How much funding can be received?

The Clean Hydrogen Investment Tax Credit (ITC) is a refundable tax credit for eligible clean hydrogen assets acquired from March 28, 2023, and operational by December 31, 2034. The program targets Canadian taxable corporations developing clean hydrogen projects with a carbon intensity below 4 kg CO2e per kg of hydrogen produced, including projects involving clean ammonia production.

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Eligible projects for the CII for clean hydrogen must produce hydrogen with a carbon intensity below 4 kilograms of CO2 equivalent per kilogram of hydrogen produced. Additionally, such projects can also produce clean ammonia using hydrogen sourced from the eligible project.

Producing hydrogen through water electrolysis
Producing hydrogen from eligible hydrocarbons
Clean ammonia production equipment
Electricity and heating equipment that has dual uses
Dual-use hydrogen and ammonia equipment
Supporting project equipment physically and functionally integrated with production equipment

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The eligibility criteria for the Clean Hydrogen Investment Tax Credit (CII) require that the applicant be a taxable Canadian corporation and have an eligible clean hydrogen project with qualifying clean hydrogen property that becomes ready for service within the specified period.

Be a taxable Canadian corporation (including a taxable Canadian corporation that is a partner in a partnership)
Have an eligible clean hydrogen project and have acquired qualifying clean hydrogen property that becomes ready for service during the year
The qualifying clean hydrogen property must be acquired and ready to be placed in service between March 28, 2023, and December 31, 2034
The hydrogen must be produced using an eligible method
The carbon intensity must be less than 4 kilograms of CO2 equivalent per kilogram of hydrogen produced
For projects producing clean ammonia, it must be demonstrated that the project has the capacity to meet the needs of the clean ammonia production facility
If the hydrogen and ammonia production facilities are not in the same location, it must be feasible to transport hydrogen between the facilities
The qualifying clean hydrogen property must not have been used or acquired for use or lease for any purpose before its acquisition
Any preliminary work expenses not directly related to the acquisition, construction, manufacturing, or installation of qualifying clean hydrogen property are excluded

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Yes, there are eligible types of companies for the credit. The credit applies to taxable Canadian corporations, including those who are partners in a partnership, engaged in projects involving clean hydrogen production.

Taxable Canadian corporations
Taxable Canadian corporations that are partners in a partnership

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Eligible expenses for the Clean Hydrogen Investment Tax Credit (CII) include the capital costs of acquiring and commissioning property in Canada for eligible clean hydrogen projects, as specified from March 28, 2023, to December 31, 2034.

The following is a summary of eligible expenses:

Legal, accounting, engineering, or other fees incurred to acquire the property
Site preparation, delivery, installation, and testing costs
Costs related to materials, labor, and overheads for self-manufactured property

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The grant applies to projects for clean hydrogen located within Canada.

Acquired and become ready for use on or after March 28, 2023
Located in Canada

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Yes, there are evaluation and selection criteria for this grant. These criteria ensure the eligibility of projects for the Clean Hydrogen Investment Tax Credit (CII) by assessing their production methods, carbon intensity, and project feasibility.

The hydrogen must be produced using an eligible method.
The expected carbon intensity must be determined in accordance with the principles outlined in paragraph 127.48(6) of the Income Tax Act and must be reasonably achievable based on the project design.
If the project aims to produce clean ammonia, it must be demonstrated that the project has sufficient production capacity to meet the needs of the ammonia production facility.
If the hydrogen and ammonia production facilities are not located at the same site, the feasibility of transporting hydrogen between the facilities must be demonstrated.

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Step 1: Respond to the pre-screening questionnaire
Complete the questionnaire to check initial eligibility.
Step 2: Conduct an EIIC (Environmental Impact and Integration Criteria)
Evaluate the environmental integration and impact of your project.
Step 3: Calculate the expected carbon intensity of the project
Determine the carbon intensity as per the guidelines.
Step 4: Obtain a validation report from an eligible third party
Secure a third-party validation to confirm your project's eligibility and calculations.
Step 5: Gather necessary documents for the project plan submission
Collect all required documentation to support your project proposal.
Step 6: Submit your project plan for clean hydrogen to RNCan
Submit your detailed project plan including all gathered documents.

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The grant provides critical information regarding eligibility, equipment, and capital cost determination for producing clean hydrogen.

Eligible projects must be confirmed in writing by RNCan.
The credit applies to assets acquired from March 28, 2023, to December 31, 2034.
Only Canadian taxable corporations can apply.
Costs associated with legal, accounting, engineering, and site preparation are included in capital costs.
Plans of projects must be submitted to and confirmed by RNCan.
Equipment used for transmission, transport, off-site distribution, or storage of hydrogen is excluded from eligibility.
Submissions for the project plan should be done through the RNCan portal in the specific form and manner indicated.

Apply to this program

Clean Hydrogen Investment Tax Credit (CII) Overview

The Clean Hydrogen Investment Tax Credit (CII) is a refundable tax incentive for eligible clean hydrogen assets acquired and ready for service between March 28, 2023, and December 31, 2034. Administered by the Canada Revenue Agency and Natural Resources Canada, this credit supports projects producing hydrogen with a low carbon intensity and, if applicable, clean ammonia production.

Detailed Explanation of the Clean Hydrogen Investment Tax Credit (CII)

The Clean Hydrogen Investment Tax Credit (CII) represents a pivotal initiative within Canada’s strategy to transition towards a sustainable and low-carbon economy. This refundable tax credit incentivizes investments in the production of clean hydrogen by making it financially viable for companies to invest in advanced technologies that substantially reduce the carbon footprint associated with hydrogen production. Understanding the intricacies of this tax credit is crucial for any eligible corporation aiming to leverage this opportunity.

Eligibility Criteria for the CII

To qualify for the Clean Hydrogen Investment Tax Credit, two primary criteria must be met: 1. **Canadian Taxable Corporation**: The entity making the claim must be a Canadian taxable corporation. This includes Canadian taxable corporations that are partners in a partnership. 2. **Eligible Clean Hydrogen Project**: The project must be designed to produce clean hydrogen with a carbon intensity of less than 4 kg of CO2 equivalent per kg of hydrogen produced. This can also include projects producing clean ammonia using hydrogen produced through these methods.

Eligible Assets

Eligible assets are those acquired post March 28, 2023, and made operational by December 31, 2034. The assets should not have been previously utilized or acquired for use by any person or partnership before their acquisition under the tax credit scheme. **Categories of Eligible Assets**: 1. **Electrolysis-Based Hydrogen Production**: - Electrolyzers - Rectifiers - Purification equipment - Water treatment and conditioning equipment - Hydrogen compression and storage equipment 2. **Hydrocarbon-Based Hydrogen Production**: - Auto-thermal reformers - Steam methane reformers - Pre-reformers - Syngas coolers - Purification converters - Heaters for reforming - Water treatment and conditioning apparatus - Hydrogen compression and storage equipment - Oxygen production equipment 3. **Clean Ammonia Production Equipment**: - Apparatus for converting hydrogen to ammonia - Heat recovery and conversion systems - Nitrogen production equipment - Equipment for feed and compression (excluding hydrogen feed) - On-site refrigeration, transportation, and storage of ammonia 4. **Dual-Use Equipment**: Equipment used for both electricity/heating and hydrogen/ammonia purposes. 5. **Project Support Equipment**: Equipment integrated with and supporting the operation and safety of hydrogen or ammonia production systems. **Exclusions**: Certain assets are excluded, such as those in categories 57 or 58 of the Income Tax Regulations Schedule II, off-site transmission and distribution materials, and vehicles or office equipment.

Capital Cost Determination

The capital cost of an eligible asset includes: - Legal, accounting, or engineering fees incurred in acquiring the asset. - Costs related to site preparation, delivery, installation, and testing to bring the asset into service. - In-house manufactured asset costs, excluding any potential profits if sold. Deductions from capital costs include governmental or non-governmental assistance received, or expected to be received, for the asset, as well as any repaid assistance within the tax year can be added back.

Claim Process

To claim the Clean Hydrogen Investment Tax Credit, a formal project plan must be submitted to and confirmed by Natural Resources Canada (RNCan). The steps are as follows: 1. **Pre-Assessment Questionnaire**: Companies should complete a questionnaire to determine the preliminary eligibility of the project. 2. **Early Industrial Integration Capability (EIIC) Evaluation**: This involves a detailed industrial assessment to ensure readiness for the integration of hydrogen production. 3. **Carbon Intensity Calculation**: The project must have a carbon intensity calculation conforming to the guidelines under subsection 127.48(6) of the Income Tax Act. 4. **Third-Party Validation Report**: An approved third-party must validate the carbon intensity and other project aspects. 5. **Documentation Compilation**: Collect all necessary paperwork that substantiates the project’s eligibility. 6. **Project Plan Submission**: Submit the integrated project plan to RNCan for review and confirmation.

Coordination with Other Programs

The CII for clean hydrogen cannot be combined with other investment tax credits for the same eligible property, except for the Atlantic Investment Tax Credit, which may also be claimed. Furthermore, projects involving carbon capture, utilization, and storage (CCUS) can also apply for respective CII to cover relevant costs.

Regulatory and Compliance Considerations

Natural Resources Canada (RNCan) and the Canada Revenue Agency (CRA) have set guidelines ensuring the effective administration and compliance of this tax credit. - **Validation and Verification**: These include technical guidelines for material eligibility, carbon intensity modeling, and validation and verification processes. - **Data Sharing**: Information submitted to RNCan will also be shared with CRA and potentially Environment and Climate Change Canada (ECCC) and the Department of Finance for policy management and evaluation purposes.

Conclusion

The Clean Hydrogen Investment Tax Credit represents a transformative opportunity for Canadian corporations to invest in cleaner technologies with significant tax advantages. By supporting projects aimed at producing low-carbon hydrogen and clean ammonia, this credit not only promotes innovation but also aligns with Canada’s broader objectives to reduce greenhouse gas emissions and foster a sustainable industrial landscape. Corporations aiming to benefit from this incentive should ensure thorough preparation and compliance with all the outlined requirements. Early engagement with RNCan for project validation and meticulous documentation are key steps to successfully securing this valuable tax credit.

Clean Hydrogen Investment Tax Credit (ITC)

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