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: What is the meaning of the phrase “disregarding any period during which the project is not operating” in the definition “operating year” in subsection 127.48(1) of the Act?
Position: In this context, the phrase disregards those periods during which hydrogen is not produced in any amount.
Reasons: Textual, contextual, and purposive analysis of the relevant provisions.
XXXXXXXXXX 2025-106350
Michael Sims
June 24, 2025
Dear XXXXXXXXXX:
Re: Meaning of the phrase “disregarding any period during which the project is not operating” in the definition “operating year” in subsection 127.48(1)
This is in reply to your email of May 2, 2025, and our (Wharram/Sims) subsequent conversation with you on May 16, 2025. Your question concerned the “downtime” of a clean hydrogen project. In particular, you asked whether the following periods should be considered those where a project is not operating:
- Carbon capture and storage plant is shut down, but the hydrogen continues to be produced.
- Supply of the eligible renewable hydrocarbon is disrupted, but the hydrogen continues to be produced using a different eligible hydrocarbon.
- Dedicated wind turbines are down, but the hydrogen continues to be produced by using electricity from the electrical utility grid.
Issue
What is the meaning of the phrase “disregarding any period during which the project is not operating” in the definition “operating year” in subsection 127.48(1) of the Act?
Our Comments
This technical interpretation provides general comments about the provisions of the Income Tax Act (footnote 1) and related legislation (where referenced). It does not confirm the income tax treatment of a particular situation involving a specific taxpayer but is intended to assist you in making that determination. The income tax treatment of particular transactions proposed by a specific taxpayer will only be confirmed by this Directorate in the context of an advance income tax ruling request submitted in the manner set out in Information Circular IC 70-6R12, Advance Income Tax Rulings and Technical Interpretations.
We undertook a textual, contextual, and purposive analysis of the definition in order to address your question. Based on that analysis, it is our view that the meaning of “not operating” in this context refers to those periods during which hydrogen is not produced in any amount.
Consequently, each of the periods described in the scenarios above would not be considered a period during which the project is not operating. In other words, since hydrogen continues to be produced by the project in each of the outlined scenarios, the project is considered to be operating. Accordingly, for the purposes of determining the cumulative 365-day period set out in the definition of “operating year”, such periods would not be disregarded.
We trust these comments will be of assistance.
Yours truly,
Kimberley Wharram
Manager, Resources Section
for Division Director
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 Supp.), as amended (the “Act”)
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