Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.
Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CCRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ADRC.
Principal Issues: (a) Whether a wide-area wind resource exploration program undertaken by a wind energy corporation to develop a wind energy production capability database would be considered a "project" for the purpose of subsection 1219(1) of the Regulations. (b) Whether the expenses incurred by the corporation in respect of this program would be considered Canadian renewable and conservation expenses for the purposes of subsection 66.1(6) of the Act and section 1219 of the Regulations.
Position: (a) Yes; (b) No
Reasons: (a) Based upon the jurisprudence and the ordinary meaning of the term "project", it is our view that the wide-area wind resource exploration program would be considered a project and the expenses incurred by the wind energy corporation in carrying out the program would be considered "in respect of development of a project" for the purpose of subsection 1219(1) of the Regulations. (b) The program would not meet the requirement that at least 50% of the capital cost of the depreciable property to be used in the project would be the capital cost of any property that is described in Class 43.1 of Schedule II or that would be such property but for subsection 1219(1) of the Regulations. Therefore, it is our view that the expenses incurred by the corporation in respect of the program would not qualify as Canadian renewable and conservation expenses for the purposes of subsection 66.1(6) and section 1219 of the Regulations.
XXXXXXXXXX 2002-011935
Peter Lee
February 12, 2002
Dear XXXXXXXXXX:
Re: Technical Interpretation of CRCE Provisions - Wind Resource Exploration
This is in reply to your facsimile of January 21, 2002 wherein you have requested our views on whether certain expenses incurred in respect of a wind resource exploration program would qualify as Canadian renewable and conservation expenses ("CRCE") for the purposes of subsection 66.1(6) of the Income Tax Act (the "Act") and section 1219 of the Income Tax Regulations (the "Regulations").
Written confirmation of the tax implications inherent in particular transactions are given by this Directorate only where the transactions are proposed and are the subject matter of an advance income tax ruling request. Where the particular transactions are completed, the inquiry should be addressed to the relevant Tax Services Office. However, we are prepared to provide our general comments in respect of the following hypothetical situation.
Hypothetical Situation
In a hypothetical situation, a wind energy corporation would develop a program wherein it would deploy multiple wind data gathering towers (i.e., anemometer towers) and do all the related tasks to gather wind data in order to develop a wide-area wind energy production capability database (the "Wind Exploration Program"). This is analogous to conducting a seismic program in the oil and gas exploration. However, the Wind Exploration Program would not include any construction and ownership of a fixed location device that is a wind energy conversion system used by the corporation primarily for the purpose of generating electrical energy.
Legislation
Pursuant to subsection 1219(1) of the Regulations,
... for the purpose of subsection 66.1(6) of the Act, "Canadian renewable and conservation expense" means an expense incurred by a taxpayer... in respect of the development of a project for which it is reasonable to expect that at least 50% of the capital cost of the depreciable property to be used in the project would be the capital cost of any property that is described in Class 43.1 of Schedule II or that would be such property but for this subsection, and includes such an expense incurred by the taxpayer...
(e) for process engineering for the project, including
(i) collection and analysis of site data,
(ii) calculation of energy, mass, water, or air balance,
(iii) simulation and analysis of the performance and cost of process design options, and
(iv) selection of the optimum process design...
(g) for the taxpayer's test wind turbine for the project...
Pursuant to subsection 1219(3) of the Regulations,
... for the purpose of paragraph (1)(g), "test wind turbine" means a fixed location device that is a wind energy conversion system that would, but for this section, be property included in Class 43.1 of Schedule II because of subparagraph (d)(v) thereof...
Pursuant to subparagraph (d)(v) of Class 43.1 of Schedule II of the Regulations, the following property would be included in this Class:
... a fixed location device that is a wind energy conversion system that
(A) is used by the taxpayer... primarily for the purpose of generating electrical energy, and
(B) consists of a wind-driven turbine, electrical generating equipment and related equipment, including
(I) control, conditioning and battery storage equipment,
(II) support structures,
(III) a powerhouse complete with other ancillary equipment, and
(IV) transmission equipment,
other than distribution equipment, auxiliary electrical generating equipment or property otherwise included in Class 10 or 17...
It is our view that in the above-noted hypothetical situation, the expenses incurred by the wind energy corporation in the Wind Exploration Program, in and by themselves, would not qualify as Canadian renewable and conservation expenses for the purposes of subsection 66.1(6) of the Act and section 1219 of the Regulations. Our rationale is provided in the following paragraphs.
By analogy to the case of Ainsworth Lumber Co. Ltd., 2001 DTC 496 (TCC), it is arguable that the term "project" should be interpreted broadly. The word "project" is not defined in the Act. The Concise Oxford Dictionary, 8th Edition, defines "project" in part as:
1. a plan, a scheme; 2. a planned undertaking.
The Oxford English Dictionary, 2nd Edition, defines the word "project" in part as:
1. a plan, draft, scheme, or table of something; a tabulated statement; a design or pattern according to which something is made... 5.(a) something projected or proposed for execution; a plan, scheme, purpose; a proposal.
Based upon this jurisprudence and the ordinary meaning of the term "project", it is our view that the Wind Exploration Program would be considered a project and the expenses incurred by the wind energy corporation in carrying out the Wind Exploration Program would be considered "in respect of development of a project" for the purpose of subsection 1219(1) of the Regulations. However, such a project would not meet the other requirement that at least 50% of the capital cost of the depreciable property to be used in the project would be the capital cost of any property that is described in Class 43.1 of Schedule II or that would be such property but for subsection 1219(1) of the Regulations.
Therefore, it is our view that the expenses incurred by the corporation in respect of the Wind Exploration Program would not qualify as Canadian renewable and conservation expenses for the purposes of subsection 66.1(6) and section 1219 of the Regulations.
We hope that our above-noted comments are helpful to you.
Yours truly,
for Director
Reorganizations and Resources Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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