8 November 2007 External T.I. 2007-0252721E5 - Photovoltaic equipment

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:

The calculation of CCA for individuals who acquire photovoltaic equipment to generate electrical energy for sale under the Renewable Energy Standard Offer Program for the Province of Ontario.

Position: Since the taxpayer is not a principal business corporation, the property will be a "specified energy property" and CCA on the property cannot be deducted to the extent that doing so would create or increase a loss from such property owned by the taxpayer.

Reasons: Application of the legislation.

XXXXXXXXXX 							2007-025272
								Fiona Harrison
November 8, 2007

Dear XXXXXXXXXX:

Re: The Renewable Energy Standard Offer Program for the Province of Ontario (the "Program")

As discussed in our recent telephone conversation, we are unable to provide any comments concerning the information contained in the XXXXXXXXXX as requested in your electronic message of September 14, 2007. However, we will provide the following general comments that relate to the calculation of capital cost allowance ("CCA") for individuals who acquire certain photovoltaic equipment primarily to generate electrical energy for sale to the Ontario Power Authority ("OPA") under the Program.

It is our understanding that the OPA and the Ontario Energy Board have developed the Program, designed to encourage and promote greater use of renewable energy sources, including solar, from smaller generating projects that would be connected to an electricity distribution system in Ontario. Under the Program, an applicant will enter into a contract with the OPA, pursuant to which the applicant will deliver electricity to a local electricity distribution system in Ontario for a 20-year period. To qualify under the Program, applicants must ensure that the project meets certain requirements, must be willing to make necessary investments in their facilities and must bear the costs of connection to the local distribution system and metering, as well as certain ongoing costs of operation and maintenance.

OUR COMMENTS

Written confirmation of the income tax implications inherent in particular transactions is given by this directorate only where the transactions are proposed and are the subject matter of an advance income tax ruling request as described in Information Circular 70-6R5 dated May 17, 2002 issued by the Canada Revenue Agency. A fee is charged for this service. Although we are unable to provide any comments with respect to your particular fact situation otherwise than in the form of an advance income tax ruling, the following general comments may be of assistance.

Fixed location photovoltaic equipment that is used by the taxpayer, or by a lessee of the taxpayer, primarily for the purpose of generating electrical energy from solar energy may qualify for inclusion in subparagraph (d)((vi) of Class 43.1 of Schedule II of the Income Tax Regulations (the "Regulations") provided it meets the requirements contained therein. Where the photovoltaic equipment is acquired after February 22, 2005 it may be eligible for inclusion in Class 43.2. However, we note that the classes of property described in Schedule II of the Regulations only include property that was acquired by the taxpayer for the purpose of earning income.

Property included in Class 43.2 is eligible for a CCA rate of 50 per cent, while property included in Class 43.1 is eligible for a CCA rate of 30 per cent. However, by virtue of the "available for use rules" found in subsections 13(26) to (31) of the Income Tax Act (the "Act'), CCA for a Class 43.1 or 43.2 property that has been acquired and which is not considered available for use at the end of a taxation year may be restricted until such time as the property is available for use. A property that becomes available for use in the year is subject to the 50% rule found in subsection 1100(2) of the Regulations. Where a depreciable property is used for both personal and business use, CCA can only be claimed on the portion or percentage of the capital cost that is used for business purposes.

Where a taxpayer is not a principal business corporation ("PBC") and acquires a Class 43.1 or Class 43.2 property primarily to generate electrical energy for sale to the OPA under the Program, the property will be considered a "specified energy property" for purposes of subsection 1100(25) of the Regulations and CCA on that property cannot be deducted to the extent that doing so would create or increase a loss from all such property owned by the taxpayer. In other words, the amount of CCA that may be claimed in a taxation year for a specified energy property is limited to the lesser of:

• the amount of CCA otherwise determined for such property, or
• the taxpayer's net income (i.e. after deducting all expenses, other than CCA, related to earning such income) from all specified energy property of the taxpayer.

For these purposes, a PBC means a corporation whose principal business throughout the year was:

i) manufacturing or processing,

ii) mining, or

iii) the sale, distribution, or production of electricity, natural gas, oil, heat, or any other form of energy or potential energy.

We trust that this information will be of assistance.

Yours truly,

for Director
Reorganizations and Resources Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch