2 December 1988 Income Tax Severed Letter 7-3328 - [B.C. Hydro Natural Gas Conversion Grants]

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.

December 2, 1988

HEAD OFFICE Rulings Directorate P. Mason Tel.: (613) 957-4364

Subject: B.C. Hydro Natural Gas Conversion Grants

We are writing in response to your request for an opinion on the taxability of a natural gas conversion grant that a taxpayer can receive from the British Columbia (B.C.) Hydro Company. As outlined in their brochure, B.C. Hydro has indicated that this grant is taxable and the individual may receive up to $500.

In your research you found in Regulation 5501 of the Income Tax Act that the Canadian Oil Substitution and Conversion Act is a prescribed program of the Government of Canada and based on paragraphs 12(1)(u) and/or paragraphs 56(1)(s) grants paid under this Act will be taxable.

In reviewing the Canadian Oil Substitution and Conversion Act you found no indication that a vehicle will qualify for a conversion payment as you found only prescribed types of structures and buildings qualify.

Information obtained from B.C. Hydro Shows the allocation of funds as follows:

        Federal portion           $250
        Provincial portion         200
        B.C. Hydro portion          50
                                  ----
        Total                     $500
                                  ====

Information obtained from the Department of Energy, Mines and Resources Canada shows the allocation as follows:

  Pre-April 1, 1987
  -----------------
                           Federal      Provincial    B.C. Hydro

    Commercial Vehicle      $500         $200           $NIL
    Private Vehicle         $500         $200           $NIL

Post-April 1, 1987 ------------------

    Commercial Vehicle      $500         $NIL           $NIL
    Private Vehicle         $NIL         $400           $100

Your Request

You asked us to review the above information and advise you of the Income Tax Act reference which would allow us to tax these B.C. Hydro Natural Gas Conversion Grants.

Our Response

The Oil Substitution and Conversion Act was amended by 1980-81-82 Bill C112 section 50 to provide that "... the Minister (of EM&R) may provide financial assistance by way of payments, loans or guarantees for the purpose of assisting or enabling any person, government or institution to ...

(b) increase sales of energy sources other than oil;

(c) buy, sell, or transport energy sources other than oil;

(d) conduct research related to and discover, develop, produce, acquire, store or make available or make readily available for use energy sources other than oil; or

(e) use or effect conversions to enable the use of energy sources other than oil."

and 1980-81-82 Bill C112 section 51 amended the Oil Substitution and Conversion Act to provide that "in addition to the sums appropriated by Parliament ... the Minister (of EM&R) may spend ... in accordance with any agreement entered into between the Government of Canada and the government of a province relating to such purposes, sums paid to Canada by the province under such agreement".

We discussed the subject B.C. Hydro Natural Gas Conversion Grants with Peter Reilly-Roe, Director of Policy Analysis with the Department of Energy Mines and Resources (E.M.R.). He advised us that the subject Pre-April 1, 1987 and Post-April 1, 1987 commercial vehicle B.C. Hydro Natural Gas Conversion Grants were granted under the Oil Substitution and Conversion Act, as amended. In these circumstances, such grants are prescribed in Regulation 5501 of the Income Tax Act. As such, the grants are taxable pursuant to paragraph 12(1)(u) of the Income Tax Act for property used principally for the purpose of gaining or producing income from a business, and are otherwise taxable pursuant to paragraph 56(1)(s) of the Act.

Mr. Reilly-Roe and Mr. Villeneuve of E.M.R. also advised us that the Post-April 1, 1987 private vehicle grants are sometimes provided by the province of B.C. and B.C. Hydro and are sometimes provided under the Oil Substitution and Conversion Act.

XXXX

If we may be of further assistance, please contact us.

Originally signed by C. Savage

Chief Resource Industries Section Bilingual Services and Resource Industries Section Rulings Directorate