21 July 2025 External T.I. 2024-1039761E5 - CCUS timing issue: Paragraph 127.44(9)(h)

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Principal Issues: If a CCUS expenditure is incurred in a taxation year that is before the taxpayer receives its initial project evaluation and thus before the taxpayer has a qualified CCUS project, can that CCUS expenditure qualify for the CCUS ITC and in what taxation year can it be claimed by the taxpayer?

Position: Yes, it can qualify assuming all other applicable conditions in section 127.44 are met; and the taxpayer can make a claim for the CCUS ITC for the taxation year that the expenditure is incurred, provided that it does so in accordance with subsections 127.44(2) and 127.44(17).

Reasons: The conclusions are based on a textual, contextual and purposive analysis of the CCUS legislation in section 127.44.

XXXXXXXXXX									2024-103976
N. Verlinden
K. Wharram

July 21, 2025

Dear XXXXXXXXXX,

Re: CCUS Investment Tax Credit – Definition of “qualified CCUS expenditure” and the deemed timing provisions in paragraphs 127.44(9)(h) and 127.44(9)(c)

I am writing in response to your email inquiry sent to Kim Wharram of the Income Tax Rulings Directorate on October 4, 2024. We apologize for the delay.

In your email you presented us with two hypothetical fact scenarios and a list of questions relating to the timing of various qualified CCUS expenditures. (footnote 1) This letter responds to the first hypothetical fact scenario and the three questions relating to paragraphs 127.44(9)(h) and 127.44(9)(c) of Income Tax Act R.S.C. 1985 (5th Supp.), c.1, as amended (the “Act”). A separate letter with file reference number 2025-106851 will be sent to you in response to the other hypothetical fact scenario and the related questions.

Unless otherwise stated, all references to a statute are to the relevant provision of the Act or, where appropriate, the Income Tax Regulations, C.R.C., c.945, as amended (the “Regulations”).

Hypothetical fact scenario

• Aco is a taxable Canadian corporation, as defined in subsection 89(1).
• Aco has a calendar taxation year, as defined in subsection 249(1).
• Aco will undertake a project to construct, own and operate carbon capture facilities in Canada that will meet the definition of a CCUS project in subsection 127.44(1).
• In 2026, Aco will acquire equipment that is described in paragraph (a) of Class 57 of Schedule II of the Regulations (referred to as the “Equipment”).
• In 2026, the Equipment will be delivered by the vendor to Aco’s premises, with ownership passing to Aco in Canada at the point of delivery.
• In 2026, Aco will pay the vendor the full invoice price of $1,000,000 for the Equipment.
• Aco will store the Equipment at its premises (in Canada) until it is time to install it in the carbon capture facilities.
• Natural Resources Canada (“NRCan”) will not issue an initial project evaluation for Aco’s carbon capture project until 2027.

Questions

1. (a) Assuming that the circumstances described in paragraph 127.44(9)(h) do not apply to the hypothetical fact scenario, is the $1,000,000 incurred by Aco for the Equipment in 2026 a qualified CCUS expenditure, despite the fact that it is incurred by Aco before Aco receives its initial project evaluation?

(b) If the answer to question 1 is “yes”, in which taxation year of Aco will the $1,000,000 Equipment invoice cost be a qualified CCUS expenditure (more specifically a qualified carbon capture expenditure)?

2. If the Equipment was imported from another country, would the answers to question 1 be different in light of paragraph 127.44(9)(c)?

Our Comments

This technical interpretation provides general comments about the provisions of the Income Tax Act and related legislation (where referenced). It does not confirm the income tax treatment of a particular situation involving a specific taxpayer but is intended to assist you in making that determination. The income tax treatment of particular transactions proposed by a specific taxpayer will only be confirmed by this Directorate in the context of an advance income tax ruling request submitted in the manner set out in Information Circular IC 70-6R12, Advance Income Tax Rulings and Technical Interpretations.

Response

General information- summary of the relevant legislation

The purpose of section 127.44 and Part XII.7 (the “CCUS ITC Regime”) is to encourage the investment of capital in the development and operation of carbon capture, transportation, utilization and storage capacity in Canada. (footnote 2)

The main benefit provision (herein referred to as the “CCUS tax credit”) is in subsection 127.44(2) and the relevant portion of that provision (for purposes of this letter) is:

Where a qualifying taxpayer files a prescribed form containing prescribed information on or before its filing-due date for a taxation year, the taxpayer is deemed to have paid on its balance-due day for the year an amount on account of its tax payable under this Part for the year equal to the total of

(a) the amount, if any, by which the taxpayer's cumulative CCUS development tax credit for the year exceeds its cumulative CCUS development tax credit for the immediately preceding taxation year, and […]

Subsection 127.44(4) provides the meaning of cumulative CCUS development tax credit. The relevant portion of that provision (for purposes of this letter) is:

For the purposes of this Act, a taxpayer's cumulative CCUS development tax credit for a taxation year is the total of all amounts, each of which is, in respect of an expenditure incurred for a qualified CCUS project of the taxpayer before the first day of commercial operations of the CCUS project

(a) a qualified CCUS expenditure incurred in the year or a previous taxation year by the taxpayer multiplied by the applicable specified percentage; or […]

To calculate the CCUS tax credit for a particular taxation year, the cumulative CCUS development tax credit amount for the immediately preceding taxation year is subtracted from the amount of the cumulative CCUS development tax credit for the particular taxation year. The definition of cumulative CCUS development tax credit references two defined terms that are relevant for purposes of this letter: qualified CCUS project and qualified CCUS expenditure.

Both of these terms are defined in subsection 127.44(1) and the relevant portions of those definitions are presented below:

qualified CCUS project means a CCUS project of a taxpayer that meets the following conditions:

(a) it is expected, based on the project's most recent project plan, to support the capture of carbon dioxide in Canada for a period that is at least equal to the total CCUS project review period for the project;

(b) an initial project evaluation has been issued by the Minister of Natural Resources (footnote 3) , in the form and manner determined by the Minister of Natural Resources, in respect of the project;

(c) based on the most recent project plan for the project, its projected eligible use percentage equals or exceeds 10% in each of the following periods:

(i) if the first project period begins after September of a calendar year, the period beginning on the first day of commercial operations and ending on December 31 of the following calendar year, and

(ii) each calendar year of the project's total CCUS project review period, other than a period that includes a year referred to in subparagraph (i); and

(d) it is not a project that is

(i) operated to service a unit (as defined under the Reduction of Carbon Dioxide Emissions from Coal-fired Generation of Electricity Regulations) for which the commissioning date (as defined under the Reduction of Carbon Dioxide Emissions from Coal-fired Generation of Electricity Regulations) was on or before April 7, 2022, and

(ii) undertaken for the purpose of complying with emission standards that apply, or will apply, under the Reduction of Carbon Dioxide Emissions from Coal-fired Generation of Electricity Regulations.

qualified CCUS expenditure means (a) a qualified carbon capture expenditure, […]

A qualified carbon capture expenditure is also defined in subsection 127.44(1) and refences a formula, the relevant portion of which is as follows:

qualified carbon capture expenditure of a taxpayer for a taxation year means an amount that is the portion of an expenditure incurred by the taxpayer to acquire a property in the year, in respect of a qualified CCUS project of the taxpayer, determined by the formula

A x (B + C + D + E) x F

where

A is, in respect of property acquired by the taxpayer in the year (other than property situated outside of Canada),

(a) the capital cost of property described in (and, in the case of property acquired before the first day of commercial operations of the project, verified by the Minister of Natural Resources as being property described in)

(i) paragraph (a) of Class 57 in Schedule II to the Income Tax Regulations, […]

When computing a taxpayer’s CCUS tax credit for a taxation year, you must also consider the special adjustments and other deeming rules located throughout section 127.44, notably those in subsection 127.44(9). The relevant deeming rules for the purpose of answering these questions are paragraphs 127.44(9)(h) and (c).

Paragraph 127.44(9)(h) states:

For the purposes of section 127.44 and Part XII.7, […]

(h) subject to paragraph (e), an expenditure is deemed to have been incurred in respect of a qualified CCUS project during a particular taxation year if

(i) it is incurred in the particular taxation year, in respect of a CCUS project that was not a qualified CCUS project at any time during the particular taxation year because the Minister of Natural Resources was not accepting the filing of project plans before or during the particular taxation year, and

(ii) in a subsequent taxation year, the project becomes a qualified CCUS project;

Paragraph 127.44(9)(c) states:

For the purposes of section 127.44 and Part XII.7, […]

(c) except for the purposes of subparagraph (b)(i), and subject to subsection (12), if a taxpayer has acquired property outside Canada, the expenditure is deemed to have been incurred, and the property acquired, at the time it is imported into Canada;

Furthermore, unlike the other clean economy investment tax credits, (footnote 4) there is no requirement that the property acquired must be available for use before the CCUS tax credit can be claimed.

Response to questions 1a and 1b

The $1,000,000 expenditure incurred by Aco for the Equipment acquired in its 2026 taxation year will be a qualified CCUS expenditure for Aco’s 2026 taxation year, based on the above-noted facts and assuming that:

• when Aco received its initial project evaluation from NRCan in its 2027 taxation year, the CCUS project became a qualified CCUS project at that time;
• NRCan verified that the Equipment was described in paragraph (a) of Class 57 in Schedule II to the Regulations at the time that it issued its initial project evaluation to Aco; and
• none of the deeming rules in subsection 127.44(9) applied to Aco in respect of the Equipment it acquired in 2026.

This response is based on an application of the above-noted provisions which requires the qualifying taxpayer (here, Aco) to incur an expense to acquire a property in a year (here, 2026) that is verified by NRCan as being described in Class 57, paragraph (a) of the Regulations and that is in respect of a qualified CCUS project of the taxpayer.

As the courts have broadly interpreted the phrase “in respect of” in other contexts within the Act, (footnote 5) in our view the expenses incurred in 2026 can, in the context of the CCUS ITC Regime, be considered to have been incurred “in respect of a qualified CCUS project” of Aco once ACo’s project becomes a qualified CCUS project upon the receipt of the initial project evaluation from NRCan in 2027. Such expenses would, as of that time, be qualified carbon capture expenditures of Aco for its 2026 taxation year. Since paragraph 127.44(9)(h) does not apply in this situation, in our view it does not impact this interpretation.

ACo’s filing due-date for its 2026 taxation year is June 30, 2027. The hypothetical facts state that Aco received its initial project evaluation from NRCan in 2027. If Aco does not know whether it has a qualified CCUS project by June 30, 2027, it could not claim the CCUS tax credit at that time (i.e., when it files its 2026 tax return); however, due to subsection 127.44(17), Aco will have up until June 30, 2028 to make a claim for the CCUS tax credit for its 2026 taxation year.

Response to question 2

If the hypothetical facts remained unchanged except that Aco imported the Equipment into Canada from another country, Aco would have to consider the deeming rule in paragraph 127.44(9)(c). That provision deems the $1,000,000 expenditure to have been incurred and the Equipment to have been acquired by Aco at the time that it is imported into Canada.

Therefore, if the Equipment is imported into Canada in 2026, our response to question 1 will not change; but, if the Equipment is imported into Canada in 2027, the $1,000,000 invoice cost (paid in 2026) for the Equipment would be a qualified CCUS expenditure in Aco’s 2027 taxation year, as a result of the deeming rule in paragraph 127.44(9)(c).

We trust that these comments will be of assistance.

Yours truly,

Kimberley Wharram
Manager, Resources Section
for Division Director
Reorganizations Division
Income Tax Rulings Directorate

FOOTNOTES

Note to reader: Because of our system requirements, the footnotes contained in the original document are shown below instead:

1 This term is defined in subsection 127.44(1) of the Act.

2 Subsection 127.44(15).

3 For clarity, the Minister of Natural Resources is Natural Resources Canada, which has been abbreviated to “NRCan” in this letter.

4 Clean Technology Investment Tax Credit (see subsection 127.45(4); Clean Hydrogen Investment Tax Credit (see subsection 127.48(5)); Clean Manufacturing Investment Tax Credit (see subsection 127.49(4)).

5 See Nowegijick v. R. [1983] C.T.C. 20 (Supreme Court of Canada).