Tax Planning
Tax Planning for Carbon Capture: How the New CCUS Investment Tax Credit Changes the Game in Canada
New legislative proposals boost the eligibility and scope of credit for carbon capture projects — here’s how businesses can realign their strategy to benefit.
By NomadicTax Research Team • 5-8 min read • August 3, 2026
## 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](https://www.canada.ca/en/department-finance/news/2026/07/government-launches-consultation-on-draft-legislation-for-various-tax-measures.html?utm_source=openai)) 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](https://www.canada.ca/en/department-finance/corporate/laws-regulations/draft-legislation/2026/07-ita-lir-2/note.html?utm_source=openai))
## 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
1. **Review project plans** initiated after April 28, 2026 and evaluate whether they involve EOR operations that capture and permanently store CO₂.
2. **Update claim pipelines**: Adjust projections and cash flows to incorporate half-rate credit for EOR storage.
3. **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](https://www.canada.ca/en/department-finance/corporate/laws-regulations/draft-legislation/2026/07-ita-lir-2/note.html?utm_source=openai))
4. **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.