Released on March 28, Budget 2023—A Made-in-Canada Plan: Strong Middle Class, Affordable Economy, Healthy Future has proposed several investments in tax credits and funding to grow Canada’s clean economy and strengthen the innovation ecosystem. Priorities listed in the plan for a clean economy include electrification, clean energy, clean manufacturing, critical minerals, emissions reduction, and electrical vehicles and batteries.
NorthBridge has compiled a summary of key points outlined as part of the Budget.
A Review of the Scientific Research and Experimental Development Tax Incentive
As the Department of Finance is still in consultation with stakeholders, further updates on the review of the SR&ED program will be announced as additional information becomes available. The review will aim to increase support for the development, retention, and commercialization of intellectual property, with the potential for the adoption of a patent box regime.
An Investment Tax Credit for Clean Electricity
Clean energy costs will be supported from March 28, 2023 through a 15% refundable tax credit for investments in areas including:
- Non-emitting electricity generation systems (including wind, solar, hydro, and nuclear)
- Abated natural gas-fired electricity generation
- Stationary electricity storage systems
- Equipment for electricity transmission between provinces and territories.
The tax credit will be available from 2024-2034, for projects which aim to lower electricity bills and achieve a net-zero electricity sector. The full 15% rate will be available only to companies which meet labour requirements that will come into effect on October 1, 2023. The Clean Electricity Investment Tax Credit is expected to cost $25.7 billion over the course of its availability, and will apply to both new projects and retrofits.
An Investment Tax Credit for Clean Technology Manufacturing
Initially proposed in Budget 2022, a 30% refundable tax credit in clean technology manufacturing will provide support for expenditures in clean technology manufacturing and critical mineral extraction, processing, and recycling. Available from January 1, 2024, the credit is expected to cost $11.1 billion over ten years.
An Investment Tax Credit for Clean Hydrogen
A tax credit for investments in clean hydrogen will be made available from 2023-2035 and is expected to cost $17.7 billion over its lifespan. The credit will cover between 15-40% of eligible project costs, with higher levels of support available only to projects that produce cleaner hydrogen and meet certain labour conditions. A 15% credit under this program will also be made available for the conversion of hydrogen to ammonia. Labour requirements will come into effect on October 1, 2023.
Expanding Eligibility for the Clean Technology Investment Tax Credit
Eligibility for the Clean Technology Investment Tax Credit will be expanded to include geothermal systems, in addition to electricity generation and storage systems, low carbon heat equipment, and zero-emission vehicles. The credit offers a 30% refundable rate to assist Canadian businesses in adopting clean technology. The program will be phased out in 2034, and is expected to cost $6.9 billion over the first five years.
Enhancing the Carbon Capture, Utilization, and Storage Investment Tax Credit
Originally proposed in Budget 2021, the Tax Credit for Carbon Capture, Utilization, and Storage will now include dual use heat and/or power equipment and water use equipment, and expand eligibility to include British Columbia-based storage projects in addition to Saskatchewan and Alberta. Once legislated, the credit will be retroactively available to businesses that have incurred CCUS expenses beginning in 2022, with rates of up to 60% for direct air capture, 50% for other capture equipment, and 37.5% for transportation, storage, and use equipment.
Enhancing the Reduced Tax Rates for Zero-Emission Technology Manufacturers
Following the announcement of halved tax rates for zero-emission technology manufacturers in Budget 2021, eligibility for these rates will be expanded to include manufacturers of nuclear energy equipment and processors/recyclers of nuclear fuels and heavy water. Additionally, availability of these reduced rates will be extended until 2034.
Establishing the Canada Growth Fund
Incorporated in December 2022 as a $15-billion public investment vehicle, the Canada Growth Fund will begin investing in Canada’s clean economy in the first half of 2023. The Fund will partner with the pension investment manager PSP Investments to support emissions reduction, accelerate the development of sustainable technologies, scale up companies, and strengthen Canada’s critical supply chains.
Supporting Employer-Led Training
The Upskilling for Industry Initiative was created to support over 15,000 workers through a $250-million investment. In February 2023, it was announced that Palette Skills would lead this initiative in collaboration with other partners. The program will assist businesses in adapting to changing skills requirements.
Supporting Clean Technology Projects through the Strategic Innovation Fund
Established in 2018, the Strategic Innovation Fund will receive $500 million over the next ten years to support the development and application of clean technologies in Canada.
Launching the Critical Minerals Infrastructure Fund
The $1.5-billion Critical Minerals Infrastructure Fund was launched on March 24, 2023, and will make investments in energy and transportation projects which unlock mineral deposits.
Investing in the Student Work Placement Program
To continue providing work-integrated learning opportunities for students, the Student Work Placement Program will receive $197.7 million in 2024-2025.
Continued Support for the College and Community Innovation Program
To allow businesses increased access to expertise and R&D facilities, $108.6 million will go towards expanding NSERC’s College and Community Innovation Program over the next three years. The program provides funding innovative solutions for regional challenges faced by businesses, government, and communities, and encourages collaboration between academia and the private sector.
Legislating the Canada Innovation Corporation Act
Legislation will be released this year to launch the Canada Innovation Corporation, which will mandate an increase in Canadian business expenditures in research and development with a budget of $2.6 billion over four years. The corporation will be established as a subsidiary of the Canada Development Investment Corporation, and R&D support will be delivered in partnership with the National Research Council’s Industrial Research Assistance Program.
Amending the National Research Council Act
Legislative amendments will be made to the National Research Council Act to ensure better support for Canadian innovators in accessing facilities and expertise.
Investing in Innovative and Sustainable Solutions
Over the next 13 years, $3 billion will be provided to Natural Resources Canada to recapitalize funding for the Smart Renewables and Electrification Pathways Program (supporting regional priorities), renew the Smart Grid program (supporting electricity grid innovation), and create new investments to capitalize on Canada’s offshore wind potential, particularly in Atlantic Canada. Natural Resources Canada will also receive $386.4 million to renew and update forestry sector support, including research and development.
To reduce dairy by-product waste, $333 million will be provided to Agriculture and Agri-Food Canada to support investments in research and development in solids non-fat (dairy by-product) processing. To support the adoption of nitrogen management practices, $34.1 million will be provided over three years to the On-Farm Climate Action Fund.
To support Canada’s participation in the International Space Station, $1.1 billion will be provided to the Canadian Space Agency (CSA) over the next 14 years. A further $1.2 billion will be provided to the CSA to develop a lunar utility vehicle, while $150 million will go towards the Lunar Exploration Accelerator Program, and $76.5 million will be invested in the Lunar Gateway Station.
A new round of the Smart Cities Challenge will be opened this year, which will fund municipal, regional, and Indigenous projects working on connected technologies and data to improve climate resiliency. The Smart Cities Challenge was initially launched in 2017 to encourage cities to adopt innovative solutions to reduce the impacts of climate change.