What’s Changed
Canada’s Finance Department released draft legislative proposals on July 23, 2026 that include amendments to expand the Investment Tax Credit for Carbon Capture, Utilization, and Storage (CCUS). The change would allow storage of CO₂ via enhanced oil recovery (EOR) to be eligible — albeit at half the credit rate compared to geological storage. (canada.ca) These amendments take effect for expenditures incurred on or after April 28, 2026, and apply to tax years starting January 1, 2026 or afterward. (canada.ca)
Why It Matters
- Allows additional projects (EOR operations) to claim credit — increasing the universe of eligible activities.
- The “half-credit” rate for EOR recognizes that while EOR provides storage, it's not the same as dedicated geological sequestration.
- Businesses already engaged in CCUS or EOR should revisit financial models to see the impact of the change.
Action Steps for Businesses
- Review project plans initiated after April 28, 2026 and evaluate whether they involve EOR operations that capture and permanently store CO₂.
- Update claim pipelines: Adjust projections and cash flows to incorporate half-rate credit for EOR storage.
- Check jurisdiction: If your EOR project is located in what is defined as a "designated EOR jurisdiction", make sure that your storage plans meet the permanence thresholds (95% of captured carbon intended for permanent storage). (canada.ca)
- Document eligibility: Maintain project evaluation and commitment records, including expected uses, to support eligibility during audits.
Example Scenario
Company A has a CCUS project that captures CO₂ and stores it in an EOR operation. Normally, under geological storage they'd get 37½% credit on eligible expenditures. For EOR storage, only half of that rate applies. But thanks to the change, if the project started after April 28, 2026 and is in a designated jurisdiction, they’re now eligible. Suppose they spend $10 million; the EOR-portion yields credit as though $5 million was eligible at full rate.
Key Takeaways
- The amendments open up new tax credit opportunities—but with different rates, so a precise understanding of project classification matters.
- Being aware of effective dates (beginning after April 28, 2026; years starting Jan 1, 2026) is crucial.
- Proper documentation, especially of “designated EOR use” and storage plans, will be central to supporting claims and avoiding disputes.
Bottom line: If your planned or ongoing carbon capture work involves EOR, this policy gives you new pathways to claim incentives — but don’t assume full credit. Align your planning, costs, and filing to reflect these precise, technical changes.