Learn how Canada’s CCUS Investment Tax Credit works for carbon capture equipment—rates, eligibility, labour rules, financing tactics, and a case study.
If you’re buying or installing carbon capture equipment in Canada, the main federal incentive to understand is the Carbon Capture, Utilization, and Storage (CCUS) Investment Tax Credit (ITC)—a refundable tax credit for eligible CCUS project expenditures (2022–2040). (Canada)
Where Canadian businesses get tripped up is not “does Canada have incentives?” It’s:
This guide is written from a deal-structuring perspective (how lenders and finance partners look at CCUS capex) with Canada-specific guardrails for 2026.
Key point: the CCUS ITC is not a “future promise”—it’s an operational program with defined rates and eligibility rules, and it is refundable. (Canada)
A refundable credit matters because it can improve project economics even when taxable income is low in early years (common for capital-heavy CCUS builds).
Think of the CCUS ITC as:
CRA’s CCUS ITC pages are the best starting point for definitions and the mechanics of claiming. (Canada)
If you also want a financing-first explainer, see our internal cluster post: Carbon Capture ITC Canada: how the “60% CCUS credit” actually works.
Key point: your CCUS ITC rate depends on equipment category and timing—and Budget 2025 proposed an important extension of full rates.
CRA lists the “regular” credit rates by expenditure type:
Budget 2025 proposes extending the availability of full credit rates by five years, so that full rates apply to eligible expenditures incurred from the start of 2022 to the end of 2035 (with lower rates applying 2036–2040). (Budget Canada)
That means 2026 project plans should be built assuming full-rate availability through 2035 (subject to enacted rules and your specific eligibility).
(Source for extension + categories: Budget 2025 tax measures.) (Budget Canada)
Key point: the CCUS ITC is not just “buy carbon capture equipment.” You need a qualified CCUS project and the right end use for CO₂.
CRA outlines that a qualified CCUS project must, among other conditions:
That “initial project evaluation” and the eligible-use threshold are where many early-stage projects stall—not because the tech is bad, but because the plan and monitoring story isn’t tight enough.
Budget 2025’s summary is explicit: the credit depends on end use; eligible uses include dedicated geological storage and storage in concrete, but not enhanced oil recovery (EOR). (Budget Canada)
CRA breaks qualified expenditures into categories (capture, transportation, use, storage) with specific constraints—e.g., carbon use is only eligible in particular circumstances (concrete storage processes), and storage must be dedicated geological storage. (Canada)
If you’re unsure how to classify equipment and expenditures in a way that holds up under review, it helps to also understand the tax-side asset classification logic—here’s our internal explainer: CCA Class for Equipment: a Canadian decision guide.
Key point: if labour requirements apply and you don’t elect/attest to meet them, your credit rate is reduced by 10 percentage points.
CRA’s labour requirements page states:
In 2026, your “tax credit model” is also a project labour compliance model. That means your EPC and subcontractor contracting needs to include:
If you’re financing equipment and building payments into a lease, labour compliance risk becomes a lender risk too—because a reduced credit changes your net project cost and cash waterfall.
Key point: lenders don’t underwrite “tax credits.” They underwrite repayment, and they treat incentives as risk mitigants only when they’re documentable and controllable.
A simple, reliable lens is the 5Cs of credit: character, capacity, capital, collateral, conditions.
Here’s how that translates to CCUS:
Who is executing? Is the team credible (operations + engineering + compliance)? Do you have a history of delivering capex on time?
What pays the lease/obligation? Your repayment capacity might be:
How much equity is really in the project? Lenders look for “skin in the game”—not only for comfort, but because CCUS has commissioning and performance risk.
Is the equipment marketable? Is it specialized? Can it be redeployed? (Specialized CCUS skids can be harder to remarket than standard industrial equipment.)
This is where CCUS is unique: policy and compliance risk is part of the underwriting conditions set. Lenders will often build conditions precedent (what must be true before funding) and covenants (what gets monitored after) into the structure.
This is why we’re leasing-first at Mehmi: you can often structure equipment funding to match commissioning reality rather than forcing fully-amortizing repayments during the riskiest months.
For a broader Canadian menu of non-bank structures (useful in CCUS when banks get cautious), see: Alternatives to bank loans for equipment (Canada).
Key point: for many CCUS builds, the best structure is the one that survives delays (EPC delays, commissioning delays, ramp delays). Leasing can.
In CCUS projects, cash flow often looks like:
A lease can be structured around that shape:
If you’re juggling multiple sites or phases, this matters even more. Internal read: Multi-project equipment fleet financing strategy (Canada).
This is the most common question—and the most dangerous one to answer casually.
In many leasing structures, the owner of the equipment (often the lessor) is the party with the capital cost—so the ability to claim investment tax credits can depend on structure and legal ownership. That’s why CCUS equipment projects should be structured with your tax advisor and financing partner together, early.
If you want the Canadian tax framework for how lease structures can change deductibility and CCA treatment, start here: Capital lease tax treatment in Canada: CCA vs lease deductions.
Sometimes the best CCUS funding isn’t “new equipment financing”—it’s turning existing equipment equity into project capital so you don’t drain working capital.
A sale-leaseback can convert owned equipment into cash while keeping it operating (useful when you need equity for the CCUS portion of a facility). Internal guide: Sale-leaseback financing in Canada.
Key point: you don’t need a 40-tab model to know whether you’re “credit-ready.” You need clarity on a few underwriting and eligibility items.
Key point: the CCUS ITC is the star for carbon capture projects, but many Canadian industrials are also eligible for other clean economy ITCs—especially if you manufacture components or build adjacent clean infrastructure.
CRA describes a refundable Clean Hydrogen ITC for eligible clean hydrogen property acquired and available for use for a qualified project (March 28, 2023 to Dec 31, 2034). (Canada)
NRCan announced the Clean Technology Manufacturing ITC as a refundable credit equal to 30% of investments in new machinery and equipment used to manufacture/process key clean technologies and certain critical minerals. (Canada)
Important: many ITCs and government assistance programs have interaction rules (and can reduce eligible capital cost). Don’t assume “stacking” equals “double-dipping”—plan it.
Key point: the incentive is valuable, but the project only works if financing matches commissioning reality.
Two things made the file hard for traditional lenders:
Mehmi mapped the project into financeable pieces and structured:
(As always: tax treatment and credit eligibility are fact-specific—this is a structural example, not tax advice.)
If your CCUS project also involves broader industrial equipment (civil, material handling, fleet), these cluster guides help you plan the “non-CCUS” portion cleanly:
If you’re planning a CCUS equipment purchase in 2026 and want to structure it so your payments survive commissioning delays, Mehmi Financial Group can help you map the capex into financeable components, choose a leasing-first structure, and package the underwriting story (cash flow + collateral + conditions) so the file is approvable—not just “interesting.”
And if your project is part of a broader capital plan, it can help to understand the wider private credit toolkit: Private lending in Canada (what it is, where it fits) and Alternative business financing options explained.
Yes. CRA describes the CCUS ITC as a refundable tax credit for eligible expenditures for a qualified CCUS project (Jan 1, 2022 to Dec 31, 2040). (Canada)
CRA lists rates by category (DAC capture, other capture, transport/storage/use) with different rates for 2022–2030 vs 2031–2040. (Canada)
Budget 2025 proposes extending full rates through 2035. (Budget Canada)
Budget 2025’s tax measures summary states eligible uses include dedicated geological storage and storage in concrete, but not EOR. (Budget Canada)
CRA states that, based on the project’s most recent project plan, the projected eligible use percentage must equal or exceed 10% in each required period. (Canada)
CRA states that where labour requirements apply, if you do not elect to meet them, you can claim the ITC at a reduced rate that is 10 percentage points less than the regular rate. (Canada)
If you’re producing clean hydrogen or manufacturing clean tech components, you may also want to review the Clean Hydrogen ITC (CRA program page) (Canada) and the Clean Technology Manufacturing ITC (NRCan announcement). (Canada)
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