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Draft Changes Ahead: Clean Hydrogen, Exploration and Tax Anti-Avoidance Measures in Proposed Legislation
Canada is consulting on proposed legislative changes to tax rules touching clean hydrogen, investment anti‐avoidance, and exploration—learn what’s proposed and what that could mean for your business.
By NomadicTax Research Team • 5-8 min read • April 23, 2026
## What’s Being Proposed?
Under consultation released January-February 2026, the Government of Canada has put forward **draft legislative proposals** that would implement or refine tax measures from Budget 2025 and earlier. **These are not yet law**, but could substantially impact business planning. ([canada.ca](https://www.canada.ca/en/department-finance/programs/consultations/2026/consultation-on-draft-legislative-proposals-to-implement-certain-tax-measures-announced-in-budget-2025-or-earlier.html?utm_source=openai))
Key proposals include:
- **Clean Hydrogen Investment Tax Credit (ITC)**: expand eligibility to include hydrogen produced via **methane pyrolysis**; clarify rules to better align with policy intent and improve administrative efficiency. ([canada.ca](https://www.canada.ca/en/department-finance/programs/consultations/2026/consultation-on-draft-legislative-proposals-to-implement-certain-tax-measures-announced-in-budget-2025-or-earlier.html?utm_source=openai))
- **Canadian Exploration Expense** adjustments: expenses incurred for determining the *quality* of a mineral resource would be eligible, but those related to the *economic viability or engineering feasibility* would not. ([canada.ca](https://www.canada.ca/en/department-finance/programs/consultations/2026/consultation-on-draft-legislative-proposals-to-implement-certain-tax-measures-announced-in-budget-2025-or-earlier.html?utm_source=openai))
- **Anti-avoidance expansion**: extend rules to avoid deferral of corporate income tax by interposing corporations with staggered year ends; expand about trust transfers and non-arm’s length entities. ([canada.ca](https://www.canada.ca/en/department-finance/news/2026/01/government-launches-consultation-on-draft-legislation-for-previously-announced-and-technical-tax-measures.html?utm_source=openai))
## What to Watch Out For
- Since these are **consultations**, **final draft legislation may change**. Filing or investment decisions should account for this risk.
- Effective dates vary: some changes apply retroactively or from **March 28, 2023** for specific credits; others for agreements entered into before **April 1, 2027**; some rules take effect for **2025 tax years onwards**. ([canada.ca](https://www.canada.ca/en/department-finance/news/2026/01/government-launches-consultation-on-draft-legislation-for-previously-announced-and-technical-tax-measures.html?utm_source=openai))
## Practical Business Implications
Businesses in sectors like clean energy, mining, exploration, and those with complex corporate structures should anticipate:
- **Eligible Pathway Expansion**: If your clean hydrogen project uses methane pyrolysis or similar newer technologies, these changes could unlock new investment tax credits. Start reviewing long-lead time projects now.
- **Budgeting Exploration Expenses**: Be careful categorizing costs—quality testing vs feasibility studies—and track contracts carefully, especially for flow-through share agreements.
- **Trusts, Hybrid Mismatches**: If your corporate structure involves trusts, or you have foreign affiliates supporting Canadian insurance risks, be prepared for increased reporting and possible tax adjustments.
## When Might This Happen?
- Some proposals are already included in **Bill C-4: Making Life More Affordable for Canadians Act**, or are expected to be in upcoming budget or implementation bills. But timing for Royal Assent or regulatory detail is still pending. ([canada.ca](https://www.canada.ca/content/dam/fin/publications/taxexp-depfisc/2026/taxexp-depfisc-26-eng.pdf?utm_source=openai))
- Stakeholders were asked to provide feedback by late February 2026; since that consultation is now closed, watch for announcements in spring/summer sitting of Parliament. ([canada.ca](https://www.canada.ca/en/department-finance/programs/consultations/2026/consultation-on-draft-legislative-proposals-to-implement-certain-tax-measures-announced-in-budget-2025-or-earlier.html?utm_source=openai))
## Action Steps for Business Owners
- If you're planning a **hydrogen or energy project**, align your timelines so eligible investments fall when proposed provisions become effective. Note acquisition/use dates.
- For mining and exploration, examine if your flow-through share agreements will meet the upcoming eligibility window for METC before April 1, 2027.
- Revisit your corporate structure: avoid arrangements susceptible to the proposed anti-avoidance rules—especially interposing entities with staggered year‐ends or trust‐to‐trust transfers.
- Engage with your tax advisors and monitor Finance Canada announcements and draft legislation to adjust forecasts accordingly.
**Summary**: These proposed changes signal that the government is keen to refine incentives for clean energy and exploration, while also tightening anti-avoidance. Whether or not all proposals survive the legislative process, businesses should be preparing now.