7 April 1998 External T.I. 9721715 - LANDFILL GAS - WHETHER MUNICIPAL WASTE?

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 for purposes of clause (d)(ii)(B) of Class 34, "landfill gas" could be considered an eligible fuel?

Position:

No.

Reasons:

1. Landfill gas is collected by a series of pipes laid in the ground. It is then cleaned

before it is combusted. It therefore becomes a commodity that has value and ceases to

be waste.

2. Landfill gas is not petroleum, natural gas or related hydrocarbons in that it is not a
hydro carbon that is related to petroleum or natural gas.

Class 34/43.1 Secretariat
Natural Resources Canada
Building 3, Room 213A 972171
1 Haanel Drive Wm. P. Guglich

Nepean, Ontario
K1A 1M1

Attention: Richard Fry

April 7, 1998

Dear Sirs:

Re: "Landfill Gas" - Whether "Municipal Waste" or "Related Hydrocarbon?"

This is in reply to your letter of August 11, 1997, wherein you requested our views as to whether, for purposes of clause (d)(ii)(B) of Class 34, "landfill gas" could be considered an eligible fuel. Thank you for the additional materials submitted on September 4, 1997 and March 25, 1998.

It is your view that, for purposes of clause (d)(ii)(B) of Class 34, "fuel that is ... municipal waste" could be defined to include "landfill gas". Alternatively, it is your view that "landfill gas" could be considered a fuel that is a related hydrocarbon for purposes of clause (d)(ii)(B) of Class 34.

OUR VIEWS

Regulation 1104(13) provides a definition of "municipal waste" for purposes of Class 43.1. This definition does not apply for purposes of Class 34. Since "municipal waste" is not, for purposes of clause (d)(ii)(B) of Class 34, defined in the Income Tax Act or the Regulations, we must use its common, ordinary meaning. The applicable common, ordinary definition of "waste" within the context of Class 34 is: refuse, garbage, rubbish, sewage, trash.

The word "municipal" is used in the context of local, community, or public.

As a result the term "municipal waste" in clause (d)(ii)(B) of Class 34 would mean anything in the nature of community refuse, garbage, rubbish or trash.

We understand that in a landfill site the refuse or garbage is covered with earth. The process of natural decomposition produces, inter alia, landfill gas the principal component being methane gas which would ordinarily escape into the atmosphere. The landfill gas is collected, before it escapes into the atmosphere, by means of pipes laid in the ground. After some minor cleaning the gas is used as a fuel. The issue here is whether this landfill gas, after it is collected and cleaned, is "fuel that is municipal waste".

If the landfill gas escapes into the atmosphere it would be considered waste. However, after the landfill gas is collected and cleaned it becomes a commodity which is used as a fuel and therefore would no longer be considered waste. We could provide another analogy where leaves are collected by the municipality and taken to a compost site. At this stage the leaves are "municipal waste". The leaves decompose to form compost which is then sold to landscapers, nurseries, etc.. The resulting compost is a valuable commodity (goods) and would not be considered "municipal waste".

The phrase "related hydrocarbons" in clause (d)(ii)(B) of Class 34 follows immediately after the words "petroleum, natural gas". After the term "petroleum, natural gas or related hydrocarbons" clause (d)(ii)(B) of Class 34 describes other eligible fuels, including "municipal waste". Therefore, we interpret the term "petroleum, natural gas or related hydrocarbons" to mean that petroleum, natural gas, and hydrocarbons that are related to petroleum or natural gas qualify as an eligible fuel. Hydrocarbons that are not related to petroleum or natural gas would not qualify.

For purposes of Class 34 the term "related hydrocarbons" is not defined in the Income Tax Act or Regulations therefore we must use the common, ordinary meaning. The common, ordinary meaning of "related" in the context of clause (d)(ii)(B) of Class 34 is: "connected: allied".

The landfill gas could be considered to be related (connected or allied) to the municipal waste but it would not be considered to be related to petroleum or natural gas. The fact that petroleum, natural gas and landfill gas all have a common component, namely methane, which is a hydrocarbon, and that petroleum, natural gas and landfill gas are produced by the decomposition of vegetable matter is not in and by itself sufficient, in the context of clause (d)(ii)(B) of Class 34, to conclude that landfill gas is a hydrocarbon "related to" petroleum or natural gas.

We trust our comments will be of assistance to you.

Yours truly,

P. Spice
for Director
Business and Publications Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
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