in the Canadian project finance sector. The main ones introduced a new earnings-stripping rule, changes to capital cost allowances, and a new investment tax credit.
In this blog we discuss a change to capital cost allowances and the availability of a new investment tax credit that might be relevant to some projects.
Change to Capital Cost Allowances (CCAs)
Clean Energy Equipment
Expansion
The Budget proposed to expand classes 43.1 and 43.2 of the CCA regime to include certain properties such as:
- pumped hydroelectrical storage equipment;
- electricity-generating equipment that uses physical barriers or dam-like structures to harness kinetic energy of flowing water or wave or tidal energy;
- solar and geothermal energy systems; and
- equipment used to produce solid and liquid fuels from specific waste material or carbon dioxide.
Timing
The expansion applies to property that is acquired and becomes available for use after 18 April 2021, where it has not been used or acquired for any purpose before.
Restriction
The Budget also proposed removing or restricting the eligibility of some properties from classes 43.1 and 43.2 for certain fossil fuel and waste fuel equipment. The removal or restriction applies in respect of property that becomes available for use after 2024.
Investment Tax Credit
New Tax Credit
Budget 2021 proposed the introduction of an investment tax credit to support the adoption of carbon capture, utilisation and storage technologies. It is not intended to be applicable to enhanced oil recovery projects.
The credit is also intended to support production of green hydrogen.
Timing
A consultation period with stakeholders on the design of the investment tax credit has commenced and will end on 07 September 2021.
Following this, further details will be given such as the rate of the investment tax credit
The credit is intended to come into effect in 2022.
Impact on the project finance sector
The proposed expansion of certain capital cost allowance classes and introduction of the investment tax credit is likely to be a benefit to a number of transactions where expenditure is incurred in the relevant time period.
Using our world class modelling team along with our tax and accounting team’s knowledge of the proposed changes, we can help you assess the impact of these changes on transactions and ensure that your financial models are optimised to reflect the maximum benefit from any enhanced allowances and tax credits available.
Get in touch with our Tax & Accounting team to discuss how these changes might impact your transactions.
