Global Daily Tax News, Canada Consults On Potential Clean Energy Domestic Content Tax Break, (Feb 17, 2026)

As committed to in Budget 2025, Canada's Department of Finance has launched a consultation on the possibility of introducing a domestic content requirement under the Clean Technology and Clean Electricity investment tax credits (ITCs).

ITCs are designed to help Canada transition to a net-zero economy by supporting new investments in clean or low-emitting energy systems.

Other countries, including the US, have incorporated domestic content requirements in their clean electricity tax credits to encourage the use of domestic materials and equipment. In Canada, stakeholders have called for similar measures to strengthen domestic supply chains and support Canadian manufacturers, the Finance Department noted.

Feedback is being sought by March 13, 2026.

Noteworthily, earlier this month, a World Trade Organization panel hearing a dispute brought by Chinese authorities directed the United States to withdraw the Inflation Reduction Act's domestic content bonus credit.

The US's domestic content bonus credit is available to taxpayers that certify their qualified facility, energy project, or energy storage technology was built with certain percentages of steel, iron, or manufactured products that were mined, produced, or manufactured in the United States.

The domestic content bonus credit provision increases the available production tax credit (for producing and selling electricity generated from certain renewable sources) by 10 percent if the domestic content requirement is satisfied.

The domestic content bonus credit provision increases the available investment tax credit (for investing in certain property used to produce electricity from renewable sources) by increasing the energy percentage or applicable percentage by either 10 percentage points or by two percentage points if the domestic content requirement is satisfied.

The panel found that the credits are inconsistent with international trade law, and in particular the General Agreement on Tariffs and Trade, due to the domestic content restrictions attached to securing the favorable treatment. Among other things, the panel concluded "the United States has not demonstrated that the ITC/PTC Domestic Content Bonus Credits are measures necessary for the protection of public morals under the general exception in Article XX(a) of the GATT 1994."