Carbon Capture ITC Canada: 60% CCUS Credit Guide

What is the Carbon Capture ITC (CCUS ITC) in Canada?

Key point: The CCUS ITC is not a grant program and not a generic “green equipment” credit. It’s a refundable investment tax credit tied to a qualified CCUS project and a specific set of qualified CCUS expenditures.

CRA is the tax administrator (you claim it on your corporate return), while NRCan handles the technical/project side (project evaluation, reporting). Government of Canada+1

In plain language: you don’t just “buy equipment and claim 60%.” You build a compliant project file that proves:

1. your project qualifies,
2. the equipment/expenditures qualify, and
3. you followed the reporting + labour rules that protect the full credit rate.

CCUS ITC rates: when you can actually get “60%”

Key point: 60% is not the default. The full-rate period and the exact rate depend on (a) the category of expenditure and (b) timing.

A commonly cited baseline structure (full rates in the early period) is:

• 60% for capture equipment used to capture CO₂ directly from ambient air (direct air capture / DAC)
• 50% for other capture equipment
• 37.5% for transportation, storage, or use equipment Parliamentary Budget Officer

CRA also summarizes that the CCUS ITC can be up to 60% in the early period and lower later, depending on category and timing. Government of Canada+1

Two “gotchas” that change your rate fast

Gotcha #1: Labour requirements can reduce the credit by 10 percentage points.
CRA is explicit: if you don’t elect to meet prevailing wage + apprenticeship requirements, your credit rate is reduced by 10 points. Government of Canada

Gotcha #2: Timing rules matter (and Budget 2025 commentary matters).
Budget 2025’s supplementary tax measures state the government will postpone by five years the review of CCUS ITC rates (review before 2035, not 2030). Budget Canada
Separately, multiple budget summaries discuss extending “full rate” windows—treat that as policy direction until legislation is confirmed in your tax planning.

What counts as “qualified CCUS equipment/expenditures”?

Key point: CRA frames eligibility through four categories of qualified CCUS expenditures, starting with capture and extending through the chain (transport/storage/use), with eligibility often tied to the expected supported CO₂ for eligible storage/use. Government of Canada

At a high level, CRA’s “What projects qualify” page explains:

• there are 4 categories of qualified CCUS expenditures, and
• categories include qualified carbon capture and qualified carbon transportation, with eligibility tied proportionally to expected supported captured CO₂ for storage or eligible uses. Government of Canada

Practical takeaway: eligibility isn’t just “what the equipment is.” It’s also how it’s used in the project, how much qualifying CO₂ the project supports, and what NRCan confirms in evaluation.

Refurbishment: a smaller but important lever

CRA’s calculation guidance includes a notable cap: refurbishment expenditures used to calculate the CCUS refurbishment credit are subject to a limit of 10% of total qualified CCUS expenditures incurred before the first day of commercial operations (within the relevant review period). Government of Canada

That matters because many real projects have a mix of:

• big initial builds, plus
• later “keep it running” capex that operators hope will qualify.

You need the cap and category mechanics in your model early, not after the invoices are paid.

The claiming process: how CRA + NRCan actually run this

Key point: Treat the CCUS ITC like a “two-key system.” NRCan validates project/technical eligibility; CRA administers and audits the tax credit claim. Government of Canada+1

Step-by-step (operator version)

1. Build a lender-ready project plan (before claiming).
   NRCan requires submission of a project plan, and you must receive an initial project evaluation for each qualified CCUS project to claim the ITC. Natural Resources Canada
2. Track equipment and invoices to the right CCUS category.
   Don’t “dump all capex into capture.” You want clean mapping: capture vs transport vs storage vs use vs refurbishment.
3. Complete NRCan reporting during construction/implementation.
   NRCan’s reporting guidance notes that CCUS property identified in annual progress reports is verified against the latest project evaluation and CCUS property list. Natural Resources Canada
4. Claim on your corporate income tax return (with the required support).
   CRA is clear that claim mechanics are done through the corporate return process, with CRA managing compliance/audit. Government of Canada

“Underwriter reality”: what breaks claims (and spooks lenders)

• messy vendor invoices that mix eligible + non-eligible costs with no breakdown
• project changes that aren’t documented promptly
• labour compliance uncertainty (rate haircut risk)
• unclear responsibility in partnerships / special purpose vehicles

Labour requirements: the hidden 10-point swing (and why lenders care)

Key point: A 10-point reduction is not a rounding error. On large equipment budgets, it can be the difference between “equity-like support” and “nice-to-have.”

CRA’s guidance: you must elect to meet labour requirements to benefit from the regular rate; if you don’t, the rate is reduced by 10 percentage points. Government of Canada

Simple compliance checklist (use this early)

• Identify which contractors/workers are “covered” under the clean economy labour rules
• Bake prevailing wage + apprenticeship expectations into GC/subcontracts
• Keep audit-ready documentation (not just HR attestations)
• Assign one accountable owner internally (finance + construction leadership)

Financing CCUS equipment: leasing-first structures that keep your project bankable

Key point: In the real world, tax credits don’t eliminate financing risk—they change the structure conversation.

Most CCUS projects blend:

• sponsor equity,
• senior debt (bank/term),
• sometimes mezz or private credit,
• and equipment-level facilities where it makes sense.

For CCUS equipment specifically, you’ll often evaluate whether to lease or finance individual equipment packages to control cash flow, timing, and covenant pressure. For background and Canadian tax timing, these Mehmi guides help:

• Capital cost allowance (CCA) vs. leasing
• Canadian Tax Benefits of Leasing vs Financing Equipment (2026)
• HST/GST on equipment leases in Canada

The “who gets the ITC?” question (don’t gloss over it)

With leasing, the party that owns the equipment for tax purposes is often the party that can claim related tax attributes—but the details are structure-dependent (and you need your tax advisor to confirm treatment for your facts).

From a deal-structuring standpoint, what lenders/lessors want is clarity:

• who is claiming the ITC,
• how it flows into the project’s funding plan,
• and whether any “expected ITC” is being relied on to make payments (red flag) versus improving resilience (good).

Cash flow > headline rate

If you’re building a CCUS project and the equipment schedule is lumpy, focus on payment shaping and liquidity protection:

• progress funding / staged draws aligned to milestones
• sculpted payments that match commissioning ramps
• reserves for commissioning slippage

If you need a broader equipment financing framework, these are useful:

• Finance equipment without hurting cash flow (Canada)
• Equipment financing & operating lines of credit
• Alternatives to bank loans for equipment (Canada)

Underwriter lens: how CCUS equipment approvals really happen (the 5Cs)

Key point: Even with a strong ITC, lenders approve a file, not a technology. Here’s how the “credit brain” tends to break it down using the 5Cs:

Character (sponsor + operators)

• Who is actually accountable for delivery?
• Have they built projects of similar complexity?
• Do they report cleanly and quickly?

Capacity (cash flow and downside protection)

• What pays debt service during ramp-up and commissioning?
• Is DSCR resilient if timelines slip or operating costs rise?
• Are offtake contracts / counterparties bankable?

Capital (equity and sources/uses discipline)

• Is sponsor equity real cash, or “future ITC in disguise”?
• Is there a contingency buffer?

Collateral (what the equipment is worth in a bad scenario)

CCUS equipment can be specialized. Lenders ask:

• Is there a secondary market?
• Can components be repurposed?
• Are there strong warranties/service arrangements?

Conditions (policy + permitting + construction risk)

This is where CCUS differs from “normal” equipment:

• permitting and regulatory dependencies
• carbon pricing / compliance market exposure
• construction complexity and contractor concentration

Risk components (in plain English):

• Probability of default (PD): how likely the project can’t make payments under stress
• Exposure at default (EAD): how much the lender is on the hook for at that point
• Loss given default (LGD): how much value is recoverable from equipment/security

A strong CCUS ITC can help the “capital” story, but it doesn’t automatically solve PD and LGD. Your structure does.

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Anonymous case study: making the ITC strengthen the credit file (not “paper over” it)

Borrower profile (anonymous):

• Canadian industrial operator (mid-market) expanding a facility with a CCUS add-on
• Strong operating history, but project cash needs were front-loaded (equipment + install)

Project challenge:
The operator kept saying: “The ITC will cover it.” The lender’s concern was: “When—and what if the rate is lower?”

What we did (structure logic):

1. Built a sources/uses model that treated the CCUS ITC as refund timing, not “free capex.”
2. Segmented equipment packages into categories (capture vs other) so the claim logic was clean.
3. Added a commissioning liquidity buffer so DSCR stayed stable even with a delay.
4. Locked labour compliance responsibility into contracting (avoiding the 10-point haircut risk). Government of Canada

Outcome (realistic):

• Senior lender approved with standard conditions precedent (NRCan evaluation milestones, reporting covenants, insurance + security registrations).
• Operator avoided a mid-build cash crunch, and the expected ITC improved the capital story without being the only pillar holding the deal up.

If you’re already asset-heavy and want to improve liquidity before a build, equipment equity strategies like refinancing/sale-leaseback can be a practical bridge:

• Equipment Refinancing in Canada

Next steps (calm, practical)

If you’re planning CCUS equipment purchases in Canada, the most “bankable” path is usually:

• confirm your CCUS ITC project path with tax + technical advisors early,
• structure invoices and contracts so eligibility is provable,
• build financing that survives delays and protects liquidity.

If you want help pressure-testing the structure with a credit lens (DSCR, covenants, collateral, and how lessors/lenders will view the file), Mehmi Financial Group can help you package and structure the equipment financing in a way that lenders actually approve—without relying on the ITC as wishful thinking.

For general context on lender behaviour and pricing tradeoffs, see:

• Bank vs private lenders in Canada

FAQ (Canada-specific)

1) Is the Carbon Capture ITC actually refundable?

Yes. CRA describes the CCUS ITC as a refundable tax credit for eligible expenditures in a qualified CCUS project (2022–2040). Government of Canada

2) Do all CCUS projects get the 60% rate?

No. The 60% rate is commonly associated with direct air capture (capturing CO₂ directly from ambient air), while other categories have different rates (e.g., 50% and 37.5% in the early full-rate period). Parliamentary Budget Officer

3) What happens if we don’t meet the labour requirements?

CRA states that if you don’t elect to meet labour requirements, the credit rate is reduced by 10 percentage points (and non-compliance can have consequences if you elect but fail). Government of Canada

4) Who runs the CCUS ITC program—CRA or NRCan?

Both. CRA administers claiming on corporate returns and compliance, while NRCan supports project evaluation and technical/reporting requirements. Government of Canada+1

5) Do refurbishment costs qualify?

They can, but CRA’s calculation guidance indicates refurbishment expenditures used to calculate the refurbishment credit are subject to limits (including a 10% limit tied to total qualified expenditures before commercial operations, in the relevant period). Government of Canada

6) What’s the first thing we should do before buying CCUS equipment?

Start with the NRCan project plan and evaluation path—NRCan states you must receive an initial project evaluation for each qualified CCUS project to claim the credit. Natural Resources Canada

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