27 May 2026 External T.I. 2026-1087721E5 - 127.46(16) and reasonable efforts

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: Whether the initiatives taken by an incentive claimant are sufficient to meet the reasonable efforts condition provided by subsection 127.46(5).

Position: General comments provided.

Reasons: Question of fact, see below.

XXXXXXXXXX 2026-108772
Serena Tan

May 27, 2026

Dear XXXXXXXXXX,

Subject: Reasonable Efforts for Apprenticeship Requirements

Unless stated otherwise, all statutory references in this document are to the Income Tax Act (Canada), R.S.C. 1985, c.1 (5th Supp.), as amended to the date hereof (the “Act”).

We are writing in reply to your letter dated January 14, 2026, in which you requested guidance on the application of the apprenticeship requirements provided by subsection 127.46(5) for claiming certain clean economy investment tax credits at their regular rates.

More precisely, you have requested our views as to whether, based on the facts presented in your letter, an incentive claimant would be considered to have met the “reasonable efforts” condition contained in subsection 127.46(5).

Our comments

This technical interpretation provides general comments about the provisions of the 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 70-6R12, Advance Income Tax Rulings and Technical Interpretations.

Whether an incentive claimant has met the reasonable efforts condition provided by subsection 127.46(5) can only be determined after a complete analysis of all relevant facts and circumstances, and must be determined on a case-by-case basis. While we cannot confirm whether the initiatives set out in your letter are sufficient to meet the reasonable efforts condition provided by subsection 127.46(5), we are prepared to provide you with general comments based on the facts presented below:

1. for any Red Seal trade-related work on a select number of properties (the “Properties”), an employer bargaining agency (the “Agency”) holds bargaining rights and acts on behalf of its employer members;

2. the Agency is responsible for negotiating and administering the collective agreements with the trade unions representing workers for any Red Seal trade-related work (the “Trade Unions”);

3. a union hiring hall model is followed, where employers need to request labour from the hiring hall, rather than using traditional employment methods such as job advertisements;

4. under a particular collective agreement, the relevant Trade Union is responsible for attracting and recruiting qualified workers, administering apprenticeship training, maintaining a pool of qualified workers, and dispatching these workers to employers upon request;

5. in order to increase the number of apprentices hired for a particular project, the following mechanisms were included in the collective agreement:

a. requiring employers to request additional apprentices from the local union;

b. permitting the union to refer available apprentices from its dispatch or out-of-work list;

c. allowing, in certain circumstances, the employer to seek suitable apprentices within the relevant geographic area where the union cannot supply enough apprentices; and

d. providing for further consultation with union representatives where insufficient apprentices are available locally, to determine whether there are suitable apprentices available outside the relevant geographic area;

6. where apprentices registered in a Red Seal trade account for less than 10% of the relevant labour hours at a designated work site of the incentive claimant, and existing mechanisms do not close the shortfall, the employers, the owners of the Properties (the “Owners”) and the Agency will endeavour to undertake the appropriate actions set out below;

7. Their respective responsibilities are as follows:

Employers’ responsibilities

a. identify sites that are not meeting the 10% apprentice threshold and communicate shortfalls to the Trade Union, the Owners and the Agency;

b. ensure that the terms of the contract are being upheld and enforced to the best of their ability; and

c. collaborate with the Trade Union to stay informed about its initiatives and actively show support to its efforts;

Owners’ responsibilities

a. advocate for sufficient training opportunities, workforce supply, and long-term stability within the construction sector;

b. provide demand profiles so that the Trade Union is aware of upcoming needs;

c. maintain accurate and up-to-date databases to monitor project performance and apprentice supply; and

d. ensure clear and consistent communication with all relevant stakeholders;

Agency’s responsibilities

a. collaborate with the Trade Union if it is experiencing low apprentice supply, to assess their needs and support initiatives aimed at increasing apprentice participation;

b. attend visits to union training centres and share engaging content on social media to help raise awareness and expand union reach; and

c. facilitate meetings to collaboratively discuss strategies for increasing apprenticeship rates, identifying potential obstacles, and working towards practical solutions.

In addition, to simplify our response, we have assumed that:

1. no applicable law specifies that a maximum ratio of apprentices to journeypersons must be respected, or otherwise restricts the number of apprentices employed at a designated work site. We recognize that for many Red Seal trades in the various provinces and territories, there are restrictions on the hiring of apprentices, notably due to the existence of apprentice to journeyperson ratios included in applicable legislation. However, this fact should not change the general conclusion of our interpretation of “reasonable efforts”;

2. the employer reviews and duly considers all referrals and applications received in response to the apprentice shortfall-closing mechanisms provided in the collective agreement; and

3. the incentive claimant is able to substantiate the actions taken by it, or on its behalf, in respect of the relevant designated work site and installation taxation year.

In order to qualify for the regular tax credit rates of certain clean economy investment tax credits, an incentive claimant must satisfy the labour requirements in section 127.46, including the apprenticeship requirements under subsection 127.46(5). The apprenticeship requirements were first introduced by the 2022 Fall Economic Statement with the purpose of ensuring that apprenticeship training opportunities were being created.

The apprenticeship requirements generally provide that reasonable efforts must be made to ensure that apprentices registered in a Red Seal trade work at least 10% of the total hours that are worked during the year by Red Seal workers at the designated work site of the incentive claimant on the preparation or installation of specified property (the “10% Requirement”). To satisfy paragraph 127.46(5)(a), an incentive claimant is not required to guarantee that apprentices registered in a Red Seal trade actually work at least 10% of the relevant hours in all circumstances. Rather, the claimant must make reasonable efforts to ensure that this threshold is met and must attest, in prescribed form and manner, that it has made those reasonable efforts.

Based on the assumptions above, paragraph 127.46(5)(a) appears to be the applicable provision. Paragraph 127.46(5)(b) would apply where an applicable law or collective agreement specifies a maximum ratio of apprentices to journeypersons, or otherwise restricts the number of apprentices employed at a designated work site, and that restriction prevents the condition in paragraph 127.46(5)(a) from being met.

Based on a textual, contextual and purposive analysis, it is our opinion that the reasonable efforts requirement in paragraphs 127.46(5)(a) and (b) must be evaluated on an objective basis, such that these reasonable efforts must be analyzed by looking at comparable standards and practices within the particular industry.

Subsection 127.46(16) provides that, where its conditions are met, an incentive claimant is deemed to have made reasonable efforts to satisfy the 10% Requirement. While subsection 127.46(16) provides one way in which an incentive claimant may satisfy the reasonable efforts requirement, it is not meant to narrow the ordinary meaning of “reasonable efforts”, as that term is used in paragraphs 127.46(5)(a) and (b).

In the present scenario, we understand that it may not be possible for the incentive claimant to rely on subsection 127.46(16) if the collective agreement prevents it from satisfying the statutory conditions, including the requirement to make bona fide job advertisements. However, where an incentive claimant cannot rely on subsection 127.46(16), the incentive claimant may nevertheless be able to demonstrate reasonable efforts through alternative actions. In particular, where the actions taken by the claimant are similar in substance to the actions described in subsection 127.46(16), adapted to the relevant collective agreement and hiring hall context, and directed toward increasing the participation of registered apprentices in a Red Seal trade at the relevant designated work site, those actions would generally support a conclusion that reasonable efforts were made for purposes of subsection 127.46(5).

It is also our view that the mere inclusion of initiatives in a collective agreement is not sufficient, in and of itself, to support a conclusion that reasonable efforts were made. The incentive claimant must be able to demonstrate that concrete, timely and documented actions were taken with a view to ensuring that apprentices registered in a Red Seal trade worked at least 10% of the total hours worked by Red Seal workers at the designated work site. Where the 10% Requirement is not achieved, the incentive claimant should be able to substantiate the steps taken to obtain additional apprentices and explain why those steps were reasonable in the circumstances.

We trust these comments will be of assistance.

Yours truly,

Pierre Girard
Section Chief
For Division Director
Specialty Tax Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch