9 August 2021 External T.I. 2021-0893591E5 - EV Charging Stations and Power Storage Property

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. Is a stand-alone energy storage property which draws electricity from the grid during low-demand periods and uses it during high peak hours eligible for Class 43.1 under subparagraph (d)(xviii)? 2. Is a single charging station with 2 chargers each providing 7 kW of continuous supply of energy to charge electric vehicles eligible for Class 43.1 under subparagraph (d)(xvii)?

Position: 1. Yes; 2. Depends on the technical specifications.

Reasons: The law.

XXXXXXXXXX

August 9 2021

Dear XXXXXXXXXX,

This is in response to your electronic inquiry of January 13, 2021. You requested our assistance in respect of two types of properties and their eligibility for inclusion in Class 43.1 and 43.2. Your questions can briefly be stated as:

1. Is a stand-alone energy storage property which draws electricity from the grid during low-demand periods and uses it during high peak hours eligible for Class 43.1 under subparagraph (d)(xviii)?

2. Are 2 chargers, each providing 7 kilowatts (“kW”) of continuous supply of power to charge electric vehicles and mounted on a common mounting system, eligible for Class 43.1 under subparagraph (d)(xvii)?

We also acknowledge the information provided during the subsequent telephone conversations and emails (XXXXXXXXXX/Christov). We apologize for the delay in our response.

I. 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 70-6R11 dated April 01, 2021 issued by the Canada Revenue Agency (“CRA”). 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.

Unless otherwise indicated, all references herein are to the Income Tax Act (footnote 1) (the “Act”) or to the Income Tax Regulations (footnote 2) (the “Regulations”).

A. Energy Storage Property

We were advised that the purpose of installing a stand-alone energy storage property which will draw electricity from the provincial power supply system during low-demand electricity periods and use the stored electricity during peak-hours is to benefit from the electricity rate differences.

The definition of subparagraph (d)(xviii) reads as follows:

(xviii) fixed location energy storage property that

(A) is used by the taxpayer, or by a lessee of the taxpayer, primarily for the purpose of storing electrical energy

(I) including batteries, compressed air energy storage, flywheels, ancillary equipment (including control and conditioning equipment) and related structures, and

(II) not including buildings, pumped hydroelectric storage, hydro electric dams and reservoirs, property used solely for backup electrical energy, batteries used in motor vehicles, fuel cell systems where the hydrogen is produced via steam reformation of methane and property otherwise included in Class 10 or 17, and

(B) either

(I) if the electrical energy to be stored is used in connection with property of the taxpayer or a lessee of the taxpayer, as the case may be, is described in paragraph (c) or would be described in this paragraph if it were read without reference to this subparagraph, or

(II) meets the condition that the efficiency of the electrical energy storage system that includes the property — computed by reference to the quantity of electrical energy supplied to and discharged from the electrical energy storage system — is greater than 50%, and […]

Federal Budget 2016 expanded the eligibility of energy storage systems to include a stand-alone electrical energy storage property to be included in Class 43.1 provided that the round trip efficiency of the equipment is greater than 50%. The round trip efficiency measures the extent to which energy is maintained in the process of converting electricity into another form of energy and then back into electricity.

The goal of this measure is to provide environmental benefits by displacing fossil-fuelled power generation when demand is highest. In this respect, the stand-alone energy storage property described above provides load shifting from peak demand to low demand periods and thus, its use is consistent with the underlying tax policy of subparagraph (d)(xviii). As a result, a stand-alone energy storage property that is used for the purpose of storing electrical energy in a way that allows a taxpayer to benefit from differing electricity rates could be eligible for Class 43.1 under subparagraph (d)(xviii), provided that all other requirements of that provision are met.

B. Combining Continuous Power Supply of Multiple Chargers

This question concerns the Class 43.1(d)(xvii) eligibility of two chargers mounted on a common mounting system which will be installed on properties with multiple residential units and office buildings to service the tenants of such properties who use electric vehicles (“EV”).

The definition of subparagraph (d)(xvii) reads as follows:

(xvii) equipment used by the taxpayer, or by a lessee of the taxpayer, for the purpose of charging electric vehicles, including charging stations, transformers, distribution and control panels, circuit breakers, conduits and related wiring, if

(A) the equipment is situated

(I) on the load side of an electricity meter used for billing purposes by a power utility, or

(II) on the generator side of an electricity meter used to measure electricity generated by the taxpayer or the lessee, as the case may be,

(B) more than 75 per cent of the electrical equipment capacity is dedicated to charging electric vehicles, and

(C) the equipment is

(I) an electric vehicle charging station (other than a building) that supplies more than 10 kilowatts of continuous power, or

(II) used primarily in connection with one or more electric vehicle charging stations (other than buildings) each of which supplies more than 10 kilowatts of continuous power, or

You have submitted the technical specifications for a XXXXXXXXXX EV charging station. This station mounts two Level 2 chargers each of which supplies 7 kW of continuous power. Each charger uses its own 240-volt circuit. Depending on the type of battery, a Level 2 charger can charge a 60 kWh battery in approximately 8 hours.

1. Legal Requirements

In order to qualify for an inclusion in Class 43.1, the property has to meet the following key conditions:

1. it must be equipment that is an EV charging station (other than a building) which supplies more than 10 kW of continuous power; or

2. it must be equipment that is used primarily in connection with one or more EV charging stations (other than buildings) each of which supplies more than 10 kW of continuous power.

A key element of this incentive is that EV charging equipment should be able to perform the essential function of charging EVs at a supply rate of more than 10 kW of continuous power. A charger that supplies only 7 kW of continuous power and that has its own independent power circuit (and therefore is capable of charging EVs independently) cannot meet the 10 kW requirement simply by virtue of being mounted on a common mounting system with another charger that also supplies 7 kW of continuous power. Rather, each of such chargers would need to supply more than 10 kW of continuous power in order for the equipment to be eligible for inclusion in Class 43.1. Therefore, based on the technical specifications submitted with your request, the XXXXXXXXXX EV charging station would not qualify for inclusion in Class 43.1.

We hope these comments will be of assistance.

Yours truly,

Kimberley Wharram
Manager
Reorganizations Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch

FOOTNOTES

Note to reader: Because of our system requirements, the footnotes contained

in the original document are shown below instead:

1 R.S.C. 1985, c. 1 (5th suppl.) as amended.

2 C.R.C c. 945 as amended.