27 January 2026 External T.I. 2025-1080051E5 - CT-ITC Recapture Rules

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: Can the recapture of the Clean Technology ITC be deferred on multiple intercorporate transfers which have occurred prior to the ultimate deposition of the clean technology property to an unrelated party?

Position: Yes.

Reasons: Textual, contextual and purposive interpretation of the relevant law.

XXXXXXXXXX 2025-108005
Boriana Christov

January 27, 2026

Dear XXXXXXXXXX,

Re. Recapture of CT-ITC

This is in response to your request for a technical interpretation dated September 26, 2025, concerning the application of the rules for the recapture of the clean technology investment tax credit (“CT-ITC”) under section 127.45 of the Income Tax Act.

Unless otherwise stated, all references to a statute are to the relevant provision of the Income Tax Act R.S.C. 1985 (5th Supp.), c.1, as amended (the “Act”).

You have requested our guidance in respect of the application of the rules in subsections 127.45(13) and (14) to the following hypothetical fact situation:

1. Aco, Bco and Cco are taxable Canadian corporations within the meaning of that term in subsection 248(1) and related corporations pursuant to subsection 251(2).

2. In Year 1 (and after March 28, 2023 and before January 1, 2034), Aco acquires a property (the “Property”) that is a “clean technology property,” as that term is defined in subsection 127.45(1). The Property becomes available for use in Year 1.

3. Aco claims a CT-ITC with respect to the capital cost of the Property by filing the prescribed form containing the prescribed information as required by subsection 127.45(2) with its income tax return for Year 1. The income tax return was filed within the prescribed time in accordance with subsection 127.45(3).

4. In Year 2, Aco transfers the Property to Bco in consideration for shares of Bco equal to the fair market value of the Property at the time of transfer (the “First Transfer”). Aco and Bco jointly elect, in prescribed form and within the time referred to in subsection 85(6), to have the provisions of subsection 85(1) apply to the First Transfer.

5. Aco duly reports the First Transfer in accordance with subsection 127.45(15).

6. In Year 2, Bco transfers the Property to Cco in consideration for shares of Cco equal to the fair market value of the Property at the time of transfer (the “Second Transfer”). Bco and Cco jointly elect, in prescribed form and within the time referred to in subsection 85(6), to have the provisions of subsection 85(1) apply to the Second Transfer.

7. Bco duly reports the Second Transfer in accordance with subsection 127.45(15).

8. In Year 3, Cco transfers the Property to a purchaser that is not related to Cco (“Third Party Purchaser”) for consideration equal to the fair market value of the Property at that time (the “Third Transfer”).

9. None of Aco, Bco or Cco has, at any time: (i) converted the Property to a non-clean technology use, or (ii) exported the Property from Canada.

I. QUESTION

Would there be recapture of the CT-ITC in respect of any of the First, Second or Third Transfer?

II. 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.

Legislative Background

Recapture of the CT-ITC

Pursuant to subsection 127.45(11), a taxpayer will be subject to recapture of the CT-ITC under subsection 127.45(12), if:

(a) the taxpayer acquired clean technology property in the current tax year or in any of the preceding 10 calendar years;

(b) the taxpayer became entitled to the CT-ITC in respect of the capital cost of the clean technology property or a portion of it; and

(c) the clean technology property was converted to a non-clean technology use, exported from Canada, or disposed of without having been previously exported or converted to a non-clean technology use.

If these conditions are met, subsection 127.45(12) will apply to require an amount to be added to the taxpayer’s tax otherwise payable under Part I of the Act. In general terms, the recapture amount is calculated based on a formula that is intended to reflect the proportion of the value of the property that has been utilized prior to its conversion to a non-clean technology use, its export, or its disposition.

Deferral of Recapture

Subsection 127.45(13) provides that subsections 127.45(11) and (12) do not apply to a taxpayer that is a taxable Canadian corporation (transferor) that disposes of a clean technology property to another taxable Canadian corporation (purchaser) that is related to the transferor provided that the property would have been a “clean technology property” of the purchaser if the definition of that term in subsection 127.45(1) were read without regard to the requirement that the property not have been used before its acquisition.

Where the conditions of subsection 127.45(13) are satisfied, subsection 127.45(14) provides that the rule in subsection 127(34) is to apply, with such modifications as the circumstances require. The Explanatory Notes issued by the Department of Finance explain the legislative intent to defer the recapture of the CT-ITC in case of bona fide transfers between related corporations:

Certain non-arm’s length transfers — recapture deferred

Subsection 127.45(13) sets out the conditions for the deferral of recapture under subsection 127.45(14).

Under subsection 127.45(13), recapture of the clean technology investment tax credit will be deferred where clean technology property is disposed of by a taxable Canadian corporation to a related taxable Canadian corporation in circumstances where the property would be clean technology property to the purchaser (but for the requirement that the property not have been previously used under paragraph (b) of the definition of clean technology property). This relieving provision is intended to facilitate bona fide transfers of clean technology property within corporate groups. It is similar to subsection 127(33), which provides for deferral of the recapture of certain other investment tax credits where property is transferred to a non-arm's length party.

Subsection 127.45(14) provides for the deferred recapture. It generally causes the transferee to be treated as if it had claimed credits of the transferor in respect of the property, ensuring that the transferee is subject to recapture if it changes the use of the property to a non-clean technology use, or disposes of or exports the property. To achieve this result, subsection 127.45(14) makes subsection 127(34) applicable, with such modifications as the circumstances require. [Emphasis added]

Application of the CT-ITC Recapture Rules to the Hypothetical Scenario

The First Transfer

For the First Transfer described in the hypothetical fact situation, subsection 127.45(13) would apply since it is a transfer of a clean technology property from a taxable Canadian corporation (Aco) to another taxable Canadian corporation (Bco) that is related to Aco and the Property would be a clean technology property of Bco, but for the requirement that the Property not have been used before it was acquired by Bco. Subsections 127.45(11) and (12) would therefore not to apply to the First Transfer with the result that there would not be any recapture of the CT-ITC in respect of the First Transfer.

The Second Transfer

Subsections 127.45(11) and (12) would not apply to the Second Transfer because the requirement in paragraph 127.45(11)(b) that the taxpayer (Bco) became entitled to a CT-ITC in respect of the Property or a portion of it would not be met since it was Aco, not Bco, that became entitled to a CT-ITC in respect of the Property. In any event, subsection 127.45(13) would apply to the Second Transfer because Aco is a taxable Canadian corporation and it disposes of the property to Bco which is another taxable Canadian corporation. Both Aco and Bco are related corporations and the property would meet the definition of “clean technology property” in subsection 127.45(1) but for paragraph (b).

However, because of the application of subsection 127.45(13) to the First Transfer, Bco would be subject to the potential application of subsection 127.45(14) in respect of the Property following the First Transfer. As a result, on the Second Transfer of the Property between Bco to Cco, subsection 127.45(14) would require that subsection 127(34) be applied with such modifications as the circumstances require.

Based on the clear legislative goal to defer CT-ITC recapture in the case of transfers of clean technology property between related taxable Canadian corporations if the property is not converted to a non-clean technology use and it is not exported from Canada, in our view the necessary modifications to subsection 127(34) would include a modification of the preamble of subsection 127(34) to exclude a disposition of clean technology property to which subsection 127.45(13) applies. In other words, subsection 127(34) would not apply to dispositions to which subsection 127.45(13) applies. With this modification, subsection 127(34) would therefore not require Bco to be subject to recapture in respect of the Second Transfer.

The Third Transfer

Subsections 127.45(11) and (12) would not apply to the Third Transfer because the requirement in paragraph 127.45(11)(b) that the taxpayer (Cco) became entitled to a CT-ITC in respect of the Property or a portion of it would not be met since it was Aco, not Cco, that became entitled to a CT-ITC in respect of the Property.

However, because of the application of subsection 127.45(13) to the Second Transfer, Cco would be subject to the potential application of subsection 127.45(14) in respect of the Property following the Second Transfer. As a result, on the Third Transfer of the Property by Cco to the Third Party Purchaser, subsection 127.45(14) would require that subsection 127(34) be applied with such modifications as the circumstances require. In this case, even if subsection 127(34) is modified such that it does not apply to dispositions to which subsection 127.45(13) applies, this would not prevent the application of subsection 127(34) to the Third Transfer because such transfer is not between related taxable Canadian corporations. As a result, subsection 127(34) would apply in respect of the Third Transfer, resulting in Cco being subject to recapture of the CT-ITC in respect of the Third Transfer.

We trust these comments will be of assistance.

Yours truly,

Kimberley Wharram
Manager, Resources Section
for Division Director
Reorganizations Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch