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.
Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.
Principal Issues:
WHETHER WIND TURBINES ARE ELIGIBLE FOR INCLUSION IN CLASS 34.
Position TAKEN:
MAY QUALIFY UNDER SUBPARAGRAPH (e)(v) OF CLASS 34.
Reasons FOR POSITION TAKEN:
SPECIALLY PROVIDED FOR IF CONDITIONS IN SUBPARAGRAPH (e)(v) OF CLASS 34 ARE MET.
940513
XXXXXXXXXX W.P. Guglich
Attention: XXXXXXXXXX
August 10, 1994
Dear Sirs:
Re: Wind Turbines - Class 34
Your letter of February 15, 1994 addressed to Rob Abbott of Natural Resources Canada, wherein you requested information respecting the eligibility for inclusion in class 34 of wind turbines, has been referred to our Department for reply.
The February 22, 1994 budget (the "Budget") proposes to terminate all additions to class 34 respecting property acquired after February 21, 1994 subject to transitional relief whereby property which was under construction by or on behalf of the taxpayer before February 22, 1994, property acquired by the taxpayer pursuant to a written agreement of purchase and sale entered into by the taxpayer before February 22, 1994 and equipment acquired by a taxpayer in order to satisfy a legally binding obligation entered into by the taxpayer in writing before February 22, 1994 to sell electricity to a public power utility in Canada will still be eligible for inclusion in class 34.
The Budget proposes to provide a 30-per-cent declining balance capital cost allowance ("CCA") rate for all acquisitions after February 21, 1994 of certain types of energy conservation equipment used in Canada in an industrial process or to generate electricity.
Draft regulations respecting the Budget proposals have not yet been released.
A certificate is required from the Minister of Natural Resources in order that property which meets the transitional provisions may be included in class 34. Requests for and information regarding such certificates should be forwarded to:
Mr. Don J. Skinner
Chief
Industrial/Commercial Group
Energy Efficiency Division
CANMET
Natural Resources Canada
580 Booth Street
Ottawa, Ontario
K1A 0E4
Property acquired after February 21, 1994 which does not meet the transitional relief provisions would not be included in class 34.
We provide the following comments regarding the options described in your letter. Our comments are based on class 34 as it currently reads and does not take into account any amendments to the Regulations which may be enacted as proposed in the Budget.
1.A wind turbine installed by company A on its own property and used to displace electricity which would otherwise be purchased from the utility could qualify under subparagraph (e)(v) of class 34 provided a certificate is obtained from the Minister of Natural Resources.
2.If company A were to purchase a wind turbine and install it at company B's site and sell the electricity to company B the wind turbine could qualify for inclusion in class 34 as described in paragraph 1 above, provided the wind turbine is considered to be owned by company A (as opposed to ownership of a leasehold interest). Whether a wind turbine installed by company A on company B's property would be considered to be owned by company A or whether company A would be considered to own a leasehold interest is a question of fact, to be determined on the basis of the relevant property law and the terms of the contractual arrangement between the two companies. If the wind turbine is considered a leasehold interest owned by company A then it could not qualify for inclusion in class 34. Leasehold interests are included in class 13.
3.In the case of a partnership CCA must be claimed by the partnership and not by the partners individually. Consequently, where a partnership owns class 34 property the partnership would claim the CCA and the net income or net loss would then be allocated to the partners to the extent of their respective share.
4.Whether or not company A purchases electricity from the partnership is irrelevant as the CCA can only be claimed by the partnership and not by the individual partners.
5.You envisage a scenario where a group of businesses in a remote community pool their resources to buy into wind technology. To obtain economy of scale they may make a bulk purchase, say 6 - 8 turbines and install them in a single location. They would work out a wheeling agreement with the local utility to take the energy from their wind turbines and deliver it to their businesses.
Our comments in paragraphs 1 to 4 above would apply to this scenario. The owners of the property would be required to apply for class 34 certification provided they meet the transitional relief provisions. If they do not meet the transitional relief provisions a certificate is not required.
We might point out that although property may qualify for inclusion in class 34, subsection 1100(24) of the Income Tax Regulations may apply in the case of passive investors to limit their CCA deduction to the amount of income earned from the class 34 property. This limitation would not apply to a partnership each member of which was a corporation whose principal business is the sale, distribution or production of electricity, natural gas, oil, steam, heat or any other form of energy or potential energy. Where a corporation owns the property it would not be subject to these restrictions if its principal business was as described above or it uses the property to produce income from a business (other than the business of selling the product of the class 34 property).
We trust our comments will be of assistance.
Yours truly,
for Director
Business and General Division
Rulings Directorate
Legislative and Intergovernmental
Affairs Branch
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