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: Are there exceptions to the restrictions on the "specified energy property" rules in subsection 1100(24) to (29)?
Position: Yes.
Reasons: 1. If you are a sole proprietor or corporation, your business must use greater than 50% of energy.
2. If you are a corporation you must be an eligible corporation, whose principal business is mining, processing, manufacturing, the sale/ distribution/production of energy.
XXXXXXXXXX
2012-045820
J. Nichols
October 15, 2012
Dear XXXXXXXXXX:
RE: Ontario FIT / microFIT Programs
This is in response to your email of August 3, 2012, wherein you requested clarification of the response to question 8 of the Frequently Asked Questions (“FAQ’S”) relating to the Ontario's FIT / microFit Programs section of the Canada Revenue Agency website. This response is reproduced below:
8. Are there any exceptions to the CCA deduction limitation?
The CCA deduction limitation would not apply where it is expected that more than 50% of the energy produced by the renewable energy property is to be used or consumed in earning income from either
a. another business of the owner carried on in Canada (not including the business of selling the energy generated by the particular property); or
b. another property operated in Canada by the owner of the property.
In addition, the CCA deduction limitation does not apply to certain corporations (and partnerships each member of which was an eligible corporation) whose principal business is:
i. manufacturing or processing,
ii. mining, or
iii. the sale, distribution, or production of energy.
In this regard, you have requested clarification as to whether a business includes a sole proprietorship and whether a business carried on as a sole proprietorship that contracts with the Ontario Power Authority (“OPA”) under the microFit Program would constitute the “sale, distribution, or production of energy” for the purposes of iii above.
Our Comments
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 matter of an advance income tax ruling request as described in Information Circular 70-6R5 dated May 17, 2002 issued by the Canada Revenue Agency. A fee is charged for this service. Although we are unable to provide any comments with respect to a particular fact situation otherwise than in the form of an advance income tax ruling, the following general comments may be of assistance.
As described in our response to question 1 of the FAQ’s, the amounts received by a participant under the microFIT Program will be considered to represent either business or property income to the participant.
A business carried on as a sole proprietorship may be eligible for the first exception described in the response to question 8 provided that it is expected that more than 50% of the energy produced by the renewable energy property is to be used or consumed in earning income from a business carried on in Canada by the participant (but not including the business of selling the energy generated by the particular property). For example, a sole proprietorship which operates a retail store and which acquires and installs a solar photovoltaic system on the roof of its building to participate under the microFIT Program would not be subject to the limitation on CCA in respect of the solar photovoltaic system provided that the electrical energy consumed in operating the store exceeds 50% of the electrical energy produced by the solar photovoltaic system.
Where a sole proprietorship acquires a renewable energy property to participate under the microFIT Program and generates revenue from the sale of the electrical energy to the OPA, it may be carrying on the business of the sale, distribution, or production of energy. However, the sole proprietorship will not qualify for the second exception to the CCA limitation described above, as that exception is only available to eligible corporations (and partnerships each member of which is an eligible corporation).
The limitations on CCA for "specified energy property" is found in subsections 1100(24) to (29) of the Income Tax Regulations and were intended to prevent the accelerated CCA available for such property from being used to shelter other income.
We trust that our comments, provided in accordance with paragraph 22 of Information Circular 70-6R5, will be of assistance.
Yours truly,
Fiona Harrison, C.A.
Manager
Resources Section
Income Tax Rulings Directorate
Legislative Policy & Regulatory Affairs Branch
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