10 May 1995 Internal T.I. 951176A - GRANDFATHERING OF QUALIFIED PROPERTY

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.

  						951176
XXXXXXXXXX						C. R. Brown
(613) 957 8980

Attention:XXXXXXXXXX

May 10, 1995

Dear Sirs:

Re: XXXXXXXXXX - Investment Tax Credits

This is in reply to your letter of April 26, 1995 wherein you requested an advance income tax ruling on behalf of XXXXXXXXXX.

More specifically, your letter concerns a construction project already underway at XXXXXXXXXX. We also note that the issue on which you have requested a ruling is presently before the courts. Accordingly, we are prohibited from providing an advance income tax ruling.

However, we considered the issue mentioned in your request and are providing the following comments which may be of assistance.

As you have noted in your letter the legislation providing for the grandfathering of the rate of investment tax credit available for projects in the Atlantic region has been enacted. Based on the information previously provided, our opinion remains as stated in our January 17th letter. The only significant change we have noted in the enacted legislation is that the law now provides that the previous rate will be available with respect to qualifying machinery and equipment purchased after 1994 that is a "...fixed and integral part of the property that was under construction...". In our January 17th letter we indicated that it was our understanding based on the February 22, 1994 budget proposals that such machinery and equipment must be acquired before 1996. This is no longer the case.

With respect to the other issues raised in your April 26th letter, it is the Department's opinion that the machinery and equipment currently used in the mill is "qualified property" as that term is defined in subsection 127(9) of the Income Tax Act (the Act), not certified property. Consequently, it would be our view that any additions or replacements to such machinery and equipment would also be considered qualified property.

It is also Revenue Canada's opinion that the cogeneration assets may also qualify as qualified property but not certified property. However, the cogeneration assets must also meet the specific words in subsection 127(9) of the Act in paragraph (c.1) of the definition of "qualified property". This paragraph imposes several conditions with respect to the use of the equipment and the sale of steam or electricity that must be met in order to qualify. The determination of whether these conditions are met can only be made on the basis of the specific facts.

We trust that these comments will be of assistance.

The fee submitted with your request will be returned under separate cover.

Yours truly,

for Director
Manufacturing Industries,
Partnerships and Trusts Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch

 						951176
XXXXXXXXXX						C. R. Brown
(613) 957 8980
Attention:XXXXXXXXXX

May 15, 1995

Dear Sirs:

Re: XXXXXXXXXX -Investment Tax Credits

Further to our letter of May 10, 1995 this is to clarify Revenue Canada's interpretation of the specific words of paragraph (c.1) of the definition of qualified property in subsection 127(9) of the Act.

In our opinion, machinery and equipment which produces both steam and electric energy can qualify under the aforementioned paragraph. Consequently, machinery and equipment that constitute the cogeneration assets can be qualified property provided that the other requirements of paragraph (c.1) are met.

The requirement set out in clause (c.1)(i)(B) will be met in the situation where the energy or steam is sold to a provincially regulated power utility and the taxpayer purchases equivalent energy or steam from that utility.

Yours truly,

for Director
Manufacturing Industries,
Partnerships and Trusts Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
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