The Canadian government has added geothermal energy systems to the list of clean technologies that qualify for a 30 per cent tax rebate. The newly released 2023-24 federal budget also pledges to retain the maximum tax credit at 30 per cent straight through to 2034 rather than paring it back in 2032, as was contemplated when the measure was announced in the fall economic statement last November.
“The federal government is expanding the eligibility for the clean technology investment tax credit to further support the growth of Canada’s burgeoning clean technology sector,” the budget document states. “Expanding eligibility of the investment tax credit to include technologies for geothermal energy projects would generally be expected to help reduce emissions of greenhouse gases and air pollutants by displacing the use of fossil fuels.”
The tax credit applies on qualifying capital costs of a range of low-carbon heating, renewable energy generation and energy storage systems, as well as zero-emission construction machinery and associated charging equipment. Geothermal piping, pumps, heat exchangers, steam separators and electrical generating components are now included in the mix with the condition that the equipment cannot be used in energy projects that co-produce oil, gas or any fossil fuel.
The tax credit for geothermal systems kicks in for purchases made as of budget day, March 28, 2023. The addition of the new category is forecast to cost $185 million over the next five years, increasing to the overall expenditure for the tax credit to $6.9 billion for the period from 2023-24 to 2027-28.
The budget also clarifies that the purchase and installation of low-carbon heating systems are exempt from the tax credit’s labour conditions, meaning that all investors can expect a full 30 per cent rebate. For other categories of investment, such as renewable energy generation or energy storage systems, businesses must ensure that workers are paid “a total compensation package that equates to the prevailing wage” or they will forfeit a portion of the available credit, reducing it to a 20 per cent rebate on qualifying costs.
