Clean Hydrogen Investment Tax Credit
A refundable tax credit for taxable Canadian corporations investing in new equipment to produce low-emission hydrogen and, where eligible, ammonia in Canada.
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The credit reduces your corporation’s tax bill, and any credit left over can be refunded.
The credit covers eligible equipment costs, such as electrolysers, water treatment, hydrogen purification, compression and storage within the production process. Equipment must serve a qualified project in Canada. Hydrogen production equipment must be used all or substantially all to produce hydrogen through an eligible pathway; this generally means at least 90% of its use. Clean ammonia production equipment must be used solely to produce ammonia. Separate rules apply to eligible shared and supporting equipment.
For hydrogen equipment acquired and available for use before 2034, the regular credit is 40% of eligible capital cost when expected carbon intensity is below 0.75; 25% from 0.75 to below 2; and 15% from 2 to below 4. Carbon intensity measures kilograms of carbon dioxide equivalent per kilogram of hydrogen, using emissions across the production life cycle up to the plant gate. Hydrogen at 4 or above earns no credit.
Eligible ammonia equipment and equipment used solely with it receive a regular 15% rate when the project's hydrogen carbon intensity is below 4. Rates halve for equipment available for use in 2034 and fall to zero after 2034. Eligible acquisitions start on 28 March 2023. For equipment acquired after the project's compliance period, the emissions test uses the higher of expected carbon intensity and actual carbon intensity for that period.
Calculate the credit on eligible capital cost after deducting government and other assistance received or expected. Repayment of assistance can restore eligible cost. Acquisition fees, installation and testing can count, but preliminary permitting, feasibility studies, front-end engineering and environmental assessments do not. Eligible shared equipment costs are apportioned to the project's use and between hydrogen and ammonia where applicable. Costs still unpaid 180 days after the tax-year end count when paid.
Eligibility
- You must be a taxable Canadian corporation, including one claiming an allocated partnership share. The project and equipment must be in Canada; equipment previously used, or acquired for use or lease by anyone before you acquired it, does not qualify.
- Produce hydrogen through water electrolysis, or reforming or partial oxidation of eligible hydrocarbons with carbon dioxide capture. Eligible feedstocks include natural gas, substances derived almost entirely from raw natural gas and qualifying renewable hydrocarbons; specified natural-gas processing by-products can also qualify. Natural Resources Canada (NRCan) must confirm the project in writing and accept that the expected emissions can reasonably be achieved by its design. For ammonia made from the qualified project’s hydrogen, demonstrate enough hydrogen production capacity and feasible transport between separate facilities.
- Buildings, vehicles and refuelling equipment, construction and office equipment, off-site storage and transport equipment, and equipment preparing hydrogen for transport are excluded. Property in tax classes 57 or 58 is also excluded, and a tax-shelter investment cannot receive this credit.
- For work performed from 28 November 2023, elect and meet the labour requirements to receive regular rates; otherwise the rate drops by 10 percentage points. Workers doing mainly manual or physical work to prepare or install the equipment must receive the applicable collective-agreement wages and benefits or their equivalent. You are responsible for covered workers employed by your contractors and subcontractors as well as your own employees; administrative, clerical and executive employees and business visitors are excluded. Make reasonable efforts for registered apprentices to perform at least 10% of the preparation or installation hours in eligible skilled trades (Red Seal trades), subject to a lower limit imposed by law or a collective agreement. Where your province or territory does not use the Red Seal Program for a trade, the equivalent provincially registered trade counts. Electing but failing to comply has financial consequences.
- Generally, only one clean economy credit can cover the same property. Different eligible equipment within a project can receive different credits, and the Atlantic investment tax credit can also cover the same property.
Expect five operating years of carbon-intensity monitoring. Submit annual compliance reports to CRA and NRCan within 180 days after each operating year, with a qualified firm's verification report in the fifth year. Missing reports attract penalties. A higher actual emissions rate can trigger recovery tax and interest; recovery tax is zero if actual carbon intensity exceeds expected intensity by no more than 0.5.
Disposal, conversion to a use outside hydrogen or ammonia, or export can trigger repayment for property acquired in the year or preceding 20 calendar years. The same property is not recaptured twice after earlier conversion or export. A prescribed joint election may avoid recapture when substantially all project property transfers to another taxable Canadian corporation, which assumes its relevant tax history.
How to apply
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- Claim through the tax return for the year eligible property becomes available for use; eligible acquisition starts 28 March 2023 and property must be available for use by 31 December 2034.
Start with NRCan's pre-screening questionnaire. Complete a Front-End Engineering Design (FEED) study or equivalent Front-End Loading 3 (FEL-3) engineering package. This must document the facility’s design and equipment so that NRCan can assess equipment eligibility and review the project’s expected carbon intensity. Include applicable carbon-capture, hydrogen-storage and ammonia facilities and the hydrogen transport infrastructure between facilities. Calculate expected carbon intensity using the official modelling guidance and obtain a qualified third-party validation report. Create an NRCan portal account and submit the project plan, templates and supporting documents. A designated partner submits for a partnership. Obtain written project confirmation before claiming the credit.
File final detailed engineering designs by the earlier of first hydrogen production or 60 days after the designs are prepared. Supply further documentation requested by NRCan within 180 days to avoid refusal of project confirmation.
Before the compliance period starts, a revised plan is required for specified changes: NRCan-directed material design changes, an expected emissions increase above 0.5, a changed production pathway, missing final engineering designs, or an unfinalized, materially changed or terminated eligible power purchase agreement or disposal of its environmental attributes. Submit the revised plan within 180 days of the trigger, obtain renewed confirmation and notify NRCan of ownership changes.
Claim with your T2 corporation income tax return for the year the equipment becomes available for use. Include Schedule 74 and Schedule 31, and partnership allocations where relevant. File by your T2 filing due date; CRA may accept late credit information by the later of 31 December 2026 or one year after that filing due date.