14 July 1998 External T.I. 9805365 - CCA CLASS - ELECTRICAL GENERATING EQUIPMENT

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: Classification of electrical generating equipment

Position: Class 1 unless specifically included in another class in Shedule II

Reasons: Wording of the relevant classes in Schedule II

980536
XXXXXXXXXX A.A. Cameron
(613) 957-8975

Attention: XXXXXXXXXX

July 14, 1998

Dear Sirs:

Re: Cogeneration Project

This is in reply to your facsimile regarding the classification for capital cost allowance (“CCA”) purposes under Schedule II of the Income Tax Regulations (the “Regulations”) of certain equipment related to the above. In particular, a natural gas turbine engine and attached electrical generator as well as a steam driven turbine electrical generator.

The situation described in your letter appears to relate to specific taxpayers and an actual fact situation. To the extent that you require assistance in determining the current tax status of the taxpayers involved, you should contact your local Taxation Services Office. If you require confirmation of the tax consequences of proposed transactions involving specific taxpayers, a written request for an advance income tax ruling should be submitted in accordance with Information Circular 70-6R3 ("IC 70-6R3") dated December 30, 1996 and issued by Revenue Canada. Nevertheless, we can provide you with the following general comments with respect to the classification of the above assets for CCA purposes under the Act.

Where the cost of a particular property qualifies for inclusion in the classes of property described in Schedule II of the Regulations, the specific class to which its cost is to be allocated must be determined with reference to the particular property and the facts of the relevant situation. Pursuant to the provisions of paragraph (k) to Class 1 in Schedule II of the Regulations, the cost of electrical generating equipment is to be included in that class (which has a maximum CCA rate of 4% of the declining balance of the class), unless specifically included elsewhere in Schedule II (e.g., in either Class 8, or potentially Class 43.1, thereof where all the requirements of the relevant class are satisfied). The cost of electrical generating equipment acquired after May 25, 1976 may qualify for inclusion in Class 8 in Schedule II of the Regulations (which has a maximum CCA rate of 20% of the declining balance of the class), if (as indicated in paragraph 6 of Interpretation Bulletin IT-472):

– the taxpayer’s business is not the production for the use of or distribution to others of electrical energy, the equipment is auxiliary to the taxpayer’s main power supply, and it is not used regularly as a source of supply;

– the equipment has a maximum load capacity of not more than 15 kilowatts; or

– the equipment is portable.

As indicated in paragraph 21 of IC 70-6R3, the comments contained herein are not income tax rulings and are not binding on Revenue Canada.

Yours truly,

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