7 March 1997 Internal T.I. 953176A - APPLICATION OF THE ACT

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:

Application of draft subsection 1104(14) of the Regulations where steam host permanently shuts down and the BTU heat requirements in Class 43.1 are no longer met.

Position:

Question of Fact.

Reasons:

Draft Regulation 1104(14) requires that the taxpayer make all reasonable efforts to rectify the deficiency within a reasonable time.

									953176
XXXXXXXXXX							Wm. P. Guglich

Attention: XXXXXXXXXX

March 7, 1996

Dear Sirs:

Re: Draft Subsection 1104(14) of the Income Tax Regulations

This is in reply to your letter of December 4, 1995, wherein you requested our views regarding the application of draft subsection 1104(14) of the Income Tax Regulations (the "Regulations") in the following hypothetical situation:

A few years into the operation of an eligible cogeneration facility, the steam host shuts down permanently because it is uneconomic to continue operating. The Class 43.1 property will no longer meet the heat requirement. The owner of the cogeneration facility would no longer have a market for the steam because the steam facilities have been specifically constructed for the plant. The circumstance causing the deficiency was beyond the control of the owner of the cogeneration facility and was not known at the time the contract was entered into.

You request our views as to whether draft Regulation 1104(14) would apply so that the cogeneration facility would continue to qualify for inclusion in Class 43.1.

OUR VIEWS

To continue to qualify for inclusion in Class 43.1, draft Regulation 1104(14) requires that the owner of the cogeneration facility make all reasonable efforts to rectify the heat requirement deficiency within a reasonable time. It is a question of fact, to be determined on the basis of the specific facts in a particular situation, as to whether the owner of the cogeneration facility has made all reasonable efforts to rectify the heat requirement deficiency within a reasonable time. What would constitute reasonable efforts within a reasonable time will be dependent on the specific facts of each case.

We trust our comments will be of assistance to you.

Yours truly,

R. Albert
for Director
Business and General Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch