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.
Principal Issues: whether a photovoltaic electrical generation system meets the requirements of Class 43.1(d)(vi)
Reasons: compliance with technical requirements and technical opinion from Natural Resources Canada
XXXXXXXXXX Catherine Bowen
July 22, 2005
Re: Class 43.1 Photovoltaic Equipment
Your request for an opinion on the technical eligibility of a photovoltaic electrical generation system for inclusion in Class 43.1 of Schedule II ("Class 43.1") of the Income Tax Regulations (the "Regulations") received by Natural Resources Canada ("NRCan") on June 30 has been forwarded to us for reply.
Our understanding of the facts and proposed transactions relating to your request is as follows:
The fixed location photovoltaic equipment is to be acquired by XXXXXXXXXX (the "Corporation") for use by the Corporation for the purpose of earning income from a business carried on in Canada. The equipment will be situated at XXXXXXXXXX - the location of XXXXXXXXXX ("Company X"), XXXXXXXXXX facility. It will be used primarily for the purpose of generating electrical energy from solar energy. The electrical energy will be sold to Company X and any excess electricity not required by Company X will be sold to the local utility electrical grid. The equipment, which is listed below, has not been used for any purpose before it was acquired by the Corporation and has a peak capacity of not less than 3 kilowatts of electrical output. The expected date of the purchase and installation of the equipment is XXXXXXXXXX.
NRCan has reviewed your application for a technical opinion relating to the eligibility of this photovoltaic electrical generation system (the "Application"; NRCan file number XXXXXXXXXX) for inclusion in Class 43.1.
Based on our understanding of the facts and proposed transactions as described herein, our review of the representations and information provided by the Corporation in the Application and the views of NRCan as a result of its technical review of the Application, it is our opinion, subject to the comments below, that the photovoltaic electrical generation system consisting of:
a) a photovoltaic array solar panel plus mounting hardware,
b) a set of batteries that would allow approximately XXXXXXXXXX kWh to be delivered during low sunlight hours,
c) a power inverter to convert the XXXXXXXXXX battery power or the photovoltaic cell output into XXXXXXXXXX,
d) a backup rectifier to take power off the electrical grid and convert it to XXXXXXXXXX in order to charge the batteries when the solar panels are not producing at full capacity,
e) racking - a support structure for the solar array,
f) underground ducting for cable entrance,
g) cables to connect the batteries, inverters, rectifiers and control equipment to the distribution system or the host panel,
h) a two-way meter to measure power generated and taken out of the system, and
i) a power system control to blend solar and battery, moderate the charging protocol, switch the rectifiers and inverters in and out, monitor and relay alarm conditions and permit safe operation and disconnection with the utility electric grid
will be eligible for inclusion in Class 43.1 by virtue of subparagraph (d)(vi) thereof.
a) the metal building (shed) to be used to house the batteries, electronics, wiring and solar panels, and
b) the XXXXXXXXXX concrete base/pad which will be under the shed
will not be eligible for inclusion in Class 43.1.
It should be noted that the February 23, 2005 federal budget announced that renewable energy generation equipment, including fixed location photovoltaic equipment, that would otherwise be included in Class 43.1 that is acquired on or after the date of the budget and before 2012 will qualify for a new capital cost allowance class with a 50% capital cost allowance rate. Should this change be promulgated, the above references to Class 43.1 should also be read as referring to this new class.
Subparagraph (d)(vi) of Class 43.1 does not include property otherwise included in Class 10 or 17 of Schedule II of the Regulations. A proposed amendment to Class 17, which was announced on March 16, 2001, provides that electrical generating equipment (subject to certain exceptions that are not relevant to your situation) acquired after February 27, 2000 will be included in that class by virtue of proposed paragraph (a.1) thereof. Consequently, if proposed paragraph (a.1) of Class 17 is promulgated in the form announced on March 16, 2001, the new photovoltaic system described above would not be eligible for inclusion in Class 43.1. We understand, however, that the Department of Finance issued a comfort letter on October 17, 2003 indicating that it was aware of this issue and intended to recommend to the Minister of Finance that the proposed amendment relating to Class 17 be clarified to ensure that electrical generating equipment that is currently described in proposed subparagraph (a.1)(i) of Class 17 will be eligible for inclusion in Class 43.1.
Reorganizations and Resources Division
Income Tax Rulings Directorate
Policy and Planning Branch
c.c. Micheline Brown
Engineering, Research and Technical Team
Industrial Programs Division
Office of Energy Efficiency
Natural Resources Canada
580 Booth St., 18th Floor
Ottawa ON K1A 0E4
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