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.
Rob Abbott Class 34 Secretariat Energy Efficiency Division
Energy, Mines and Resources Bill Guglich 580 Booth Street (613) 957-2102 7th Floor Ottawa, Ontario K1A 0E4
Attention: Rob Abbott
Dear Sirs:
RE: Class 34 - Eligibility of Co-generation Project XXXXXXXXXX
This is in reply to your letters of August 13, 1993 concerning the eligibility for inclusion in class 34 of a power boiler and a Kraft recovery boiler.
Both boilers produce steam which is supplied to a common header supplying the electrical generating equipment. The project easily meets the 7000 BTU/kWh requirement in clause (d)(ii)(B) of class 34.
The power boiler primarily uses eligible fuel described in clause (d)(ii)(B) of class 34.
The Kraft recovery boiler is primarily fuelled by black liquor solids (a by-product waste from the paper making process). A small amount of fossil fuel is also used.
It is your view that since the power boiler is fuelled primarily by eligible fuels it would qualify for inclusion in class 34 but the Kraft recovery boiler would not qualify in that it primarily utilizes a fuel that is not described in clause (d)(ii)(B) of class 34. It is your view that the black liquor solids would not be considered wood wastes or municipal wastes.
The taxpayer has not submitted any representation to support their position that the Kraft recovery boiler is eligible for inclusion in class 34.
OUR VIEWS
We agree that the power boiler could qualify for inclusion in class 34 provided the amount of ineligible fuel utilized is insignificant.
We also agree with your views that the Kraft recovery boiler does not qualify for inclusion in class 34. The black liquor solids combusted to produce steam could be considered plant wastes but they could not be considered municipal wastes or wood wastes.
We would be pleased to consider any representation the taxpayer may wish to make to support their position that their Kraft recovery boiler qualifies for inclusion in class 34. As our view of this matter was reached after consideration of your Secretariat's comments, we would appreciate your comments on any such representation.
Clause (d)(ii)(B) of class 34 requires the utilization of a fuel described therein or any combination of fuels described therein. It does not contemplate a combination of a fuel described therein and another fuel not described therein. A combination of fuels described in that clause is the only combination of fuels permitted. The use of a fuel not described in that clause would in our view render the asset ineligible. The opening words in clause (d)(ii)(B) of class 34 state: "produce electrical energy by the utilization of fuel that is..". The electrical energy must be produced using the listed fuels. If unlisted fuels are used then the electrical energy is produced utilizing the listed fuels and something else. As a matter of administrative procedure insignificant amounts of unlisted fuels may be ignored. In contrast the opening words in clause (d)(ii)(A) of class 34 state: "produce heat derived primarily from the consumption of...". In our view the use of the word primarily in clause (d)(ii)(A) of class 34 means that heat may be derived from the consumption of the listed fuels and unlisted fuel as long as the primary fuel(s) is one listed therein or a combination of the listed fuels.
To qualify under clause (d)(ii)(C) of class 34 there must be an industrial process which produces both a principal product and also heat as a by-product or secondary product. The paper making process which is considered an industrial process presumably produces paper as the principal product and black liquor solids as a by-product or secondary product.
The process of burning black liquor solids (an industrial process) to produce steam to operate the electrical generating equipment cannot be considered, for purposes of clause (d)(ii)(C) of class 34, to be a recovery of heat that is a by-product of an industrial process. In order to qualify under clause (d)(ii)(C) of class 34, the combusting of the black liquor solids would have to result in a principal product (eg., chemicals for reuse) and heat as a by-product (which is recovered).
We trust our comments will be of assistance.
Yours truly,
R. Albert for DirectorBusiness and General DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch
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