Good news for the Canadian clean energy and electric vehicle (EV) ecosystem: the Canadian Government recently released its Budget 2023 and it contains a number of significant incentives targeting Canadian clean energy and clean technology. Budget 2023 was released in the backdrop of the American Inflation Reduction Act (IRA), which had announced approximately US$370 billion in clean energy and electric vehicle-related incentives. Just days after President Joe Biden’s Canadian visit, which highlighted the need for American-Canadian collaboration in the electrified future of North America, Budget 2023 specifically acknowledges the competitive energy landscape forming between rival jurisdictions worldwide:

“The accelerating transition to net-zero has started a global race to attract investment as our friends and allies build their clean economies. Canada must keep pace. We cannot afford to fall behind.”

At a time when the United States has strongly invested in the future of its clean energy industry and market, the Budget 2023 signals a clear intent by the Canadian federal government to enable the establishment of a world-class Canadian EV and battery ecosystem. The following are a few key incentives and investments included in Budget 2023 pertaining to the promotion of local Canadian clean energy, battery and EV industries. 

• Investment Tax Credit for Clean Technology Manufacturing. This investment tax credit is expected to cost CA$4.5 billion over five years, starting in 2023-24, and an additional CA$6.6 billion from 2028-29 to 2034-35.
• Although tax incentives usually aim to support junior mining exploration companies, the new tax measures are broad and target the entire critical mineral mining sector, regardless of the mining stage. The principal measure targeting the battery industry is the new Investment Tax Credit for Clean Technology Manufacturing. Investments by corporations in certain depreciable property that is used all (or substantially all) for eligible activities, such as manufacturing of batteries, fuel cells, recharging systems and hydrogen refuelling stations for zero-emission vehicles, would qualify for a refundable investment tax credit of 30% of the capital cost of eligible property associated with eligible activities.
• Eligible activities would also include the extraction and certain processing activities related to six of the 31 minerals that are part of the Canadian Critical Minerals Strategy, which are essential for clean technology (e.g. lithium and rare earth elements). Eligible property would generally include machinery and equipment, including certain industrial vehicles, used in manufacturing, processing, or critical mineral extraction, as well as related control systems
• Enhancing the reduced tax rates for zero-emission technology manufacturers. The corporate income tax rate for zero-emission technology manufacturers is currently reduced by 50% until 2032. Budget 2023 proposes the extension of the tax reduction for an additional three years.
• Supporting clean technology projects. It is proposed that CA$500 million be provided to the Strategic Innovation Fund (the Fund) over ten years to support the development of clean technologies in Canada. The Strategic Innovation Fund provides funding for large projects, including those in the battery sector. As per Budget 2023, the Fund is also expected to direct CA$1.5 billion of its existing resources towards clean technologies, critical minerals (including those necessary for batteries) and industrial transformation projects.
• A number of other clean energy and clean technology incentives and programs. Budget 2023 proposed a number of other clean energy incentives and programs, including:
• A 15% refundable tax credit for eligible investments in non-emitting electricity generation systems, abated natural gas-fired electricity generation, stationary electricity storage systems that do not use fossil fuels and equipment for the transmission of electricity between provinces and territories;
• Orienting the Canada Infrastructure Bank as the Government’s primary financing tool for clean electricity generation, transmission and storage projects. At least CA$20 billion is attributed to clean electricity and clean growth infrastructure projects in Budget 2023;
• Investing CA$3 billion over 13 years to Natural Resources Canada, in part to renew the Smart Grid program;
• An investment tax credit for clean hydrogen that could range between 15 - 40% according to determined carbon intensity tiers; and
• The expansion of eligibility for the Clean Technology Investment Tax Credit, which provides a 30% refundable tax rate to support Canadian businesses in adopting clean technology.

As the global clean economy race has begun in a highly competitive landscape, Canada is well positioned to emerge as a leader of the future. Budget 2023 explicitly signals the urgency with which Canada must act in order to cement its place as a bastion of clean energy:

“Canada has all of the fundamentals required to build one of the strongest clean economies in the world. However, without swift action, the sheer scale of U.S. incentives will undermine Canada’s ability to attract the investments needed to establish Canada as a leader in the growing and highly competitive global clean economy… We will not be left behind.”

The incentives and investments outlined above, as well as other initiatives included in Budget 2023, demonstrate a concerted effort by the Government of Canada to ensure that Canada remains at the forefront of the global clean energy revolution. As it pertains to the battery and EV ecosystem, existing and new measures provide support and incentives for various elements of the supply chain, from critical mineral mining to battery and EV manufacturing, and related businesses such as critical minerals recycling and charging infrastructure development. Budget 2023 also directly addresses the fundamental need for efficient electricity infrastructure that provides clean and affordable electricity to the entire ecosystem.

We will be issuing a tax focused bulletin highlighting certain key elements of the new tax measures with a focus on pitfalls to be avoided. The Dentons Battery and Energy Storage Group members have significant expertise assisting companies involved in the EV and Battery supply chain with all legal, tax and strategic advisory needs for their projects and with navigating various government incentives or programs.

For more information on this topic, please contact the authors Ali Amadee, Emmanuel Sala, Serge Lalonde, Anoosh Loertscher and Shereen Cook.

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