Budget 2023 addresses some manufacturing challenges

The new 2023 federal budget has been unveiled, containing measures that relate to driving net zero transitions, improving labour shortages, and alleviating supply chain disruptions.

The new Clean Technology Investment Tax Credit is a 30 per cent refundable credit that would be available to businesses investing in eligible capital property that is acquired and that becomes available for use on or after Budget day. Eligible activities are defined as follows:

• Eligible property – machinery and equipment, including certain industrial vehicles, used in manufacturing, processing, or critical mineral extraction, as well as related control systems. If the eligible property is subject to a change in use or sold within a certain period of time, a portion of the tax credit will be subject to a recovery mechanism.
• Eligible activities – activities related to clean technology manufacturing and processing, including:
  • Manufacturing of certain renewable energy equipment (solar, wind, water, or geothermal).
  • Manufacturing of nuclear energy equipment.
  • Processing or recycling of nuclear fuels and heavy water.
  • Manufacturing of nuclear fuel rods.
  • Manufacturing of electrical energy storage equipment used to provide grid-scale storage or other ancillary services.
  • Manufacturing of equipment for air- and ground-source heat pump systems.
  • Manufacturing of zero-emission vehicles, including conversions of on-road vehicles.
  • Manufacturing of batteries, fuel cells, recharging systems, and hydrogen refuelling stations for zero-emission vehicles.
  • Manufacturing of equipment used to produce hydrogen from electrolysis.
  • Manufacturing or processing of upstream components, sub-assemblies, and materials provided that the output would be purpose-built or designed exclusively to be integral to other eligible clean technology manufacturing and processing activities, such as anode and cathode materials used for electric vehicle batteries.
  • The extraction and certain processing activities related to six critical minerals essential for clean technology supply chains: lithium, cobalt, nickel, graphite, copper, and rare earth elements, including activities both before and after the prime metal stage or its equivalent.

The Investment Tax Credit for Clean Technology Manufacturing will apply to property that is acquired and becomes available for use on or after January 1, 2024. The credit is gradually phased out starting with property that becomes available for use in 2032, when the credit is reduced to 20 per cent, followed by a 2033 reduction to 10 per cent and a 2034 reduction to five per cent with a subsequent full phase-out after 2034.

The 2023 budget also includes funding to improve immigration backlogs, extended support for Work-Sharing, and funding to increase work integrated learning spaces; funding for a new Transportation Supply Chain Office to help industry with disruptions to supply chain transportation networks; and a commitment to review, and potentially update, the SR&ED incentive system.

The new budget drew approval from the Ottawa-based Canadian Manufacturers & Exporters (CME). “Manufacturing has always been a cornerstone of the Canadian economy, generating 10 per cent of Canada’s GDP, more than 60 per cent of our merchandise exports, and directly employing 1.7 million Canadians and supporting 3.4 million more workers through supply chain activity and employee spending,” CME president and CEO Dennis Darby said. “With the commitments made in Budget 2023, we have the building blocks to help manufacturing drive Canadian prosperity for years to come. We always need to do more, however, and we look forward to working with the government to achieve all our mutual goals.”