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: 1) Whether certain changes to the wind project described in our file 2005-014075 would alter our opinion as to whether the XXXXXXXXXX proposed wind turbines will continue to qualify as "test wind turbines" under Reg. 1219(3). 2) Whether XXXXXXXXXX new wind turbines to be added to the expanded project will qualify as "test wind turbines".
Position: All XXXXXXXXXX of the proposed wind turbines will meet the definition of "test wind turbine".
Reasons: 1) The requirements of Reg. 1219(3) will continue to be met and a favourable opinion confirming this was provided by Natural Resources Canada on December 20, 2005. 2) The requirements of Reg. 1219(3) will be met and a favourable opinion confirming this was provided by Natural Resources Canada on December 20, 2005.
2005-016375
XXXXXXXXXX Catherine Bowen
(613) 957-8284
December 23, 2005
Dear XXXXXXXXXX:
Re: XXXXXXXXXX Wind Project
We are writing further to the electronic messages of December 14 and 20, 2005 sent by XXXXXXXXXX (the "Corporation") in which he described certain changes (the "Revised Submission") relating to the proposed XXXXXXXXXX (the "Project") that was the subject of our letter of July 19, 2005 (our file 2005-014075) ("Our Previous Letter"). In particular, Our Previous Letter concerned the eligibility of each of XXXXXXXXXX planned wind turbines to be installed by the Corporation as a "test wind turbine" within the meaning of the proposed amendments to subsection 1219(3) of the Income Tax Regulations (the "Regulations"), published in Part I of the Canada Gazette, Vol. 139, No. 15 on April 4, 2005 (the "Proposed Amendments"). These Proposed Amendments were subsequently promulgated on August 31, 2005.
Due to the numerous changes to the Project described in the Revised Submission, this letter contains all of the relevant details of the Project, including those that remain unchanged from Our Previous Letter.
The Corporation is pursuing the development of a proposed wind farm project involving wind turbines to be located approximately XXXXXXXXXX. The Corporation will own all the wind turbines relating to the Project and will also develop and operate the Project. The Corporation has negotiated lease agreements for the land necessary for the Project and at the termination of these leases, the Corporation is required to and will remove the wind turbines.
As the Corporation was able to negotiate additional lease agreements to lease more land since the date of Our Previous Letter, it now proposes to install a total of XXXXXXXXXX wind turbines (collectively referred to herein as the "Test Turbines") that will be located at the following sites:
XXXXXXXXXX
The maximum capacity of each of the Test Turbines to be installed will be XXXXXXXXXX MW. It is anticipated that the first XXXXXXXXXX Test Turbines (# XXXXXXXXXX) will be commissioned and enter into service in XXXXXXXXXX. The last XXXXXXXXXX Test Turbines (# XXXXXXXXXX) will be commissioned and enter into service in XXXXXXXXXX, after which, if the testing phase is successful, it is planned that XXXXXXXXXX additional wind turbines will be installed. The planned nameplate capacity for the Project is XXXXXXXXXX MW.
The Project is located XXXXXXXXXX
XXXXXXXXXX
The Corporation will sell the electrical energy generated from the wind turbines on the open market until the Project is fully constructed, at which time, it will establish a power purchase agreement with parties interested in purchasing "green power". The Corporation will receive all revenue from the sale of electrical energy generated by the Project.
Natural Resources Canada ("NRCan") has reviewed the application for technical opinions on the first two Test Turbines (the "Application"; NRCan file number XXXXXXXXXX) made by the Corporation, as well the Revised Submission.
It is our understanding, based upon representations and information provided by the Corporation in the Application and the Revised Submission, that:
(i) at least 50% of the capital cost of the depreciable property to be used in the Project is projected to be the capital cost of property that is described in Class 43.1 in Schedule II to the Regulations or that would be such property but for subsection 1219(1) of the Regulations;
(ii) each of the Test Turbines will be a fixed location device that is part of a wind energy conversion system that would, but for section 1219 of the Regulations, be property of the Corporation that is included in subparagraph (d)(v) of Class 43.1 in Schedule II;
(iii) the Project will not share with any other project a point of interconnection to an electrical energy transmission or distribution system;
(iv) the primary purpose for installing each of the Test Turbines is to test the level of electrical energy produced by the Test Turbine from wind at its respective place of installation;
(v) there will be at least 1,500 meters between the respective bases of the Test Turbines and no other "test wind turbine" (as defined in subsection 1219(3) of the Regulations) will be installed within 1,500 meters of any of the Test Turbines;
(vi) no other wind energy conversion system will be installed within 1,500 meters of any of the Test Turbines until the level of electrical energy produced from wind by such Test Turbine has been tested for at least 120 calendar days;
(vii) the electrical energy produced from wind by the Test Turbines will, in aggregate, not exceed 20% of the planned nameplate capacity for the Project; and
(viii) the expenses to be incurred by the Corporation relating to the acquisition of the Test Turbines will be payable to a person or partnership with whom the Corporation is dealing at arm's length.
Our Opinion
Provided that:
(a) the Project will be undertaken as described in the Application and the Revised Submission with the Test Turbines being installed and used for the testing program described therein, and
(b) the facts and representations relating to this Project, including those referred to above, remain as stated in the Application and the Revised Submission
it is our opinion that each of the Test Turbines will constitute a "test wind turbine" for purposes of subsection 1219(1) and (3) of the Regulations at the time the respective wind energy conversion system that they form part of would, but for section 1219 of the Regulations, be property included in Class 43.1 in Schedule II of the Regulations because of subparagraph (d)(v) thereof.
Note: Proposed Regulations released in the Canada Gazette Part 1 on December 10, 2005 introduced a new Class 43.2 with a 50% capital cost allowance rate for a wind energy electrical generation system that would otherwise be included in Class 43.1 because of paragraph (d) of that class and that is acquired after February 22, 2005 and before 2012 (as previously announced in the February 23, 2005 federal budget). In order to qualify for Class 43.2, the property cannot be included, before it was acquired, in another Class by any other taxpayer. Should these proposed Regulations be promulgated in their current form, the property acquired by the Corporation that would otherwise be included in Class 43.1 may qualify for inclusion in Class 43.2. In addition, the references to
a) "property that is described in Class 43.1" in paragraph (i) above should be read as "property that is included in Class 43.1 or Class 43.2",
b) "subparagraph (d)(v) of Class 43.1" in paragraph (ii) above should be read as "subparagraph (d)(v) of Class 43.1 or paragraph (b) of Class 43.2", and
c) "property included in Class 43.1 in Schedule II of the Regulations because of subparagraph (d)(v) thereof" under the heading "Our Opinion" should be read as "property included in Class 43.1 in Schedule II of the Regulations because of subparagraph (d)(v) of that Class or in Class 43.2 in Schedule II of the Regulations because of paragraph (b) of that Class".
(I) Except as expressly stated, our opinion does not imply acceptance or approval of any income tax implications relating to the Project. In particular, we are not providing any confirmation as to the extent to which any particular equipment, such as the proposed electrical substation for Phase 2 of the Project, may be considered to be a "Canadian renewable and conservation expense" ("CRCE"), as defined in subsection 66.1(6) of the Income Tax Act (the "Act").
(II) Pursuant to paragraph (g.1) of the definition of "Canadian exploration expense" ("CEE") in subsection 66.1(6) of the Act, expenses incurred by a taxpayer that qualify for inclusion in CRCE will be included in the taxpayer's CEE. A taxpayer that qualifies as a "principal-business corporation" ("PBC", as defined in subsection 66(15) of the Act) may be able to renounce amounts, in respect of the CEE incurred by it, to an investor that has acquired a "flow-through share" (also as defined in subsection 66(15) of the Act) in its capital stock. However, amounts may only be renounced to a particular investor in respect of CEE incurred by the PBC on or after the date the agreement in writing relating to the acquisition of the flow-through share was made.
(III) A PBC will be subject to tax under Part XII.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, in respect of a flow-through share it issues, pursuant to subsection 66(12.6) of the Act having reliance on subsection 66(12.66) thereof. Pursuant to the latter subsection, qualifying expenses incurred by a PBC in a particular calendar year may be deemed, in certain circumstances, to have been incurred by the PBC on the last day of the immediately preceding calendar year.
(IV) Where the amount of CEE that a "principal-business corporation" has renounced relying on the "look-back rule" exceeds the actual amount that it is entitled to renounce due to its failure to incur sufficient CEE in the next calendar year, the "principal-business corporation" must file form T101B with the Minister of National Revenue on or before March 31 of Year 3 (with Year 1 being the year in which the agreement to issue the flow-through shares was entered into) and must apply the excess fully to reduce one or more of the renunciations. Except for the purpose of Part XII.6 of the Act, any amount that has been renounced to any person will be deemed under paragraph 66(12.73)(d) of the Act, after the form T101B is filed, to have always been reduced by the portion of the excess identified therein in respect of that renunciation.
Yours truly,
for Director
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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