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 solar panels installed are real or immovable properties? 2. Whether the amounts received under the FIT program are revenues for purposes of the tests in paragraphs (b) and (c) of the definition of "real estate investment trust"?
Position: 1. Yes. 2. Yes
Reasons: 1. definition of real or immovable property in 122.1(1); 2. Definition of revenue in case law, dictionaries, and the ITA.
XXXXXXXXXX , 2011
Advance Income Tax Ruling Request
This is in reply to your letter of XXXXXXXXXX , requesting an advance income tax ruling on behalf of the above named taxpayer. We also acknowledge the information you provided during telephone conversations (XXXXXXXXXX ) and your subsequent submission of XXXXXXXXXX .
We understand that, to the best of your knowledge and that of the taxpayer, none of the issues considered in this advance income tax ruling request is:
(i) in an earlier return of the taxpayer or a related person;
(ii) being considered by a tax services office or taxation centre in connection with a previously filed tax return of the taxpayer or a related person;
(iii) under objection by the taxpayer or a related person;
(iv) before the courts, or if a judgment has been issued, the time limit for appeal to a higher court has not expired; or
(v) the subject of a ruling previously considered by the Directorate.
This document is based solely on the facts and proposed transactions described below. The documentation submitted with your request does not form part of the facts and proposed transactions and any references thereto are provided solely for the convenience of the reader.
Unless otherwise stated, all references to a statute are to the Income Tax Act (Canada), R.S.C. 1985 (5th Supp.), c.1, as amended (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.
Our understanding of the facts, proposed transactions and the purpose of the proposed transactions is as follows:
In this letter, the following terms have the meanings specified:
"LP" means XXXXXXXXXX , a subsidiary of the Fund, established under the laws of XXXXXXXXXX pursuant to a limited partnership agreement dated XXXXXXXXXX , as amended, among GP Inc., the Fund and other limited partners, from time to time.
"GP Inc." means XXXXXXXXXX , a wholly-owned subsidiary of the Fund, incorporated under the laws of the Province of XXXXXXXXXX ;
"Declaration of Trust" means the declaration of trust establishing and governing the Fund, dated XXXXXXXXXX , as amended and restated from time to time, including most recently on XXXXXXXXXX ;
"Fund" means, the XXXXXXXXXX , an open-ended mutual fund trust formed under the laws of the Province of XXXXXXXXXX pursuant to the Declaration of Trust;
"Guaranteed Amounts" has the meaning assigned to it in paragraph 10 below;
"Non-portfolio property" has the meaning assigned by subsection 122.1(1);
"Qualified REIT property" has the meaning assigned by subsection 122.1(1);
"Real estate investment trust" has the meaning assigned by subsection 122.1(1);
"Real or immovable property" has the meaning assigned by subsection 122.1(1); and
"Subsidiary" of the Fund means any entity, corporation, trust, or partnership in which the Fund holds, either directly or indirectly (through one or more Subsidiaries), XXXXXXXXXX % or more of the beneficial interest therein, including, without limitation, in respect of a corporation, XXXXXXXXXX % or more of the shares of each class of the corporation, in respect of a trust, XXXXXXXXXX % or more of the beneficial interest in the trust, and in respect of a partnership, XXXXXXXXXX % or more of the partnership units or interest in the partnership.
1. The Fund is an open-ended unit trust under paragraph 108(2)(a) and a mutual fund trust, as defined in subsection 132(6), which was established to, among other things, invest directly or indirectly in real properties in Canada. The Fund was not established and has not been maintained primarily for the benefit of non-residents.
2. The Fund satisfied the conditions necessary to qualify as a "real estate investment trust," as defined in subsection 122.1(1), prior to XXXXXXXXXX and expects to continue to satisfy the conditions of a "real estate investment trust" at all times after XXXXXXXXXX .
3. The units of the Fund are traded on the XXXXXXXXXX Stock Exchange and the Fund has a XXXXXXXXXX year end for purposes of the Act.
4. The principal office of the Fund is located at XXXXXXXXXX . The Fund deals with the XXXXXXXXXX Tax Services Office and files its returns with the XXXXXXXXXX Tax Centre. The Fund's account number is XXXXXXXXXX .
5. The Fund carries on its activities through LP.
8. The Fund, indirectly through the LP, intends to 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, by initially installing up to XXXXXXXXXX solar photovoltaic systems on the XXXXXXXXXX properties that are owned by LP in the province of Ontario.
9. Under the terms of the FIT Program, a participant is required to sell, for a guaranteed price over a fixed term, all of the electricity generated from a renewable energy project to the Ontario electricity grid and therefore, a participant is restricted from directly consuming the electricity that the participant has produced. Guaranteed prices offered under the FIT Program are designed to cover project costs and provide a reasonable rate of return on the investment to a participant over the term of the contract.
10. LP will be paid a guaranteed price of XXXXXXXXXX cents per kWh, depending on the size of the installation, over a XXXXXXXXXX year term for electricity produced from each solar photovoltaic system and delivered to the Ontario electricity grid. Amounts received by LP for the delivery to the Ontario electricity grid of electricity generated by the solar photovoltaic systems installed on the XXXXXXXXXX properties owned by LP will be referred to herein as the "Guaranteed Amounts."
11. Based on research studies conducted by, or on behalf of LP, LP has determined that, based on current technology, the total amount of electricity that will be produced from all of the solar photovoltaic systems (and other renewable energy systems) installed by LP will not exceed the total level of electricity that will be consumed across all of the XXXXXXXXXX properties located in Ontario upon which the systems will be installed. Therefore, LP expects to continue to be a net consumer of electricity.
Purpose of the Proposed Transactions
LP intends to enter into the proposed transactions for a number of reasons.
Finally, LP strongly supports the policy objectives of the FIT program and views energy conservation as an inter-generational shared responsibility. Participation in the FIT Program would enable LP to continue to support the provincial policy objectives and its own vision.
Provided that the preceding statements constitute a complete and accurate disclosure of all the relevant facts, proposed transactions and the purpose of the proposed transactions, and provided further that the proposed transactions are completed in the manner described above and there are no other transactions that may be relevant to the ruling given, our ruling is as follows:
The acquisition and holding of solar photovoltaic systems, as described in paragraph 8, by LP would be considered, if LP were a trust, property described in subparagraph 122.1(1)(b)(ii) of the definition of "real or immovable property".
It is our opinion, subject to the caveats noted below, that the Guaranteed Amounts described in paragraph 10 that will be received by LP under the FIT Program would be considered, if LP were a trust, revenues for purposes of the tests in paragraphs 122.1(1)(b) and (c) of the definition of "real estate investment trust".
Except as expressly stated, this advance income tax ruling does not imply acceptance, approval or confirmation of any other income tax implications of the facts or proposed transactions described herein. For greater certainty, the Canada Revenue Agency has not confirmed or made a determination in respect of:
(a) whether the Fund is, at any particular time, a "real estate investment trust" within the meaning of subsection 122.1(1);
(b) whether the Fund qualifies as a mutual fund trust within the meaning of subsection 132(6);
(c) whether a unit of LP constitutes, at any particular time, "real or immovable property" within the meaning of subsection 122.1(1);
(d) whether the Guaranteed Amounts described in paragraph 10 are amounts described in subparagraphs 122.1(1)(b)(i) - (v) and 122.1(1)(c)(i) - (iii) of the definition "real estate investment trust"; and
(e) whether the solar photovoltaic systems described in paragraph 8 are properties of any of the classes of property described in Schedule II to the Income Tax Regulations to the Act ("Regulations") and the extent to which capital cost allowance, if any, could be claimed in respect of the systems.
In addition, nothing in this letter should be construed as implying that the Canada Revenue Agency has agreed to or reviewed:
(f) the determination of the cost amounts and components of the solar photovoltaic systems that would be included in a particular class in Schedule II to the Regulations if the systems were eligible for inclusion in such a class; and
(g) any tax consequences relating to the facts and proposed transactions described herein other than those described in the ruling given above.
The above income tax ruling, which is based on the Act and the Regulations in their present form and do not take into account any proposed amendments thereto, is given subject to the general limitations and qualifications set out in Information Circular 70-6R5 Advance Income Tax Rulings, dated May 17, 2002, and is binding on the Canada Revenue Agency provided that the proposed transactions are completed within XXXXXXXXXX months of the date of this letter.
Ontario Corporate Tax Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
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