23 March 2012 External T.I. 2012-0439171E5 - Test Wind Turbines

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.

XXXXXXXXXX
								2012-043917
								T. Posadovsky, CMA

March 23, 2012

Dear XXXXXXXXXX :

Re: XXXXXXXXXX

We are writing in response to your application of January 26, 2012 requesting a determination that each of XXXXXXXXXX planned wind turbines to be installed by XXXXXXXXXX (the "Partnership") as part of the XXXXXXXXXX (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 XXXXXXXXXX . Access rights to the land required to construct and operate the Project have been obtained through individual land lease agreements with the option to enter into long term leases / easements. The Partnership provided XXXXXXXXXX Parcel Identifier (PID) numbers, representing XXXXXXXXXX land under the Partnership's control. A total of XXXXXXXXXX wind turbines will be installed on XXXXXXXXXX of the XXXXXXXXXX parcels of land.

The initial phase of the Project will consist of XXXXXXXXXX . It is proposed that the infill portion of the Project will consist of XXXXXXXXXX .

The Partnership will own all of the wind turbines relating to the Project. XXXXXXXXXX

XXXXXXXXXX

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 .

Due to the complexity of the terrain at the location of the planned wind farm, traditional modelling approaches for energy production estimates result in a high degree of uncertainty and risk. 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 committing to a full build and commission of the planned 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 Class 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 included in 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 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, until such time as it is commissioned and enters into service.

Additional Comments

(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 the cost of any particular property may be considered to be CRCE.

(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,

Fiona Harrison, C.A.
Manager
Resources Section
Reorganizations and Resources Division
Income Tax Rulings Directorate

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