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.will the acquisition & installation of rooftop solar panels for the purposes of participating in the MicroFiT qualify for HRTC
2.are "home-office" expenses deductible from microfit income?
Position: 1.No. 2.
Reasons: 1. can only claim for the personal use portion & if all for business, then no. 2. question of fact
2009-034401
XXXXXXXXXX L. Holloway
(613) 946-3553
March 8, 2010
Dear XXXXXXXXXX :
Re: Technical Interpretation Request regarding tax issues involving rooftop Solar panels
We are writing in response to your e-mail of October 2, 2009 wherein you requested our comments on the tax consequences for homeowners who participate in the Feed-in-Tariff Program (the "FiT Program") that is offered by the Ontario Power Authority to facilitate the increased development of renewable energy facilities. In particular, you asked whether the homeowners who participate in the FiT Program ("Participants") are eligible to claim the Home Renovation Tax Credit ("HRTC") and also whether such Participants would be entitled to deduct reasonable expenses in respect of the income earned under the FiT Program.
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 of an advance income tax ruling request, as described in Information Circular 70-6R5, dated May 17, 2002. The review of fact situations involving specific taxpayers and transactions or events that have already taken place is the responsibility of the local tax services office where the taxpayer resides and it is not the practice of the Canada Revenue Agency (the "Agency") to comment on such situations when the identity of the taxpayers is unknown. We can, however, provide the following general comments which we hope will be of assistance to you.
Background: The FiT Program
It is our understanding that the FiT Program is designed to encourage the development of renewable energy projects in Ontario. The microFiT Program is a stream of the FiT
Program and is intended to encourage the development of "microscale" renewable energy projects which are described as very small renewable power projects that generate 10 kilowatts (kW) or less of electricity. The specific details and limitations of the microFiT Program for small electricity generation projects are available at the following website: http://microfit.powerauthority.on.ca/pdf/microFiT-Program-Overview.pdf.
Under the microFiT Program, the Participant will be paid a guaranteed price of 80.2 cents per kWh over a 20 year term for the electricity produced from a solar photovoltaic project and delivered to the power grid in Ontario. Based on our understanding of the terms of the microFiT Program, all of the energy generated from the solar photovoltaic project is sold to the power grid in Ontario.
Our Comments
Unless otherwise stated, all references to a statute are to the Income Tax Act (Canada), R.S.C. 1985, c.1 (5th Supp.), as amended to the date of this letter, (the "Act") and all terms and conditions used herein that are defined in the Act have the meaning given in such definition unless otherwise indicated.
As the Participant who acquires and participates in the microFiT Program would be earning business or property income, the purchase and installation of the solar photovoltaic system would not qualify for the HRTC. The Agency's website ( http://www.cra-arc.gc.ca/tx/ndvdls/sgmnts/hmwnr/hrtc/lgbl-dwllng-eng.html#rental ), provides the following statements detailing what expenses are eligible for the HRTC:
If you earn business or rental income from part of an eligible dwelling, you can only claim the amount for expenses incurred for the personal-use areas of your dwelling.
For expenses incurred for common areas or that benefit the housing unit as a whole (such as re-shingling a roof), you must divide the expense between personal use and income-earning use and claim the personal-use portion. For further information, consult the Business and Professional Income Guide or the Rental Income Guide.
Since all the energy generated by the solar photovoltaic system would be sold to the power grid in Ontario, we would consider the solar photovoltaic system to be used by the Participant entirely for the purpose of earning business or property income. In such a case, as there is no "personal use", the Participant would not be entitled to the HRTC.
With respect to your second question, it is our opinion that a Participant may deduct any reasonable current expenses incurred to earn business or property income. Such expenses may, for example, include any incremental increases to property taxes and insurance resulting from the installation of the solar photovoltaic system. Where the income earned by a Participant under the FiT Program represents income from a business, the Participant can deduct expenses for the business use of a work space in their home, pursuant to the provisions of subsection 18(12), as long as one of the following conditions is met:
- the work space in the home is the Participant's principal place of business; or
- the Participant uses the work space in the home only to earn business income, and uses it on a regular and ongoing basis to meet clients, customers, or patients.
We would anticipate that a Participant who acquires a solar photovoltaic system for the sole purpose of participating in the microFiT Program would have little need for a home office. In any event, the Participant would be expected to have a nominal amount, if any, of home office expenses.
We trust that our comments, provided in accordance with paragraph 22 of Information Circular 70-6R5, will be of assistance.
Yours truly,
for Director
Reorganizations and Resources Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
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