The clean electricity investment tax credit is a refundable federal credit of up to 15% of the capital cost of eligible clean electricity property. That property includes wind, solar, hydro, nuclear and storage acquired from April 16, 2024 to the end of 2034. The credit is law under section 127.491 of the Income Tax Act and drops to 5% unless labour requirements are met.
After nearly three years of budget announcements and draft legislation, the credit is now in force. It was enacted by Bill C-15, the Budget 2025 Implementation Act, No. 1 (S.C. 2026, c. 3), which received Royal Assent on March 26, 2026. The Canada Revenue Agency's clean economy news page confirms that Royal Assent brought the Clean Electricity ITC into effect.
This guide is for developers, utilities, Crown and municipal energy corporations, pension investment corporations and corporate investors. It answers the three questions that set the credit's value. Is the claimant a qualifying entity? Is the equipment clean electricity property? Is the rate 15% or 5%? For the wider tax picture, see our corporate tax lawyers page.
What Is the Clean Electricity Investment Tax Credit in Canada?
The clean electricity investment tax credit in Canada is set out in section 127.491 of the Income Tax Act. The statute defines the credit as the "specified percentage" of the capital cost of clean electricity property acquired by a qualifying entity in the year. A share allocated to the entity by a partnership is added to that amount.
The specified percentage is:
- nil for property acquired before April 16, 2024;
- 15% for property acquired on or after April 16, 2024 and before January 1, 2035; and
- nil for property acquired after December 31, 2034.
"Acquired" has a special meaning here. Under subsection 127.491(7), clean electricity property is deemed not to be acquired until it becomes available for use by the entity. A turbine bought in 2033 but not available for use until early 2035 earns nothing. For projects with long build schedules, the available-for-use date is the date that matters.
Legislative status as of September 30, 2026
As of September 30, 2026, section 127.491 appears in the consolidated Income Tax Act on Justice Laws (current to September 21, 2026). The Justice Laws list of amendments not yet in force shows no pending changes to section 127.491 or to the labour rules in section 127.46.
The credit was announced in Budget 2023 (March 28, 2023) and refined in later budgets and fall economic statements. Draft legislation released on August 12, 2024 was not enacted at that time. Budget 2025 reintroduced the measure, and Bill C-15 enacted it. The CRA and Natural Resources Canada (NRCan) administer it together. For other recent federal changes, see our roundup of corporate tax law updates in Canada.
Clean Electricity Tax Credit Eligibility: Who Can Claim It
Only a "qualifying entity" can claim, which means a qualifying corporation or a qualifying trust. The statute lists the corporations that qualify:
| Qualifying corporation | Condition in s. 127.491(1) |
|---|---|
| (a) Taxable Canadian corporation | Any taxable Canadian corporation |
| (b) Designated provincial Crown corporation | At least 90% owned by one or more provinces; or Northwest Territories Power Corporation, Qulliq Energy Corporation or Yukon Energy Corporation; or a wholly owned subsidiary of one of these |
| (c) Paragraph 149(1)(d.5) corporation | At least 90% owned by municipalities in Canada or by aboriginal governments, or similar Indigenous governing bodies, described in paragraph 149(1)(c) |
| (d) Paragraph 149(1)(d.6) corporation | Wholly owned by municipalities, those aboriginal governments or governing bodies, or (d.5) corporations |
| (e) Municipal and Crown joint ownership | Wholly owned by municipalities together with designated provincial Crown corporations |
| (f) Pension investment corporation | A corporation to which paragraph 149(1)(o.2) applies |
| (g) Canada Infrastructure Bank | Named directly |
| (h) Canada Growth Fund Inc. | Including its wholly owned subsidiaries |
| (i) Prescribed entity | Any entity prescribed by regulation |
A qualifying trust is a trust whose beneficiaries are all paragraph 149(1)(o.2) corporations. It must be a limited partner of a partnership, and its sole undertaking must be holding that partnership interest. The structure is designed for pension investment vehicles.
The Indigenous ownership point
The statute does not say that every Indigenous-owned corporation qualifies, so precision matters here. A private corporation owned by Indigenous shareholders that is a taxable Canadian corporation qualifies the same way any taxable Canadian corporation does, under paragraph (a).
The Indigenous-specific paths in paragraphs (c) and (d) are narrower. They cover tax-exempt corporations described in paragraph 149(1)(d.5) or (d.6). Ownership must be at least 90%, or wholly, by "an aboriginal government (as defined in subsection 241(10))". A "similar Indigenous governing body" described in paragraph 149(1)(c) also counts. Municipalities may share that ownership. Whether a particular community-owned entity falls within those words is a legal question that should be confirmed before a project is structured around it.
Tax-exempt claimants must opt in
Entities in paragraphs (b) to (i) fall outside the deemed tax payment rule in subsection 127.491(2)(a), so the credit cannot simply offset their tax. Instead, the Minister pays them the credit directly. Under subsection 127.491(3), the payment is available only if the entity agrees in writing with the Minister. The agreement subjects the entity to the Income Tax Act in respect of its credit.
Partnerships
A partnership is not itself a qualifying entity. Subsection 127.491(12) computes the credit as if the partnership were a taxable Canadian corporation, then adds each qualifying member's reasonable share to that member's credit. That makes a partnership a workable vehicle for projects with several qualifying owners, though recapture can also reach members and former members. Our comparison of a joint venture vs. a partnership explains the structural trade-offs.
Which Projects and Equipment Qualify
Property is "clean electricity property" only if it passes five tests in the definition in subsection 127.491(1).
1. Project start date. It must not be part of a project whose construction started before March 28, 2023. Obtaining permits or regulatory approvals, environmental assessments, community consultations and impact studies do not count as starting construction. Under subsection 127.491(34), the Minister may treat discrete phases of a major project as separate projects. This applies where the phasing has bona fide business or engineering reasons.
2. Location. It must be situated in Canada and intended for use exclusively in Canada. Certain offshore wind and tidal property installed in Canada's exclusive economic zone is included.
3. New property. It must not have been used, or acquired for use or lease, for any purpose before the entity acquired it.
4. Leasing limits. Leased property must go to a qualifying entity (or a partnership of qualifying entities). The lessor must be a business principally engaged in selling or servicing that property, leasing or financing. The lease must be made in the ordinary course.
5. Eligible category. It must fall into one of the categories below.
| Category | What the statute requires | Key exclusions |
|---|---|---|
| Wind, solar photovoltaic, wave and tidal | Property described in subparagraph (d)(v), (vi) or (xiv) of Class 43.1 of the Income Tax Regulations | Test wind turbines |
| Concentrated solar | Equipment in a system used solely to generate electricity, exclusively from concentrated sunlight | Systems not used solely to generate electricity |
| Hydro-electric | Property described in subparagraph (d)(ii) of Class 43.1, read without reference to its clause (A) | Confirm fit against Class 43.1 and NRCan guidance |
| Nuclear energy property | Reactor, vessel, control rods, cooling, generating and integrated ancillary equipment in a fixed system that exports more electricity than heat; this can include small modular reactors that meet these tests | Fuel, waste disposal or storage property, transmission, distribution, vehicles, buildings or structures |
| Geothermal | Equipment in Class 43.1 (d)(vii), in a system exporting more electricity than heat, that does not extract fossil fuels for sale | Systems extracting fossil fuels for sale |
| Waste biomass | Waste biomass electricity generation equipment in a system exporting more electricity than heat | Heat-dominant systems |
| Stationary storage | Property in Class 43.1 (d)(xviii) or (xix) | Equipment that uses any fossil fuel in operation |
| Natural gas with carbon capture | System fuelled all or substantially all by natural gas, integrated with carbon capture, expected to stay under 65 tonnes of CO2 per GWh, with an NRCan system evaluation | Buildings, transmission, distribution, fuel storage and handling, pollution abatement equipment |
| Interprovincial transmission | Equipment primarily used to move electricity to or from another province, rated at 69 kV or more, plus towers and directly connected management equipment | Buildings and distribution equipment |
| Refurbishments | Property added to any of the above in a significant alteration that substantially extends useful life, increases capacity or improves efficiency | Refurbished property must still fit a listed category |
Subsection 127.491(35) makes NRCan's technical guide conclusive on engineering and scientific questions about whether property qualifies.
Natural gas equipment has its own regime
Abated natural gas generation carries the heaviest compliance load. The NRCan system evaluation rests on a system plan prepared by a qualified validation firm. After start-up, subsection 127.491(19) requires compliance reports within 180 days after each of the first 20 operating years, with third-party verification for the fifth year.
Under subsection 127.491(18), the credit received on that equipment is recovered (less amounts already recaptured). This happens if average actual emission intensity over the five-year compliance period exceeds 68.5 tonnes of CO2 per gigawatt hour. From the sixth through the twentieth operating year, any year above 65 tonnes is an "ineligible use" that can trigger recapture. A missed compliance report attracts a daily penalty under subsection 127.491(21).
The 15% Rate vs. the 5% Rate: Labour Requirements
The key practical point about the clean electricity ITC is that 15% is not automatic.
The credit is a "specified tax credit" for the labour requirement rules in section 127.46 of the Income Tax Act. Under those rules, the credit is calculated at a "reduced tax credit rate", which is the regular rate minus 10 percentage points. The claimant avoids that reduction only by electing to meet the prevailing wage and apprenticeship requirements set out in that section. For the clean electricity ITC, that means 5% instead of 15%.
Here is a simple illustration in Canadian dollars. Take $100 million of eligible capital cost (after the reductions discussed below). A claimant that elects into and meets the labour requirements has a $15 million credit. One that does not has a $5 million credit. That $10 million gap is why the labour election deserves a costed decision early in the project.
Section 127.46 sets out what electing involves and how compliance is measured. The requirements affect how workers on site are paid and staffed. The decision therefore belongs before construction contracts are signed, not at tax return time, and should be reviewed with tax counsel.
How the Clean Electricity ITC Is Claimed, Refunded and Reduced
Claiming and refundability
The claimant files a prescribed form with the prescribed information by its filing-due date for the year (subsection 127.491(2)). A taxable Canadian corporation or qualifying trust is then deemed to have paid tax equal to its credit on its balance-due day. Because it is a deemed payment, any excess over tax payable is refunded. Tax-exempt qualifying corporations that have opted in receive the amount directly from the Minister.
Late filing relief ends soon for older years
Subsection 127.491(6) allows a late claim if the form is filed by the later of one year after the filing-due date and December 31, 2026. No payment arises until the form is actually filed. For any taxation year whose filing-due date fell on or before December 31, 2025, December 31, 2026 is the last day to file the claim. Do not count on discretionary relief, such as an RC4288 taxpayer relief request, to rescue a missed window.
What reduces the capital cost
Subsection 127.491(9) adjusts the base on which the 15% or 5% is calculated:
- Assistance. Government and non-government assistance received, or reasonably expected, in respect of the property reduces the capital cost. Amounts from the Canada Infrastructure Bank or Canada Growth Fund Inc. are excepted and do not reduce it. If assistance is later repaid, or is no longer expected, subsection 127.491(11) adds it back as a separate property.
- No stacking. Cost is excluded if anyone deducted another clean economy tax credit, a CCUS tax credit or a clean hydrogen tax credit on it. Cost already claimed under this section is also excluded.
- Preliminary work. Expenditures on preliminary work activities are excluded.
- Unpaid amounts. Under subsection 127.491(14), any part of the cost still unpaid 180 days after the end of the year is excluded until it is paid.
Effect on capital cost allowance
Under subsection 127.491(10), the credit is deemed deducted for the purposes of rules that include paragraph 12(1)(t), subsection 13(7.1) and the undepreciated capital cost definition. In plain terms, the credit reduces the tax cost and depreciable base of the property. Factor that in when modelling it alongside immediate expensing and accelerated CCA.
Recapture and Conditions to Watch
Recapture window. Under subsections 127.491(16) and (17), recapture applies if the property is converted to an ineligible use, exported from Canada or disposed of. The event must occur in the year of acquisition or any of the next 10 calendar years (20 for natural gas equipment). The amount repaid is the credit, less earlier repayments. It is prorated by the proceeds of an arm's length sale (or fair market value otherwise) over the property's capital cost. The entity must also report the event to the Minister by its filing-due date.
Related-party transfers. Subsection 127.491(22) switches off recapture on a transfer to a related qualifying entity. The property must be property that would be clean electricity property to the purchaser except for having been used before.
Environmental compliance. Under subsection 127.491(32), property is not clean electricity property if the entity is in substantial non-compliance with an applicable environmental law, by-law or regulation. The law may be federal, provincial or municipal, and the test applies when the property becomes available for use.
Tax shelters. Subsection 127.491(15) denies the credit if the property, or an interest in an entity holding it, is a tax shelter investment under section 143.2.
No provincial conditions. Budget 2023 and Budget 2024 proposed two conditions. One limited the credit to provinces and territories that committed to a net-zero grid by 2035. The other required Crown utilities to pass the benefit through to ratepayers. The enacted section 127.491 contains no provincial net-zero commitment or ratepayer pass-through condition. Eligibility turns on the entity, the property and the conditions in the statute itself.
Keep evidence of the construction-start date, the available-for-use date, assistance received and labour compliance. Refundable claims can be reviewed by the CRA, and our overview of CRA audits and investigations explains how those reviews unfold.
What Is Not Law Yet: A Possible Domestic Content Requirement
On February 13, 2026, the Department of Finance launched a consultation on a potential domestic content requirement for the Clean Technology and Clean Electricity ITCs. Comments closed on March 13, 2026.
As of September 30, 2026, this is a proposal only. No domestic content rule appears in section 127.491, and no related amendment is listed as pending on Justice Laws. Long-term equipment supply contracts may still warrant some flexibility in case a requirement is legislated later.
Structuring Points for Developers and Investors
Choose the vehicle early. A taxable Canadian corporation gets a deemed payment. A partnership passes the credit through to qualifying members. A tax-exempt entity must sign the subsection (3) agreement. Our guides to holding companies vs. operating companies and partnerships cover the corporate side, and corporate tax planning frames the wider strategy.
Check financing leases. Lessors must meet the leasing conditions in the definition, and the lessee must itself be a qualifying entity. Review any equipment lease agreement against those terms before closing.
Diligence acquired projects. A buyer of a development-stage project must confirm when construction started, because property in a project started before March 28, 2023 never qualifies. A buyer of operating assets should remember that used property generally does not qualify in the buyer's hands, and that the seller may face recapture. Those points shape whether a share purchase or asset purchase makes more sense, and they belong in the representations and indemnities of any M&A transaction.
Frequently Asked Questions
Is the clean electricity ITC in force in Canada?
Yes. As of September 30, 2026, the credit is law in section 127.491 of the Income Tax Act, enacted by S.C. 2026, c. 3 (Bill C-15), which received Royal Assent on March 26, 2026. It applies to property acquired on or after April 16, 2024, and property is treated as acquired when it becomes available for use. Eligible property that became available for use after that date but before Royal Assent can therefore still be claimed, subject to the filing deadlines.
Can a pension fund claim the clean electricity ITC?
Yes. A pension investment corporation described in paragraph 149(1)(o.2) is a qualifying corporation. Pension investors can also hold project interests through a qualifying trust that is a limited partner of the project partnership. The credit flows through the partnership to those qualifying members.
Does the clean electricity investment tax credit expire?
Yes, for property acquired after December 31, 2034, when the rate becomes nil. Property is treated as acquired only when it becomes available for use. A project must therefore be available for use by that date to earn the credit, however early construction began.
Is there a domestic content requirement?
No. As of September 30, 2026, nothing has been enacted. The Department of Finance consulted on a possible domestic content requirement for the Clean Technology and Clean Electricity ITCs, with comments closing March 13, 2026. Section 127.491 contains no such rule, so watch for any future legislation.
Sources & Official Resources
Federal Statutes and Regulations Cited
- Income Tax Act, s. 127.491: Clean Electricity Investment Tax Credit
- Income Tax Act, s. 127.46: Labour Requirements
- Income Tax Regulations, Schedule II, Class 43.1
- Income Tax Act: Amendments Not in Force
- Bill C-15, Budget 2025 Implementation Act, No. 1 (LEGISinfo)
Government Guidance and Budget Documents
- CRA: Clean Economy ITCs News and Updates
- Budget 2025: Tax Measures
- Budget 2024: Tax Measures, Supplementary Information
- Budget 2023: A Made-in-Canada Plan
- Department of Finance Canada: Budget 2024 Consultations (August 12, 2024)
- Department of Finance Canada: Domestic Content Requirement Consultation
- Department of Finance Canada: Consultation Announcement (February 13, 2026)
This article provides general information and is not legal or tax advice. Eligibility, the labour election and the treatment of any particular project depend on the facts, and engineering questions are decided under NRCan's technical guidance. Review your project with qualified tax counsel before relying on the credit.
Contact Hadri Law
If you are developing, financing or acquiring a clean electricity project, three points matter most. They are the entity structure, the project start date and the labour position. Getting them right can mean the difference between a 15% credit, a 5% credit, or no credit at all. Martina Caunedo, our tax lawyer, brings more than 12 years of tax experience, including CRA audits, objections and Tax Court appeals. She works alongside our corporate and M&A team, which includes Nassira El Hadri, our founder and principal lawyer, and Nicholas Dempsey, corporate lawyer. Together they review project structures, partnership and lease arrangements, and acquisition documents.
Call (437) 974-2374 or book a free consultation. We serve clients in English, French, Spanish, and Catalan.
