2003 Ruling 2003-0034773 - Test Wind Turbine-XXXXXXXXXX

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:(i) Whether two wind turbines will constitute "test wind turbines" such that costs in respect thereto may potentially be included in XXXXXXXXXX .

(ii) Whether certain shares will be "XXXXXXXXXX ".

Position: (i) Yes, provide certain amendments to the Regulations come into force as proposed and a testing program is conducted as proposed.

(ii) Unable to so rule, however, ruling provide that certain specified factors would not cause the shares to be prescribed shares.

Reasons: (i) Based upon the facts of the situation, the relevant proposed amendments and a written opinion received from Natural Resources Canada.

(ii)Based upon the facts of the situation and the relevant provisions of the Regulations.

XXXXXXXXXX 2003-003477

XXXXXXXXXX, 2003

Dear XXXXXXXXXX:

Re: Advance Income Tax Ruling
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
(collectively referred to herein as "the Applicants")

This is in reply to your letter dated XXXXXXXXXX wherein you requested an advance income tax ruling on behalf of the above applicants. We also acknowledge receipt of your letters of XXXXXXXXXX, the other materials submitted by electronic mail and the information provided in our various telephone conversations concerning this matter.

The office address for each of the Applicants is XXXXXXXXXX. The tax identification numbers for XXXXXXXXXX respectively (such numbers have yet to be assigned to the other two limited partnerships which are Applicants). XXXXXXXXXX files its income tax returns under business number XXXXXXXXXX and is serviced by the XXXXXXXXXX Tax Services Office and the XXXXXXXXXX Tax Centre.

To the best of your knowledge and that of the Applicants involved, none of the issues contained herein:

(i) is in an earlier tax return of any of the Applicants or a related person;

(ii) is being considered by a tax services office or taxation centre in connection with a previously filed tax return of any of the Applicants or a related person;

(iii) is under objection by any Applicant or a related person;

(iv) is before the Courts or, if a judgement has been issued, the time limit for appeal to a higher Court has expired; or

(v) is the subject of an advance income tax ruling previously issued by the Income Tax Rulings Directorate XXXXXXXXXX.

Definitions

Unless otherwise stated, in this letter the following terms and expressions have the meanings specified below:

"XXXXXXXXXX Agreement" means the agreement in writing between LP C and Opco described in 20 below.

"XXXXXXXXXX Agreement" means the agreement in writing between LP D and Opco described in 23 below.

"XXXXXXXXXX Agreement E" means the agreement in writing between LP E and Opco described in 29 below.

"XXXXXXXXXX Agreement F" means the agreement between LP F and Opco described in 26 below.

"XXXXXXXXXX Transfer Agreement E" means the agreement between LP E and Mutual Fund Co described in 11 below.

"Act" means the Income Tax Act R.S.C. 1985 (5th Supp.), c.1 as amended to the date of this letter.

"adjusted cost base" has the meaning assigned to that expression by section 54 of the Act.

XXXXXXXXXX.

"Build-Out Turbines" has the meaning ascribed thereto in 3 below.

"Canadian-controlled private corporation" has the meaning assigned to that expression by subsection 125(7) of the Act.

"CCRA" means the Canada Customs and Revenue Agency.

XXXXXXXXXX

"Canadian partnership" has the meaning assigned to that expression in subsection 102(1) of the Act.

XXXXXXXXXX

"CBCA" means the Canada Business Corporations Act.

"Class 43.1" means Class 43.1 of Schedule II to the Regulations.

"Class" means a class of property prescribed for purposes of Schedule II to the Regulations.

"Class A shares" means Class A shares in the capital of Opco.

"Class B shares" means Class B shares in the capital of Opco.

"Class C shares" means Class C shares in the capital of Opco.

"Closing Date" has the meaning ascribed thereto in 17 below.

"cost amount" has the meaning assigned to that term by subsection 248(1) of the Act.

"depreciable property" has the meaning assigned to that term by subsection 13(21) of the Act.

"eligible property" has the meaning assigned to that term by subsection 85(1.1) of the Act.

XXXXXXXXXX

"Indemnity Obligations" means the obligation of Opco to indemnify a member of LP C, LP D, LP E or LP F, as the case may be, in the manner described in paragraph 20 or 23 below as applicable, for an amount which in no case will exceed the amount of any tax payable under the Act or the laws of a province by the member as a consequence of the failure of Opco to renounce an amount to the relevant partnership or a reduction, XXXXXXXXXX, of an amount purported to be renounced to the partnership, as provided in the XXXXXXXXXX Agreement, the XXXXXXXXXX Agreement, the XXXXXXXXXX Agreement E or the XXXXXXXXXX Agreement F as applicable with respect to Class A shares issued under the respective agreement.

"Joint Venture Agreement" means the agreement between Y Co and X Co dated XXXXXXXXXX.

XXXXXXXXXX.

"Listed Expenditures" has the meaning ascribed thereto in 35 below.

"LP C" means XXXXXXXXXX.

"LP D" means XXXXXXXXXX.

"LP E" means XXXXXXXXXX.

"LP F" means XXXXXXXXXX.

"Manage Co" means XXXXXXXXXX, a corporation incorporated under the CBCA on XXXXXXXXXX.

"Manage Co C" means XXXXXXXXXX, a corporation incorporated under the laws of the Province of XXXXXXXXXX.

"Manage Co D" means XXXXXXXXXX, a corporation incorporated under the laws of the Province of XXXXXXXXXX.

"Manage Co E" means XXXXXXXXXX, a corporation incorporated under the laws of the Province of XXXXXXXXXX.

"Manage Co F" means XXXXXXXXXX, a corporation incorporated under the laws of the Province of XXXXXXXXXX.

"Minister" means the Minister of National Revenue.

"Mutual Fund Co" means XXXXXXXXXX.

"mutual fund corporation" has the meaning assigned to that term in subsection 131(8) of the Act.

"non-resident person" means a person not resident in Canada for purposes of the Act.

"NR Can" means Natural Resources Canada.

"Opco" means XXXXXXXXXX.

XXXXXXXXXX

"Power Co" means XXXXXXXXXX.

"PPA" means the Power Purchase Agreement XXXXXXXXXX.

XXXXXXXXXX

"Project" means the wind farm project being developed at XXXXXXXXXX.

"Project Loan" has the meaning ascribed thereto in 37 below.

"Proposed Amendments" means the amendments proposed to subsections 1219(1) and (3) of the Regulations in News Release 2002-063 issued by the Department of Finance on July 26, 2002.

"public corporation" has the meaning assigned by subsection 89(1) of the Act.

"related persons" has the meaning assigned to that expression in subsection 251(2) of the Act.

"Regulations" means the Income Tax Regulations.

"Series XXXXXXXXXX shares" means XXXXXXXXXX shares of Mutual Fund Co XXXXXXXXXX.

"short-term preferred share" has the meaning assigned to that expression in subsection 248(1) of the Act.

"Start Date" has the meaning ascribed thereto in 35 below.

"subsidiary wholly-owned corporation" has the meaning assigned to that expression in subsection 248(1) of the Act.

"System A" means the wind energy conversion system described in 3 below which is to be installed as part of the Project and includes Turbine A.

XXXXXXXXXX

"taxable Canadian corporation" has the meaning assigned to that expression in subsection 89(1) of the Act.

"taxable preferred share" has the meaning assigned to that expression in subsection 248(1) of the Act.

"test wind turbine" has the meaning assigned to that term in subsection 1219(3) of the Regulations.

"Testing Period" has the meaning ascribed thereto in 35 below.

"Turbine A" means the wind driven turbine (comprised of a mast, nacelle, blades and related equipment) to be installed as part of the Project at XXXXXXXXXX.

XXXXXXXXXX

"X Co" means XXXXXXXXXX, a corporation incorporated under the laws of the Province of XXXXXXXXXX.

"Y Co" means XXXXXXXXXX.

Our understanding of the facts, proposed transactions and purpose of the proposed transactions is as follows:

Facts

1. On XXXXXXXXXX, Y Co entered into a Joint Venture Agreement with X Co whereunder it and its affiliated entities intend to help X Co finance the development and construction of the Project. The arrangements under the Joint Venture Agreement are subject to certain conditions including receipt of advance income tax rulings satisfactory to Y Co.

2. Since XXXXXXXXXX, X Co has been working on the development of the Project. X Co has, among other things, obtained a wind study report, certain permits and engineering studies and access to the required lands. XXXXXXXXXX. X Co owns all of the outstanding shares of Opco. X Co is related to Opco for purposes of the Act.

Each of X Co, XXXXXXXXXX and Opco is a Canadian-controlled private corporation and a taxable Canadian corporation.

3. The Project's planned nameplate capacity is between XXXXXXXXXX megawatts. It is expected that System A XXXXXXXXXX will be installed before XXXXXXXXXX during Phase I of the Project for an estimated cost of approximately $XXXXXXXXXX. System A XXXXXXXXXX will be wind energy conversion systems consisting of a wind driven turbine, electrical generating equipment and related equipment. The primary purpose for installing XXXXXXXXXX Turbine A XXXXXXXXXX will be to test the level of electrical energy produced by such turbines from the winds at their respective fixed locations.

Provided that test results derived from the operation of System A XXXXXXXXXX demonstrate the forecasted level of energy production having regard to all relevant factors, it is expected that a further XXXXXXXXXX wind turbines will be installed in XXXXXXXXXX during Phase II of the Project (the "Build-Out Turbines") at an estimated cost of $XXXXXXXXXX.

The aggregate electrical energy expected to be produced from the winds by System A XXXXXXXXXX will not exceed 20% of the Project's planned nameplate capacity. The Project will have a point of interconnection to an electrical energy or transmission system of Power Co and there is no current intention that such point of interconnection be shared with another wind farm project. System A XXXXXXXXXX will be interconnected and will together have a single point of interconnection to an electrical energy transmission system operated by Power Co. If the Build-Out Turbines are acquired, they will, as part of the same Project, subsequently use the same point of interconnection to the Power Co system. At least 50% of the capital cost of the depreciable property to be used in the Project will be the capital cost of property described in Class 43.1.

4. XXXXXXXXXX.

Each of Manage Co C, Manage Co D, Manage Co E and Manage Co F is a subsidiary wholly-owned corporation of Manage Co. In addition, Manage Co, Y Co and Mutual Fund Co are related persons for purposes of the Act.

Each of Y Co, Manage Co, Manage Co C, Manage Co D, Manage Co E and Manage Co F is a Canadian-controlled private corporation and a taxable Canadian corporation.

Mutual Fund Co is a public corporation and a mutual fund corporation. Manage Co XXXXXXXXXX controls Mutual Fund Co for purposes of the Act.

5. Each of X Co, XXXXXXXXXX and Opco deal at arm's length for purposes of the Act with each of Y Co, Manage Co, Manage Co C, Manage Co D, Manage Co E and Manage Co F.

6. XXXXXXXXXX.

XXXXXXXXXX. None of X Co, Opco, Y Co, Manage Co, Manage Co C, Manage Co D, Manage Co E and Manage Co F has requested, or will request, that any supplier of turbines to be used in the Project make any statements or representations regarding the tax treatment to Opco resulting from the acquisition of such turbines.

7. Power Co is engaged in the production and sale of electric energy XXXXXXXXXX. Power Co deals at arm's length with all of the entities described above for purposes of the Act.

XXXXXXXXXX, X Co and Power Co have entered into the PPA, pursuant to which Power Co has agreed to purchase electrical power produced by the Project. The PPA is a long-term contract for the purchase of electrical energy XXXXXXXXXX.

The only payments provided for under the PPA are payments from Power Co XXXXXXXXXX for the purchase of electrical energy produced from the Project at a stated rate per kilowatt hour of energy delivered. The PPA does not provide for any benefit other than the sale of electricity produced by the Project.

8. X Co applied for incentives under the Wind Power Production Incentive ("WPPI") of the Government of Canada. The WPPI was announced in the December 2001 federal budget and was established to help Canada obtain its climate change goals by achieving direct reductions in greenhouse gas emissions.

The WPPI is being implemented by NR Can and is intended to cover approximately one-half of the current cost of the premium for the production of electricity from wind energy in Canada compared to production of same from conventional sources. In general terms, the WPPI can be claimed for every kilowatt-hour of qualifying production during the first ten years of production from a wind farm. Electricity generated from a test wind turbine is not eligible for WPPI.

Any amounts under the WPPI to which X Co (or its assignee, Opco) may be eligible to receive as a result of future negotiations would be in respect of production of electrical energy from the Build-Out Turbines and would not be in respect of production of electrical energy from XXXXXXXXXX System A XXXXXXXXXX.

9. Opco was incorporated under the CBCA on XXXXXXXXXX. The business of Opco is to develop, construct and operate the Project using System A XXXXXXXXXX and, if built, the Build-Out turbines to generate electrical energy.

10. LP C and LP D are limited partnerships XXXXXXXXXX, LP C and LP D have entered into agreements (the "Transfer Agreements") to transfer their respective property including any shares to Mutual Fund Co on specific dates in return for shares of Mutual Fund Co that will be distributed to the members of the particular partnerships.

11. LP E is a limited partnership formed on XXXXXXXXXX under the laws of the Province of XXXXXXXXXX with a declaration of limited partnership being filed under the Limited Partnerships Act (XXXXXXXXXX) on that date. Manage Co E is the general partner of LP E and the fiscal period of LP E ends on XXXXXXXXXX. LP E is a tax shelter and has obtained a tax shelter identification number under XXXXXXXXXX.

LP E was formed to invest primarily in common shares of corporations, where each such share is a XXXXXXXXXX issued by a principal-business corporation. XXXXXXXXXX.

Under the limited partnership agreement of LP E, each limited partner represents, warrants and covenants that the limited partner has not financed, and will not finance, the acquisition of limited partnership units of LP E with a borrowing or other indebtedness for which recourse is, or is deemed under the Act to be, limited.

In order to afford liquidity to the limited partners of LP E, LP E and Mutual Fund Co will enter into the XXXXXXXXXX Transfer Agreement E under which LP E will, subject to the satisfaction of certain conditions precedent, agree to transfer all of its property that is eligible property to Mutual Fund Co in exchange for Series XXXXXXXXXX Shares on or about XXXXXXXXXX. XXXXXXXXXX. Mutual Fund Co and LP E have agreed to file elections under subsection 85(2) of the Act in respect of each transferred property at an agreed amount equal to the cost amount thereof subject to the limitations set forth in subsections 85(1) and (2) of the Act. XXXXXXXXXX. Immediately following the transfer of the eligible property to Mutual Fund Co XXXXXXXXXX, LP E will be dissolved. At such time, the only property of LP E will be the Series XXXXXXXXXX Shares received from Mutual Fund Co and Manage Co E will receive XXXXXXXXXX % of the Series XXXXXXXXXX Shares and the limited partners will receive XXXXXXXXXX% of the Series XXXXXXXXXX Shares, in proportion to the number of limited partnership units held. It is intended that subsection 85(3) apply to the dissolution.

12. LP F is a limited partnership established on XXXXXXXXXX under the laws of the Province of XXXXXXXXXX. Manage Co F is the general partner of LP F and the fiscal period of LP F ends on XXXXXXXXXX. Manage Co is the initial limited partner in LP F and holds one limited partnership unit therein issued for $XXXXXXXXXX. LP F will, on a precautionary basis, obtain a tax shelter identification number under XXXXXXXXXX.

XXXXXXXXXX.

Under the limited partnership agreement of LP F, each limited partner will represent, warrant and covenant that the limited partner has not financed, and will not finance, the acquisition of limited partnership units of LP F with a borrowing or other indebtedness for which recourse is, or is deemed under the Act to be, limited.

The limited partnership agreement of LP F will also provide that no person who does not deal at arm's length with Opco for the purposes of the Act may become a limited partner in LP F prior to the exercise of the put option referred to in 17(f) below. Manage Co F will not permit any such person to become a limited partner in LP F prior to such time.

13. X Co submitted an application, dated XXXXXXXXXX, to NR Can for a technical opinion regarding the eligibility of XXXXXXXXXX System A XXXXXXXXXX as a test wind turbine under the Proposed Amendments (the "Application").

NR Can has completed their review of the Application and further thereto the CCRA has issued an opinion to X Co indicating that provided:

(a) the Project wind farm development is undertaken as planned in the Application with Turbine A XXXXXXXXXX being installed and used for a testing program as described therein;

(b) the facts and representations relating to this situation remain as stated in the Application; and

(c) subsections 1219(1) and (3) of the Regulations are amended substantially in the form contained in the Proposed Amendments;

XXXXXXXXXX System A XXXXXXXXXX would constitute a test wind turbine for purposes of subsections 1219(1) and (3) of the Regulations as amended by the Proposed Amendments at the time such system would, but for section 1219 of the Regulations, be property included in Class 43.1 because of subparagraph (d)(v) thereof.

Proposed Transactions

14. Phase I of the Project will be financed through the subscription for Class A shares of Opco, intended to be XXXXXXXXXX, by LP C, LP D, LP E and LP F.

15. XXXXXXXXXX.

16. Prior to undertaking the proposed transactions detailed below, X Co will transfer at fair market value all of its rights, titles and interests to the property relating to the Project to Opco, including the PPA, for consideration consisting solely of XXXXXXXXXX common shares of Opco. Immediately before the above transfer, Opco will have no significant assets or liabilities. Opco will assume the obligations of X Co under the contracts transferred to it, including the PPA. At the time of issuance of Class A shares in its capital stock as part of the proposed transactions described below, Opco will be a XXXXXXXXXX corporation.

17. On a date (the "Closing Date") subsequent to the date of this letter, the following steps will occur in the following order:

(a) The Joint Venture Agreement will be terminated.

(b) The capital of Opco will be reorganized as set out in 18 below.

(c) The XXXXXXXXXX Agreement, XXXXXXXXXX Agreement, XXXXXXXXXX Agreement F, and, if applicable, the XXXXXXXXXX Agreement E, will be entered into simultaneously.

(d) Y Co, LP C, LP D and LP F will each subscribe for one Class C share in the capital stock of Opco for $XXXXXXXXXX in order that they become shareholders thereof. If the XXXXXXXXXX Agreement E is entered into, LP E will also subscribe for one Class C share in the capital stock of Opco for $XXXXXXXXXX.

(e) Opco, X Co, Y Co, LP C, LP D, LP F and, if applicable LP E, will enter into the Shareholders Agreement.

(f) Opco will grant to Y Co XXXXXXXXXX options to acquire Class C shares (the "Class C Options"), X Co will grant to Y Co an option to acquire XXXXXXXXXX Class B shares (such options being as described in paragraph 34 below) and LP F will grant to X Co a put option under which X Co will have the right to transfer its Class B shares to LP F at fair market value for units of LP F. X Co will only be able to exercise the put option during a period commencing XXXXXXXXXX.

18. Opco will, pursuant to section 173 of the CBCA, file articles of amendment in order to reorganize its share capital such that its authorized capital will consist of an unlimited number of Class A shares, XXXXXXXXXX Class B shares and XXXXXXXXXX Class C shares having the terms and conditions set out in 19 below.

Under the above reorganization of capital, all of the common shares of Opco held by X Co will be converted into XXXXXXXXXX Class B shares of Opco and the authorized but unissued common shares of Opco will be cancelled.

The issued share capital of Opco immediately after the above reorganization of its share capital will consist of XXXXXXXXXX Class B shares held by X Co.

19. The terms and conditions of the Class A, Class B and Class C shares of Opco will be as follows:

(a) Holders of the Class A shares will be entitled to XXXXXXXXXX per Class A share held. Subject to the dividend entitlements of the Class B shares, holders of Class A shares will receive dividends as and when declared by the board of directors of Opco. On the liquidation, winding-up or dissolution of Opco, the holders of Class A shares will be entitled to the remaining assets of Opco (i.e., after payment of all liabilities and amounts payable to the holders of the Class B and Class C shares).

(b) Holders of the Class B shares will be entitled to XXXXXXXXXX per Class B share held. XXXXXXXXXX:

XXXXXXXXXX.

(c) Holders of the Class C shares will be entitled to XXXXXXXXXX per Class C share held. XXXXXXXXXX.

20. Subject to 29 below, LP C will enter into a written agreement with Opco (the "XXXXXXXXXX Agreement") under which LP C will agree to subscribe for XXXXXXXXXX Class A shares of Opco for $XXXXXXXXXX payable in cash and Opco will agree:

(c) to incur, in the period beginning on the day the agreement is made and ending XXXXXXXXXX, $XXXXXXXXXX of XXXXXXXXXX, and

(d) to renounce to LP C, $XXXXXXXXXX of XXXXXXXXXX so incurred by Opco with an effective date of not later than XXXXXXXXXX. Such renunciations shall be made in prescribed form not later than XXXXXXXXXX.

XXXXXXXXXX

Class A shares will be issued on the basis of one Class A share for each $XXXXXXXXXX of XXXXXXXXXX. In this regard, the XXXXXXXXXX Agreement will provide that, if by XXXXXXXXXX, Opco has not incurred and renounced amounts in respect of XXXXXXXXXX, the remainder of such subscription price for the Class A shares will be paid in cash by LP C to Opco not later than XXXXXXXXXX and Opco will issue Class A shares to LP C on the basis of one share for each $XXXXXXXXXX so paid. Opco will renounce in respect of XXXXXXXXXX an amount equal to such remainder with an effective date of XXXXXXXXXX.

The XXXXXXXXXX Agreement will contain provisions permitting Class A shares to be paid for by LP C and issued to it in XXXXXXXXXX before the XXXXXXXXXX, to be actually incurred in XXXXXXXXXX and in respect of which Opco will purport to renounce amounts to LP C, is incurred. In that case, Opco will renounce amounts in respect of such XXXXXXXXXX after the Class A shares are issued.

The XXXXXXXXXX Agreement will also contain a provision that Opco shall indemnify each member of LP C for an amount not exceeding the amount of any tax payable under the Act or the laws of a province by the member as a consequence of:

i. the failure of Opco to renounce an amount to LP C in respect of the Class A shares, or

ii. a reduction, XXXXXXXXXX , of an amount purported to be renounced to LP C in respect of a Class A share.

XXXXXXXXXX

21. Subject to 29 below, Opco will file, within the applicable time limit, the prescribed form XXXXXXXXXX in respect of the XXXXXXXXXX Agreement. Pursuant to the XXXXXXXXXX Agreement, LP C will pay Opco an aggregate of $XXXXXXXXXX and Opco will issue XXXXXXXXXX Class A shares to LP C on or before XXXXXXXXXX . Opco will, XXXXXXXXXX , renounce to LP C in one or more renunciations an aggregate of $XXXXXXXXXX in respect of XXXXXXXXXX (incurred or to be incurred by Opco after entering into the XXXXXXXXXX Agreement and before the end of XXXXXXXXXX ) with an effective date of not later than XXXXXXXXXX and will file the form prescribed by XXXXXXXXXX no later than XXXXXXXXXX in respect of each such renunciation.

22. LP C will allocate (pursuant to the partnership agreement of LP C) the XXXXXXXXXX incurred by it as a result of renunciations made by Opco with an effective date in XXXXXXXXXX , to the limited partners of LP C at XXXXXXXXXX in proportion to the number of limited partnership units held on such date. LP C will file, within the applicable time limit, the prescribed form XXXXXXXXXX.

23. Subject to 29 below, LP D will enter into a written agreement with Opco (the "XXXXXXXXXX Agreement") under which LP D will agree to subscribe for XXXXXXXXXX Class A shares of Opco for $XXXXXXXXXX payable in cash and Opco will agree:

(a) to incur, in the period beginning on the day the agreement is made and ending XXXXXXXXXX , $XXXXXXXXXX of XXXXXXXXXX, and

(b) to renounce to LP D, $XXXXXXXXXX of XXXXXXXXXX so incurred by Opco with an effective date of not later than XXXXXXXXXX . Such renunciations shall be made in prescribed form not later than XXXXXXXXXX.

XXXXXXXXXX

The XXXXXXXXXX Agreement will contain provisions permitting Class A shares to be paid for by LP D and issued to it in XXXXXXXXXX before the XXXXXXXXXX, to be actually incurred in XXXXXXXXXX and in respect of which Opco will purport to renounce amounts to LP D, is incurred. In that case, Opco will renounce amounts in respect of such XXXXXXXXXX after the Class A shares are issued.

The XXXXXXXXXX Agreement will contain a provision that Opco shall indemnify each member of LP D for an amount not exceeding the amount of any tax payable under the Act or the laws of a province by the member as a consequence of:

(i) the failure of Opco to renounce an amount to LP D in respect of a Class A share issued under the XXXXXXXXXX Agreement, or

(ii) a reduction, XXXXXXXXXX, of an amount purported to be renounced to LP D in respect of a Class A share issued under the XXXXXXXXXX Agreement.

XXXXXXXXXX

24. Subject to 29 below, Opco will file, within the applicable time limit, the prescribed form XXXXXXXXXX in respect of the XXXXXXXXXX Agreement. Pursuant to the XXXXXXXXXX Agreement, LP D will pay Opco an aggregate of $XXXXXXXXXX on or before XXXXXXXXXX. If Opco has not actually incurred sufficient XXXXXXXXXX on or before XXXXXXXXXX, in order to renounce $XXXXXXXXXX in respect of XXXXXXXXXX to LP D with an effective date on or before XXXXXXXXXX then, as contemplated by the XXXXXXXXXX Agreement, LP D will pay an amount equal to the deficiency to Opco on or before XXXXXXXXXX which will be deposited with the custodian to be dealt with in accordance with the XXXXXXXXXX Agreement. Opco will, XXXXXXXXXX, renounce to LP D in one or more renunciations an aggregate of $XXXXXXXXXX in respect of XXXXXXXXXX (incurred or to be incurred by Opco after entering into the XXXXXXXXXX Agreement and before the end of XXXXXXXXXX) with an effective date of not later than XXXXXXXXXX and will file the form prescribed by XXXXXXXXXX no later than XXXXXXXXXX in respect of each such renunciation. Opco will issue Class A shares to LP D as contemplated by the XXXXXXXXXX Agreement on the basis of one Class A share for every $XXXXXXXXXX paid to it by LP D or released to it by the custodian as applicable.

25. LP D will allocate (pursuant to the partnership agreement of LP D) the XXXXXXXXXX incurred by it as a result of renunciations made by Opco with an effective date in XXXXXXXXXX, to the limited partners of LP D at XXXXXXXXXX in proportion to the number of limited partnership units held on such date. LP D will file, within the applicable time limit, the prescribed form XXXXXXXXXX.

26. LP F will enter into a written agreement with Opco (the "XXXXXXXXXX Agreement F") under which LP F will agree to subscribe for XXXXXXXXXX Class A shares of Opco for $XXXXXXXXXX payable in cash and Opco will agree:

(a) to incur, in the period beginning on the day the agreement is made and ending XXXXXXXXXX , $XXXXXXXXXX of XXXXXXXXXX, and

(b) to renounce to LP F, $XXXXXXXXXX of XXXXXXXXXX so incurred by Opco with an effective date of not later than XXXXXXXXXX. Such renunciations shall be made in prescribed form not later than XXXXXXXXXX.

XXXXXXXXXX

The terms and conditions of the XXXXXXXXXX Agreement F will be identical in all material respects to those of the XXXXXXXXXX Agreement as described in 23 above, XXXXXXXXXX .

In particular, the XXXXXXXXXX Agreement F will contain a representation and warranty by LP F that no share of the XXXXXXXXXX renounced by Opco to LP F will be included, XXXXXXXXXX, in the XXXXXXXXXX of Opco or of any member of LP F with which Opco does not, at any time in XXXXXXXXXX, deal at arm's length with Opco. Accordingly, no person who does not deal at arm's length with Opco may be a limited partner of LP F at any time in XXXXXXXXXX.

27. Opco will file, within the applicable time limit, the prescribed form XXXXXXXXXX in respect of the XXXXXXXXXX Agreement F. Pursuant to the XXXXXXXXXX Agreement F, LP F will pay Opco an aggregate of $XXXXXXXXXX on or before XXXXXXXXXX. If Opco has not actually incurred sufficient XXXXXXXXXX on or before XXXXXXXXXX, in order to renounce $XXXXXXXXXX in respect of XXXXXXXXXX to LP F with an effective date on or before XXXXXXXXXX then, as contemplated by the XXXXXXXXXX Agreement F, LP F will pay an amount equal to the deficiency to Opco on or before XXXXXXXXXX which will be deposited with the custodian to be dealt with in accordance with the XXXXXXXXXX Agreement F. Opco will, XXXXXXXXXX, renounce to LP F in one or more renunciations an aggregate of $XXXXXXXXXX in respect of XXXXXXXXXX (incurred or to be incurred by Opco after entering into the XXXXXXXXXX Agreement F and before the end of XXXXXXXXXX) with an effective date of not later than XXXXXXXXXX and will file the form XXXXXXXXXX no later than XXXXXXXXXX in respect of each such renunciation. Opco will issue Class A shares to LP D as contemplated by the XXXXXXXXXX Agreement F on the basis of one Class A share for every $XXXXXXXXXX paid to it by LP F or released to it by the custodian as applicable.

28. LP F will allocate (pursuant to the partnership agreement of LP F) the XXXXXXXXXX incurred by it as a result of renunciations made by Opco with an effective date in XXXXXXXXXX to limited partners of LP F at XXXXXXXXXX in proportion to the number of limited partnership units held on such date. LP F will file, within the applicable time limit, the prescribed form XXXXXXXXXX.

29. XXXXXXXXXX, LP E will enter into a written agreement with Opco (the "XXXXXXXXXX Agreement E") under which LP E will agree to subscribe for a certain number of Class A shares of Opco at a price of $XXXXXXXXXX per share payable in cash (the aggregate subscription price being the "Subscription Amount") and Opco will agree:

(a) to incur, in the period beginning on the day the agreement is made and ending XXXXXXXXXX in an amount equal to the Subscription Amount, and

(b) to renounce to LP F, an amount equal to the Subscription Amount in respect of XXXXXXXXXX so incurred by Opco with an effective date of not later than XXXXXXXXXX. Such renunciations shall be made in prescribed form not later than XXXXXXXXXX.

XXXXXXXXXX

If LP E enters into the XXXXXXXXXX Agreement E, the subscription amount under the XXXXXXXXXX Agreement and/or XXXXXXXXXX Agreement will be reduced by an aggregate amount equal to the Subscription Amount. In other words, the aggregate amount of subscriptions for Class A shares of Opco under the XXXXXXXXXX Agreement, the XXXXXXXXXX Agreement and the XXXXXXXXXX Agreement E will be $XXXXXXXXXX (or XXXXXXXXXX Class shares in aggregate). Such a reduction will not occur with regard to amounts subscribed for in respect of which Class A shares had been issued and would not result in a reduction in the issue price for Class A shares of Opco issued or to be issued under any of the XXXXXXXXXX Agreement, the XXXXXXXXXX Agreement or the XXXXXXXXXX Agreement E.

The terms and conditions of the XXXXXXXXXX Agreement E will be identical in all material respects to those of the XXXXXXXXXX Agreement as described in 23 above, XXXXXXXXXX.

In particular, the XXXXXXXXXX Agreement E will contain a representation and warranty by LP E that no share of the XXXXXXXXXX renounced by Opco to LP E will be included, XXXXXXXXXX , in the XXXXXXXXXX of Opco or of any member of LP E with which Opco does not, at any time in XXXXXXXXXX, deal at arm's length with Opco. Accordingly, no person who does not deal at arm's length with Opco may be a limited partner of LP E at any time in XXXXXXXXXX.

30. Opco will file, within the applicable time limit, the prescribed form XXXXXXXXXX in respect of the XXXXXXXXXX Agreement E. Pursuant to the XXXXXXXXXX Agreement E, LP E will pay Opco the Subscription Amount on or before XXXXXXXXXX . If Opco has not actually incurred sufficient XXXXXXXXXX on or before XXXXXXXXXX, after taking into account XXXXXXXXXX renounced or to be renounced to LP C and LP D, in order to renounce an amount in respect of XXXXXXXXXX equal to the Subscription Amount to LP E with an effective date on or before XXXXXXXXXX then, as contemplated by the XXXXXXXXXX Agreement E, LP E will pay an amount equal to the deficiency to Opco on or before XXXXXXXXXX which will be deposited with the custodian to be dealt with in accordance with the XXXXXXXXXX Agreement E. Opco will, XXXXXXXXXX, renounce to LP E in one or more renunciations an aggregate amount in respect of XXXXXXXXXX (incurred or to be incurred by Opco after entering into the XXXXXXXXXX Agreement E and before the end of XXXXXXXXXX) equal to the Subscription Amount with an effective date of not later than XXXXXXXXXX and will file the form XXXXXXXXXX no later than XXXXXXXXXX in respect of each such renunciation. Opco will issue Class A shares to LP E as contemplated by the XXXXXXXXXX Agreement E on the basis of one Class A share for every $XXXXXXXXXX paid to it by LP E or released to it by the custodian as applicable.

31. LP E will allocate (pursuant to the partnership agreement of LP E) the XXXXXXXXXX incurred by it as a result of renunciations made by Opco with an effective date in XXXXXXXXXX, to the limited partners of LP E at XXXXXXXXXX in proportion to the number of limited partnership units held on such date. LP E will file, within the applicable time limit, the prescribed form XXXXXXXXXX.

32. Each of the XXXXXXXXXX Agreement, XXXXXXXXXX Agreement, XXXXXXXXXX Agreement E and XXXXXXXXXX Agreement F will contain a provision that, if Opco fails to incur and renounce sufficient XXXXXXXXXX so that the maximum number of Class A shares subscribed for is issued, the relevant investor may purchase the remaining Class A shares for $XXXXXXXXXX per share on a non-flow-through basis.

Each of the agreements will also contain a termination clause which will provide that the particular agreement will terminate on the occurrence of certain events (an "Act of Termination") including (i) the date on which it becomes unlawful for Opco to carry out the Project (or a program involving the incurring of XXXXXXXXXX), (ii) XXXXXXXXXX business days after the investor gives notice of termination to Opco because of a failure of Opco to provide certificates and documents required to be provided under the particular agreement, (iii) the date on which the investor, relying on a written report of a reputable and qualified independent wind consultant or electrical engineer or firm of wind consultants or electrical engineers, believes that Opco is not capable of incurring expenditures in relation to the Project which constitute XXXXXXXXXX that Opco has agreed to incur, (iv) the date of the appointment of a trustee, receiver or liquidator on the bankruptcy or insolvency of Opco, or the liquidation or winding-up of Opco, (v) at the option of the investor, XXXXXXXXXX days from the date on which the investor gives notice to Opco to remedy a breach of any term of the particular agreement which is not so remedied, and (vi) at the option of the investor if any of the representations and warranties of Opco in the particular agreement are, or become, untrue which results in an adverse effect on Opco or the holders of Class A shares.

However, each particular agreement will specifically provide that if any such Act of Termination occurs and the particular agreement is terminated, the termination will have no effect on any action taken or performed by Opco before its occurrence and will not affect the obligation of Opco to renounce the maximum amount of XXXXXXXXXX it would otherwise be entitled to renounce by reason of the expenses being incurred before the occurrence of the Act of Termination and to issue Class A shares pursuant to the particular agreement. No Class A share of Opco that has been issued would be cancelled as a result of the occurrence of any Act of Termination and no amount in respect of consideration paid for a share so issued would be returned to the investor.

33. Opco, X Co, Y Co, LP C, LP D, LP F and, if applicable LP E, will enter into a Shareholders Agreement. The Shareholders Agreement will provide that Opco will have a board of directors consisting of XXXXXXXXXX members. However, if XXXXXXXXXX , the board of directors will be expanded to XXXXXXXXXX members. XXXXXXXXXX members of the board will be nominees of X Co and XXXXXXXXXX members of the board will be nominees of LP F. If the board is to have a XXXXXXXXXX member, that member will be independent of X Co, Y Co, Manage Co F and Manage Co and will be determined by agreement between LP F and X Co. The Shareholders Agreement will not contain any provisions that would cause Opco and Mutual Fund Co to not deal at arm's length in fact.

The Shareholders Agreement will also provide:

XXXXXXXXXX.

34. Pursuant to various options between X Co and Y Co as well as Opco and Y Co, Y Co and its related parties will have the ability to acquire sufficient Class B and Class C shares of Opco to allow it to own XXXXXXXXXX of the outstanding voting shares of Opco. The options will be exercisable in XXXXXXXXXX and XXXXXXXXXX. Y Co may assign a portion of its rights under such options to one or more of the LP's. For greater certainty, if at any time the options are exercised, the total number of shares of Opco owned by LP C, LP D, LP E, LP F, Y Co and Mutual Fund Co (or any other person or partnership which does not deal at arm's length with any such party) will not exceed XXXXXXXXXX of the outstanding shares of Opco.

35. Opco will continue the development of the Project. It will complete Phase I of the Project during which it will purchase and install all of the equipment, property and assets comprising System A XXXXXXXXXX . In particular, it is expected that Opco will incur expenditures of the following types and approximate amounts: engineering and other professional fees relating to the Project of approximately $XXXXXXXXXX; land clearing and construction of access roads to all planned wind driven turbines of approximately $XXXXXXXXXX; construction of System A approximately $XXXXXXXXXX; and miscellaneous items of approximately $XXXXXXXXXX (such expenditures are referred to herein as the "Listed Expenditures"). Except for certain costs relating to Turbine A XXXXXXXXXX, none of the Listed Expenditures will be payable to a non-resident person or a partnership other than a Canadian partnership. The cost of System A XXXXXXXXXX will include XXXXXXXXXX.

XXXXXXXXXX

It is expected that Turbine A XXXXXXXXXX will be installed and will be generating electricity before XXXXXXXXXX. Opco will test the level of electrical energy produced from wind by XXXXXXXXXX Turbine A XXXXXXXXXX for at least 120 calendar days from the XXXXXXXXXX final commissioning, as certified by the project engineer, for the production of electricity (XXXXXXXXXX such period being a "Testing Period").

After commencement of a XXXXXXXXXX Testing Period, a day during which the wind turbine is available to produce electricity but the wind speed is too low to activate the rotor, or, the wind speed is so high that it is necessary to shut down the rotor to avoid damage would be included in the Testing Period. On the other hand, shut downs due to equipment malfunctions that persist more than a day during the Testing Period will result in the Testing Period being extended by one day for each day of shut down due to such factor.

36. XXXXXXXXXX.

XXXXXXXXXX

The estimated total cost of completing Phase II of the Project is anticipated to be approximately $XXXXXXXXXX. Of this amount, the estimated cost of the Build-Out Turbines and certain project financing fees is approximately $XXXXXXXXXX and the cost of all other Phase II components of the Project, including the installation of electrical cable, transmission and substation systems and footings is expected to be approximately $XXXXXXXXXX. XXXXXXXXXX.

37. In XXXXXXXXXX, Opco will borrow amounts from one or more financial institutions having an aggregate principal amount of approximately $XXXXXXXXXX (the "Project Loan").

XXXXXXXXXX

Under the Project Loan, recourse of the lenders will not be limited. The term of the Project Loan will be XXXXXXXXXX years. The rate of interest for each draw down under the Project Loan will not be less than the prescribed rate of interest for the purposes of section 143.2 of the Act at the time of the draw down.

38. On or about XXXXXXXXXX, LP E will transfer, pursuant to the XXXXXXXXXX Transfer Agreement E, any Class A shares then owned by it to Mutual Fund Co in exchange for Series XXXXXXXXXX Shares as described in 11 above. Pursuant to the XXXXXXXXXX Transfer Agreement E, LP E and Mutual Fund Co will file joint elections in prescribed form and within prescribed time pursuant to subsection 85(2) at an agreed amount of $XXXXXXXXXX in respect of the Class A shares. Thereafter, LP E will be dissolved and the Series XXXXXXXXXX Shares will be distributed to the partners of LP E.

39. XXXXXXXXXX.

Additional Information

40. XXXXXXXXXX.

Purpose of the Proposed Transactions

41. The purpose of the proposed transactions is to finance the development and construction of the Project.

Rulings Given

Provided that the above statements of facts, proposed transactions and purpose of the proposed transactions are accurate and constitute complete disclosure thereof, and that the proposed transactions are carried out as set forth herein, the following rulings are given:

A. Each Class A share to be issued by Opco to LP C, LD D, LP E or LP F as described above will not be a prescribed share for purposes of the definition of "XXXXXXXXXX, by reason of:

(a) the terms and conditions of the Class A shares described in 19(a) above;

(b) the terms as described in 20 above of the XXXXXXXXXX Agreement, the terms as described in 23 above of the XXXXXXXXXX Agreement, the terms as described in 26 above of the XXXXXXXXXX Agreement F, the terms as described in 29 above of the XXXXXXXXXX Agreement E as well as the terms as described in 32 above of such agreements;

(c) the transfer of any Class A shares by LP C, LP D and LP E to Mutual Fund Co as described in 10 and 38 above;

(d) the terms as described in 33 above of the Shareholders Agreement;

(e) the acquisition of shares under the options described in 34 above resulting in the XXXXXXXXXX ownership of Opco by X Co and by Y Co (including partnerships the general partner of which does not deal at arm's length for purposes of the Act with Y Co) and under the put option as described in 17(f) above; and

(f) the rights to receive payments under the PPA described in 7 above XXXXXXXXXX.

B. The terms and conditions described in 19(a) above of the Class A shares, the transfer of the Class A shares by LP C, LP D and LP E to Mutual Fund Co as described in 11 and 38 above, the rights to receive payments under the PPA described in 7 above XXXXXXXXXX will not, in and by themselves, result in the Class A shares issued by Opco to LP C, LD D, LP E or LP F as described above being considered taxable preferred shares or short-term preferred shares for purposes of the Act.

C. The Indemnity Obligations will not reduce the "at-risk amount" of a limited partner of LP C, LP D, LP E or LP F by reason of paragraph 96(2.2)(d)(vii) of the Act and will not be an "at-risk adjustment" in respect of an expenditure (as defined in subsection 143.2(1) of the Act) of LP C, LP D, LP E or LP F or any limited partner thereof by reason of paragraph 143.2(3)(b)(iv) of the Act.

D. The information referred to in 6 above will not cause any of System A XXXXXXXXXX or the Build-Out Turbines to constitute a "tax shelter" as defined in subsection 237.1(1) of the Act.

E. Provided that throughout a particular taxation year the principal business of Opco is the production of electricity, pursuant to subsection 1100(26) of the Regulations the provisions of subsection 1100(24) thereof will not apply in determining the deduction provided for under subsection 1100(1) of the Regulations in computing Opco's income for that taxation year in respect of property of Class 43.1 that is specified energy property (as defined in subsection 1100(25) of the Regulations).

F. Provided that the Class A shares qualify as XXXXXXXXXX , the Class A shares issued as described above will not be considered tax shelters within the meaning assigned by subsection 237.1(1) of the Act.

G. Payments received by Opco for the purchase of electricity under the PPA, as described in 7 above, XXXXXXXXXX, will not:

(a) Reduce, XXXXXXXXXX, the "specified expenses" referred to in that paragraph in relation to XXXXXXXXXX incurred by Opco or be included in XXXXXXXXXX as applied to Opco.

(b) Be an amount referred to in paragraph 96(2.2)(d) of the Act in respect of any limited partner of LP C, LP D, LP E or LP F.

(c) Be an "at-risk adjustment", as defined in subsection 143.2(2) of the Act, in respect of an expenditure of Opco or of any limited partner of LP C, LP D, LP E or LP F.

The above rulings are given subject to the general limitations and qualifications set forth in Information Circular 70-6R5 issued by the CCRA on May 17, 2002 and are binding on the CCRA provided that the proposed transactions described in 17 above are completed before XXXXXXXXXX.

The rulings are based on the Act in its present form and do not take into account the effect of any proposed amendments thereto.

Opinions

I) Provided the Proposed Amendments come into force as proposed, an expense included in the Listed Expenditures that is incurred by Opco after the date of this letter and in respect of the development of the Project at a time when it remains 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 (or that would be such property but for subsection 1219(1) of the Regulations), will constitute XXXXXXXXXX to Opco provided the expense is payable to a person or partnership with whom Opco is dealing at arm's length for purposes of the Act, is incurred before the earliest time at which a property described in Class 43.1 is used in the Project for the purpose of earning income and to the extent such expense is not otherwise specifically excluded from XXXXXXXXXX under subsection 1219(2) of the Regulations, e.g., certain expenses in respect of overhead and management, financing and interest, or the acquisition, or use of, land. Subject to the limitations contained in the preceding sentence, an expense incurred by Opco for the construction of a temporary access road to Turbine A XXXXXXXXXX will constitute XXXXXXXXXX. For greater certainty, any other costs or expenses incurred by Opco for road construction for the Project (other than the temporary access road) will not be included in XXXXXXXXXX.

Subject to the limitations contained in the preceding paragraph, costs incurred by Opco for the System A XXXXXXXXXX will constitute XXXXXXXXXX to Opco at the time such respective system would, but for section 1219 of the Regulations be property included in Class 43.1 because of subparagraph (d)(v) thereof, i.e., at the time the system is used by Opco primarily for the purpose of generating electrical energy and has become available for use by Opco for purposes of subsection 13(26) of the Act. In particular, the cost for System A XXXXXXXXXX will XXXXXXXXXX be the aggregate of the cost of the wind-driven turbine, electrical generating equipment and related equipment comprising such respective system. Related equipment with regard to System A XXXXXXXXXX will include control equipment, support structures (including the foundations for Turbine A XXXXXXXXXX , as the case may be) and transmission equipment XXXXXXXXXX. Related equipment with regard to System A XXXXXXXXXX will not include distribution equipment, auxiliary electrical generating equipment or property otherwise included in Class 10 or Class 17 to Schedule II in the Regulations.

For greater certainty, expenses incurred by Opco and payable to X Co will not be able to constitute XXXXXXXXXX to Opco. XXXXXXXXXX.

II) Provided that the proposed amendments to XXXXXXXXXX of the Act released in December of 2002 by the Department of Finance come into force as proposed and that Opco deals at arm's length for purposes of the Act throughout XXXXXXXXXX with each of Manage Co C, Manage Co D, Manage Co E and Manage Co F as well as each of the limited partnerships, amounts renounced by Opco pursuant to XXXXXXXXXX, with an effective date of XXXXXXXXXX and in respect of XXXXXXXXXX incurred by Opco in XXXXXXXXXX, to LP C, LP D, LP E, LP F under the XXXXXXXXXX Agreement, the XXXXXXXXXX Agreement, the XXXXXXXXXX Agreement E and the XXXXXXXXXX Agreement F, respectively, will, XXXXXXXXXX become XXXXXXXXXX incurred by the relevant limited partnership on the effective date of the renunciation with a corresponding reduction to XXXXXXXXXX incurred by Opco as of that date.

Provided the proposed amendments to XXXXXXXXXX of the Act released in June of 2003 by the Department of Finance come into force as proposed, Opco will be deemed to deal at arm's length with a limited partnership described above for purposes of XXXXXXXXXX of the Act at all times in XXXXXXXXXX provided that no part of the expenses to be incurred by Opco in XXXXXXXXXX are allocated by the partnership to Opco or to a limited partner of the partnership who, at any time in XXXXXXXXXX, does not deal at arm's length with Opco.

The share of the XXXXXXXXXX so incurred by a limited partnership which is allocated (as described in 22, 25, 28 and 31 above) pursuant to the relevant limited partnership agreement to a person who is a limited partner therein at XXXXXXXXXX will, XXXXXXXXXX, be included, pursuant to XXXXXXXXXX, in the determination of the XXXXXXXXXX of the limited partner as of that date.

Opco will be subject to tax under Part X11.6 of the Act, as determined under subsection 211.91(1) thereof, in respect of the total of all amounts which it purports to renounce XXXXXXXXXX . Where an amount that Opco so purports to renounce exceeds the amount that it can renounce due to the inability of Opco to incur sufficient XXXXXXXXXX in XXXXXXXXXX, Opco will file with the Minister before XXXXXXXXXX the statement contemplated in XXXXXXXXXX and will in that statement apply the excess fully to reduce one or more of the purported renunciations. Except for the purpose of Part XII.6 of the Act, any amount that is purported to have been so renounced to any person will be deemed under XXXXXXXXXX, after the statement is filed with the Minister, to have always been reduced by the portion of the excess identified in the statement in respect of that purported renunciation.

The foregoing opinions are not advance income tax rulings and, as explained in paragraph 22 of Information Circular 70-6R5 referred to above, are not binding on the CCRA.

Comments

a. Except as expressly stated, our rulings and opinions do not imply acceptance, approval or confirmation of any income tax implications of the facts or proposed transactions. In particular, nothing in this letter should be interpreted as confirming, either expressly or implicitly:

i. the determination of the fair market value or adjusted cost base (within the meaning assigned that term in section 54 of the Act) of any property;

ii. XXXXXXXXXX; or

iii. whether Opco will factually be dealing at arm's length with another person at any particular time.

a. Under a proposal dated March 16, 2001 to amend Class 17 in Schedule II to the Regulations, "electrical generating equipment" (subject to certain exceptions not relevant to the situation at hand) acquired after February 27, 2000 would be included in that class. Pursuant to the postamble to subparagraph (d)(v) to Class 43.1, property otherwise included in Class 17 in Schedule II to the Regulations is excluded from being included in Class 43.1 under that subparagraph.

If such proposal came into force as drafted without any further amendments to the Regulations, electrical generating equipment forming part of System A XXXXXXXXXX would be precluded from being included in Class 43.1 and the cost of such equipment could not qualify as XXXXXXXXXX.

We understand that you have received a letter from the Department of Finance which indicates that they will recommend that the above proposed amendment be changed so that electrical generating equipment to be included in subparagraph (a.1)(i) of Class 17 will be eligible for inclusion in Class 43.1.

Yours truly,

for Director
Reorganizations and Resources Division
Income Tax Rulings Directorate
Policy and Legislation Branch