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 wood pellets that are derived from wood waste are considered wood waste (and therefore specified waste material).
Position: Question of fact, but likely no. Where the wood pellets are considered solid biofuel the pellets would no longer be considered wood waste or specified waste material.
Reasons: Textual, contextual, and purposive analysis of the relevant provisions.
XXXXXXXXXX 2026-109540
Michael Sims
July 29, 2026
Dear XXXXXXXXXX:
Re: Wood waste – Wood pellets
This is in reply to your email of April 13, 2026, wherein you enquired as to whether certain wood pellets would be considered “specified waste material”, as defined in subsection 1104(13) of the Regulations (footnote 1).
This technical interpretation provides general comments about the provisions of the Income Tax Act 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.
Background
The following hypothetical facts and assumptions formed the basis of our analysis for the purposes of this technical interpretation.
1) A taxpayer will purchase wood pellets from an arm’s length supplier.
2) The wood pellets will either be delivered in totes or blown into a hopper feeding a commercial pellet boiler.
3) The wood pellets would be used in a commercial pellet boiler which is used to circulate a heating medium (e.g., heating hot water/glycol solution) to one or more buildings.
4) The wood pellets are made from feedstock that otherwise meets the definition of “wood waste” (as defined in subsection 1104(13) of the Regulations).
5) The feedstock would be dried to lower its moisture content. However, the feedstock would not be thermally treated to increase its carbon fraction (footnote 2).
6) There are no additives (e.g., accelerants or chemical binders) added to the feedstock or wood pellets.
Issue
Whether wood pellets that are derived from wood waste are considered wood waste (and therefore specified waste material).
Our Comments
We have previously commented 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” (footnote 3) and have previously noted confirmation with Natural Resources Canada that “wood pellets qualify as wood waste as that term is defined in subsection 1104(13) of the Regulations.” (footnote 4)
However, in light of the addition of the terms “specified waste material” and “solid biofuel” to subsection 1104(13) of the Regulations, (footnote 5) as well as our recent conclusion that “"wood waste" would generally mean an unwanted material or by-product that would otherwise be discarded and that consists of the substance that is found in parts of trees, shrubs, etc.”, (footnote 6) we undertook a review of our previous comments relating to wood pellets.
The recently added terms are defined as follows:
solid biofuel means a fuel produced all or substantially all from specified waste material that is a solid at a temperature of 15.6°C (60°F) and a pressure of 101 kPa (14.7 psia) (other than charcoal that is used for cooking or fuels with fossil fuel-derived ignition accelerants) and that has undergone
(a) a thermo-chemical conversion process to increase its carbon fraction and densification; or
(b) densification into pellets or briquettes.
specified waste material means wood waste, plant residue, municipal waste, sludge from an eligible sewage treatment facility, spent pulping liquor, food and animal waste, manure, pulp and paper by-product and separated organics.
In order to address the question that was raised we undertook a textual, contextual, and purposive analysis. Based on that analysis, it is our view that where wood pellets are considered “solid biofuel”, such pellets would not be considered “wood waste” (or, as a result, “specified waste material”). Rather, such pellets would be considered a specific type of fuel produced from specified waste material.
In the hypothetical scenario outlined above, the wood pellets are made from a feedstock that otherwise meets the requirements to be considered wood waste. Such feedstock would also be considered specified waste material. However, as the feedstock appears to have undergone densification into pellets, the resulting wood pellets would be considered solid biofuel provided the other requirements of the definition are met.
As noted above, it is our view that waste generally refers to an unwanted material or by-product that would otherwise be discarded. Where wood waste has undergone densification into pellets, the resulting wood pellets would no longer be considered waste and would therefore not be a specified waste material. Instead, the wood pellets would be considered a solid biofuel. Whether any particular material has the characteristics of solid biofuel is a question of fact that would need to be determined on a case-by-case basis considering all of the particular facts and circumstances.
As a result of the amendments to the Regulations outlined above and our analysis, our previous position that wood pellets would qualify as wood waste no longer reflects the CRA’s current position where the wood pellets are considered solid biofuel. Our new position expressed above will apply on a prospective basis for wood pellets derived from wood waste after September 30, 2026.
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. Income Tax Regulations, C.R.C., c. 945, as amended (the “Regulations”)
2. Carbon fraction refers generally to the proportion of a material that is comprised of carbon.
3. CRA document no. 2012-0444401E5 (Definition of Wood Waste), July 6, 2012.
4. CRA document no. 2005-0151611E5 (Class 43.1 – Wood Waste System), November 25, 2005.
5. Budget Implementation Act, 2022, No. 1. (S.C. 2022, c. 10) (assented to June 23, 2022).
6. CRA document no. 2023-1000061E5 (Meaning of wood waste), June 24, 2024.
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