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. Does “forest biofibre”, as defined by the Ontario Ministry of Natural Resources, meet the definition of “wood waste” in subsection 1104(13) of the Regulations? 2. Are wood pellets manufactured from “wood waste” considered an “eligible waste fuel” for the purposes of Class 43.1?
Position: 1. Question of fact. Whether or not a particular item meets the definition of “wood waste” can only be determined on a case-by-case basis. 2. Yes.
Reasons: 1. Not all items that could be included in Ontario's definition of “biofibre” would be automatically included in the definition of “wood waste”. 2. Wood pellets manufactured from inputs meeting the definition of “wood waste” in subsection 1104(13) of the Regulations would be considered an “eligible waste fuel” for the purposes of subparagraph (d)(ix) of Class 43.1.
XXXXXXXXXX
2012-044440
T. PosadovskyJuly 06, 2012
Dear XXXXXXXXXX:
Re: The definition of “wood waste” for the purposes of Class 43.2
This is in reply to your email of April 15, 2012, concerning the definitions of “eligible waste fuel” and “wood waste” under subsection 1104(13) of the Income Tax Regulations (the “Regulations”). You wish to know whether the definition of “wood waste” would include items described in the Ontario Ministry of Natural Resources (the “OMNR”) definition of “forest biofibre”.
In its Forest Resource Disposition Directive, FOR 03 02 01, entitled “Forest Biofibre – Allocation and Use” dated August 13, 2008, the OMNR defines “forest biofibre” as:
“Forest resources from Crown forests that are not normally being utilized for conventional forest products and that are made available under an approved forest management plan. Forest biofibre includes tree tops, cull trees or portions of trees, individual and stands of unmerchantable and unmarketable trees, and trees that may be salvaged as a result of a natural disturbance. Forest biofibre does not include residual by-products such as wood shavings, sawdust, bark or wood chips produced during mill operations.”
It is your view that the utilization of forest biofibre meets the policy objectives for clean energy generation and as such, items that meet the definition of “forest biofibre” would also be included in the definition of “wood waste”.
You also wish to know whether wood pellets manufactured from “wood waste” will be considered an “eligible waste fuel”.
Background
Class 43.2 of Schedule II to the Regulations provides an accelerated capital cost allowance (“CCA”) for investments in specified clean energy generation and conservation equipment. Class 43.2 incorporates (by reference to Class 43.1) a detailed list of eligible equipment that generates or conserves energy by:
- using a renewable energy source (e.g., wind, solar, small hydro);
- using fuels from waste (e.g., landfill gas, wood waste, manure); or
- making efficient use of fossil fuels (e.g., high efficiency cogeneration).
Budget 2012 proposes to expand Class 43.2 with respect to waste-fuelled thermal energy equipment and equipment of a district energy system that uses thermal energy provided primarily by eligible waste-fuelled thermal energy equipment.
Subsection 1104(13) of the Regulations defines “eligible waste fuel” as: biogas, bio-oil, digester gas, landfill gas, municipal waste, pulp and paper waste and wood waste. “Wood waste” is defined in subsection 1104(13) to include: scrap wood, sawdust, wood chips, bark, limbs, saw-ends and hog fuel, but does not include spent pulping liquor and any waste that no longer has the physical or chemical properties of wood.
Currently, inclusion in Class 43.2 is subject to the requirement that the heat energy generated from waste-fuelled thermal energy equipment is used in an industrial process or a greenhouse. Budget 2012 proposes to remove this requirement for property acquired on or after March 28, 2012. According to the Budget documents, this change will allow waste-fuelled thermal energy equipment to be used in a broader range of applications, including space and water heating.
Our Comments
Whether or not something that falls within the definition of “forest biofibre” for OMNR purposes also meets the definition of “wood waste”, as defined in subsection 1104(13) of the Regulations, is a question of fact that can only be determined on a case-by-case basis taking into account all of the relevant facts and circumstances. Generally, however, wood waste is considered to be a by-product of activities directly associated with the forest industry and the manufacture of wood products and does not include plants grown solely for the purpose of combustion to produce heat or electrical energy (often referred to as “energy crops”).
In respect of your second question, it has been our longstanding view that wood pellets manufactured from inputs meeting the definition of “wood waste” in subsection 1104(13) of the Regulations would be considered an “eligible waste fuel” for property described in subparagraph (d)(ix) of Class 43.1 of Schedule II to the Regulations.
We trust that our comments will be of assistance.
Yours truly,
Fiona Harrison, C.A.
Manager
Resources Section
Reorganizations and Resources Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
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