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: Determine the CCA class for solar panels and heat pumps purchased on behalf of corporate and residential customers.
Position: 1) Class 8 Para (i) - 20%
Reasons: 1) Class 43.1 only available if specific criteria met
2002-015516
XXXXXXXXXX Luisa A. Majerus
(613) 946-3558
November 15, 2002
Dear XXXXXXXXXX:
Re: Solar Panels and Heat Pumps
We are writing in response to your correspondence of July 31, 2002, wherein you requested our views regarding the capital cost allowance ("CCA") classification of solar panels and heat pumps. We have provided our comments based on the facts as outlined during our telephone conversation.
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 the following comments.
It is our understanding that the equipment consisting of solar panels and heat pumps will be purchased by the company (i.e., XXXXXXXXXX). XXXXXXXXXX will install the equipment at a customer's establishment but title of the equipment will remain with XXXXXXXXXX.
The customer will use the equipment to heat water for its own purposes. You indicated that residential, commercial and industrial customers would use the equipment.
XXXXXXXXXX will collect an energy consumption fee determined through usage meters. Alternatively, XXXXXXXXXX will charge an equipment rental fee to the customer based on the cost of the equipment and duration of use.
The active solar heating equipment will be eligible for CCA treatment under Class 43.1(d) of the Income Tax Regulations only if XXXXXXXXXX or a lessee of XXXXXXXXXX uses the equipment primarily for the purpose of heating a liquid used directly in an industrial process.
As per our discussion, XXXXXXXXXX will not be using the solar heating equipment directly. Therefore, Class 43.1(d) will apply where the customer rents and uses the equipment primarily for the purpose of heating a liquid used directly in an industrial process. The word "primarily" generally means "more than 50%"of the time. The term "industrial process" in this context generally means an operation in which goods are manufactured or processed as opposed to, for example, a retail operation. Otherwise, the heating systems consisting of solar panels and heat pumps should be included in Class 8.
We trust these comments will be of assistance.
Yours very truly,
for Director
Reorganizations and Resources Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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