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 each of XXXXXXXXXX proposed wind turbines will qualify as a test wind turbine within the meaning of subsection 1219(3) of the Regulations.
Position: Yes, provided that the facts and representations relating to the project remain as stated.
Reasons: Satisfies the criteria in the Regulations and a favourable opinion from NRCan.
2009-032463
XXXXXXXXXX T. Harris
(613) 957-8284
January 8, 2010
Dear XXXXXXXXXX :
Re: XXXXXXXXXX (the "Project")
We are writing in response to your letter of May 19, 2009 requesting a determination that each of XXXXXXXXXX planned wind turbines to be installed by XXXXXXXXXX (the "Partnership") as part of the Project will qualify as a "test wind turbine" within the meaning of subsection 1219(3) of the Income Tax Regulations (the "Regulations").
The Partnership is pursuing the development of the Project to be located in the XXXXXXXXXX . Access rights to the land required to construct and operate the Project have been obtained through XXXXXXXXXX individual land lease agreements for a term of not less than XXXXXXXXXX years, with provisions for automatic renewal. The total area under control of the Project developer is XXXXXXXXXX acres, and the completed Project will be contained within XXXXXXXXXX acres of farm land.
The initial phase of the Project consists of XXXXXXXXXX wind turbine generators rated at XXXXXXXXXX MW each (collectively referred to herein as the "Test Turbines") having an aggregate capacity of XXXXXXXXXX MW. It is proposed that the infill portion of the Project will consist of XXXXXXXXXX wind turbine generators rated at XXXXXXXXXX MW each. The planned nameplate capacity for the entire Project is XXXXXXXXXX MW.
The Partnership will own all of the wind turbines relating to the Project. The Partnership has signed a XXXXXXXXXX year power purchase agreement with XXXXXXXXXX to sell the entire output of the Test Turbines upon successful commissioning thereof. It is planned that the remainder of the Project's power generation will either be sold to XXXXXXXXXX under contract, or to an export market through XXXXXXXXXX existing open access transmission tariff.
The Project will be interconnected with XXXXXXXXXX electrical transmission system at the XXXXXXXXXX substation located immediately adjacent to the Project. The Project's collection system will be designed, constructed, owned and operated by XXXXXXXXXX , and XXXXXXXXXX will meter the energy production of each wind turbine separately. It is expected that the remainder of the Project will be interconnected in the same manner.
One of the XXXXXXXXXX Test Turbines referred to above will be located at each of the following coordinates:
XXXXXXXXXX
It is anticipated that the Test Turbines will be commissioned and enter into service before the end of XXXXXXXXXX .
The purpose of the Test Turbines is to test the assumptions and resolve the potential risks associated with the Project by testing the level of electrical energy produced by the Test Turbines prior to commitment of the entire capital required to construct and commission the planned Project. The capital cost of the Project is estimated to be approximately $XXXXXXXXXX for the test phase, and $XXXXXXXXXX for the infill phase. On the basis of a positive resolution of numerous performance and technical assumptions, the Partnership will have the confidence to seek the investment of the funds required for completion of the Project.
Natural Resources Canada ("NRCan") has reviewed the application for a technical opinion for the Test Turbines (the "Application"; NRCan file number XXXXXXXXXX ).
It is our understanding, based upon representations and information provided on behalf of the Partnership in the Application, that:
(i) at least 50% of the capital cost of the depreciable property to be used in the Project would be the capital cost of property that is described in either Class 43.1 or 43.2 of 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 Partnership that is described in either subparagraph (d)(v) of Class 43.1 or paragraph (b) of Class 43.2 of Schedule II to the Regulations;
(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 particular Test Turbine from wind at its place of installation;
(v) 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 the Test Turbines has been tested for at least 120 calendar days; and
(vii) the electrical energy produced from wind by the Test Turbines will not exceed 20% of the planned nameplate capacity for the Project.
OUR OPINION
Provided that:
(a) the Project will be undertaken as described in the Application with the Test Turbines being installed and used for the testing program described therein; and
(b) the facts and representations relating to the Project remain as stated in the Application and as described herein;
it is our opinion that each of the Test Turbines will constitute a test wind turbine for purposes of subsections 1219(1) and (3) of the Regulations at the time the wind energy conversion system that it forms part of would, but for section 1219 of the Regulations, be property included in either subparagraph (d)(v) of Class 43.1 or paragraph (b) of Class 43.2 of Schedule II to the Regulations. In other words, the cost of each Test Turbine will not qualify as a "Canadian renewable and conservation expense" ("CRCE"), as defined in subsection 66.1(6) of the Income Tax Act (the "Act"), until such time as it is commissioned and enters into service.
(I) Except as expressly stated, our opinion does not imply acceptance or approval of any income tax implications relating to the Project. XXXXXXXXXX
(II) CRCE does not include any amount that is paid or payable to a person or partnership with whom the taxpayer does not deal at arm's length.
Yours truly,
for Director
Reorganizations and Resources Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
c.c. Tom Jewett
Class 43.1/43.2 Secretariat
CANMET Energy Technology Centre - Ottawa
Natural Resources Canada
Bells Corners Complex, Building 3, Room 204
1 Haanel Drive
Nepean, ON K1A 1M1
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