Subsection 127.44(1)
Dedicated Geological Storage
Administrative Policy
31 October 2024 External T.I. 2024-1038061E5 F - Dedicated Carbon Storage
Does a “geological formation” referred to in the definition of “dedicated geological storage” refer only to an underground reservoir, or can it include an underground mineral formation used for carbon storage, for example, an underground serpentinite deposit? CRA stated:
[A] “geological formation” will be an identifiable rock body with stable lithic characteristics that distinguish it from adjacent rock bodies and that occupies a particular position in the rock layers (the stratigraphic column). A formation may be mapped on the Earth’s surface or traceable underground. In general terms, a formation can be distinguished on the basis of the identification of a rock unit that has specific internal characteristics that make it different from neighbouring units.
CRA concluded:
[A] geological formation is not limited to underground reservoirs but could instead include rock bodies with the characteristics described above.
Qualified Carbon Capture Expenditure
A
Paragraph (b)
Subparagraph (b)(i)
Administrative Policy
5 June 2025 External T.I. 2025-1055221E5 - CCUS Factor - Power Purchase Agreements
Taxpayer A will construct a power plant built with integrated carbon capture equipment in Alberta (Project A), which constitutes a qualified CCUS [carbon capture, utilization, and storage] project as defined in s. 127.44(1). The power generation property is dual-use equipment as defined in s. 127.44(1). The power generation equipment of Project A will be utilized as to approximately 87% to power the carbon capture equipment, with the balance being delivered to the Alberta electricity grid.
Taxpayer B, also a taxable Canadian corporation, will operate an Alberta qualified CCUS project (Project B), and will receive electricity from the Alberta grid at a metered interconnection point, given that it will have power requirements in excess of the amount of surplus electricity generated by its power generation equipment.
Taxpayers A and B will enter into a power supply agreement that will be effected as a direct sales agreement under the Electric Utilities Act (Alberta), under which each will provide to the other all relevant metering data in respect of the surplus electricity from Project A. The agreement will provide that the purchase and sale of the surplus electricity between them will be conducted through a dual-metering metering arrangement, whereby Taxpayer A will deliver electricity to the grid at a metered interconnection point, and Taxpayer B will receive electricity from the grid at a metered interconnection point.
During the term of the agreement, 100% of the surplus electricity generated by Project A power generation equipment will be purchased by Taxpayer B for use (and only for use) in CCUS Project B.
They will acknowledge that Taxpayer B may not receive the actual electricity generated from the power generation equipment of Project A but will instead receive electricity from the grid in accordance with the rules set out by the regulatory regime.
Taxpayer A will collect any applicable GST payable in respect of the supply of surplus electricity to Taxpayer B under the power supply agreement.
After noting that the definition of qualified carbon capture expenditure – A(b)(i) in s. 127.44(1) refers to “the amount of energy expected to be produced for use in a qualified CCUS project over the project's total CCUS project review period”, CRA stated:
[I]t is our view that there is no restriction on counting energy delivered through an electrical utility grid in determining “the amount of energy expected to be produced for use in a qualified CCUS project”. However, the energy must be sold by the taxpayer to the owner of the other qualified CCUS project (e.g., through a direct sales agreement) and such energy must be necessary for the operation of the other project. Energy that is provided to an electrical utility grid that may, incidentally, be used by another qualified CCUS project should not be counted.
Subsection 127.44(4)
Administrative Policy
21 July 2025 External T.I. 2024-1039761E5 - CCUS timing issue: Paragraph 127.44(9)(h)
In 2026. a taxable Canadian corporation (Aco) takes ownership and delivery of, and pays for, equipment described in Class 57(a) at the premises of its proposed carbon capture facility that will meet the CCUS project definition. However, the equipment will be stored at the premises until Natural Resources Canada (NRCan) issues an initial project evaluation, which will not occur until 2027. S. 127.44(9)(h) does not apply (presumably because NRCan had accepted the filing of a project plan in or before 2026.)
After noting that, unlike other clean economy investment tax credits, there is no requirement that the property acquired be available for use before the CCUS tax credit can be claimed, CRA indicated that the expenses incurred in 2026 could be considered to have been incurred in respect of a qualified CCUS project of ACo once ACo's project became a qualified CCUS project upon receipt of the initial project evaluation from NRCan in 2027.
Accordingly, such expenditure would be qualified carbon capture expenditures for the 2026 taxation year.
If ACo did not know whether it had a qualified CCUS project by June 30, 2027, the filing deadline for the 2026 taxation year, it could not claim the CCUS tax credit at that time. However, due to s. 127.44(17), it would have up until June 30, 2028, to make that claim for the 2026 taxation year.
If the equipment was imported into Canada in 2026, the answer would not change and, if imported in 2027, the invoice paid in 2026 for the equipment would be a qualified CCUS expenditure in ACo's 2027 taxation year, pursuant to the timing rule in s. 127.44(9)(c).
Subsection 127.44(9)
Administrative Policy
21 July 2025 External T.I. 2025-1068511E5 - CCUS timing issue: Paragraph 127.44(9)(e)
A taxable Canadian corporation (BCo), receives initial project evaluation from Natural Resources Canada (NRCan) for its CCUS project in 2025. In 2026, it incurs $1,000,000 for detailed engineering costs relating to Class 57 equipment to be acquired by it; in 2027, it requires further Class 57 equipment for $10,000,000; and in 2028, it pays $5,000,000 in installing the Class 57 equipment in the course of constructing the carbon capture facilities.
CRA noted that although there was no property acquired in 2028 (but only in 2027), s. 127.44(9)(e) would deem the related property to have been acquired in 2028, thereby permitting the definition of qualified carbon capture expenditure to apply to the taxpayer in 2028 in respect of the $5,000,000 of installation costs.
Furthermore, the deeming rule in s. 127.44(9)(e) was to be applied in respect of each particular expenditure such that its application to the installation cost incurred in 2028 would not adversely impact its application to expenditures incurred in the previous taxation year. For example, applying s. 127.44(9)(e) to the $1,000,000 of detailed engineering costs incurred in 2026, they would be deemed to be incurred in the later of the year in which they were incurred (2026), and the year in which the property to which they related was acquired (2027), so that they would be deemed to be incurred in 2027.