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: Is the process described a Canadian Renewable and Energy Conservation project?
Position: No. Depreciable assets described do not meet the criteria for Class 43.1 - Energy Conservation property.
Reasons: Methane from the processing of hog effluent in a digester is not a digester gas as defined in Regulation 1104(13).
2003-018212
XXXXXXXXXX Luisa A. Majerus
(613) 946-3558
March 7, 2003
RE: Canadian Renewable Energy and Energy Conservation Projects - Class 43.1
We are writing in response to your correspondence of January 2, 2003, wherein you requested our views regarding agricultural effluent conversion processes. Specifically, you requested written confirmation that the process qualifies as a "renewable energy and energy conservation" project thereby eligible for "renewable energy tax incentives for investment".
Canadian renewable and conservation expense ("CRCE") is defined in subsection 66.1(6) and regulation 1219 of the Income Tax Act (the "ACT") to mean:
An expense incurred by the 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 depreciable property...would be the capital cost of any property described in Class 43.1 of Schedule II.
CRCE does not include expenses related to an entire process but to specific costs associated with a project. These specific costs, which are described in Regulation 1219 of the ACT, will only qualify as CRCE if at least 50% of the capital cost of the depreciable assets used in the project is included in Class 43.1. With the exception of a test wind turbine, depreciable property does not qualify as CRCE.
Depreciable property included in Class 1, 2 or 8 of Schedule II of the Regulations to the ACT may qualify as Class 43.1 property in specific circumstances. In order to qualify under Class 43.1, the property must be situated in Canada and must be new equipment (i.e. not used for any purpose before it was acquired).
In addition, the property must be "electrical generating equipment, including any heat generating equipment" as provided in subparagraph (a)(i) of the description of Class 43.1. The anaerobic digester and the ancillary equipment described in the XXXXXXXXXX, other than the Methane Powered Power Generation Plant, are fuel handling and fuel storage assets that are specifically excluded under paragraph (a) of the description of Class 43.1.
However, the Methane Powered Power Generation Plant is electrical generating equipment and will qualify for Class 43.1 treatment if it is part of a system (other than an enhanced combined cycle system) that:
"is used by the taxpayer, or by a lessee of the taxpayer, to generate electrical energy, or both electrical and heat energy, using only fuel that is fossil fuel, wood waste, municipal waste, landfill gas or digester gas, or any combination of those fuels,"
Digester gas is defined in Regulation 1104(13) of the ACT to mean "a mixture of gases that are produced from the decomposition of organic waste in a digester and that are execrated from an eligible sewage treatment facility for that organic waste." An eligible sewage treatment facility is defined to mean a "sewage treatment facility that is situated in Canada and for which a permit or licence is issued under any law of Canada or of a province."
Since the XXXXXXXXXX is not used in association with an eligible sewage treatment facility, the biogas, produced from the decomposition of livestock wastes, is not an eligible fuel (i.e. fossil fuel, wood waste, municipal waste, landfill gas or digester gas) as required for Class 43.1 treatment.
Depreciable assets used in the XXXXXXXXXX process to decompose livestock wastes will not qualify for Class 43.1 treatment. Therefore, other expenses associated with the XXXXXXXXXX will not qualify for CRCE.
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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