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:
(a) Whether there would be any relief provision in the Regulations in respect of Class 34 property similar to subsection 1104(14) of the Regulations in respect of Class 43.1 property?
(b) If a Class 34 asset certificate has been revoked, would subsection 13(6) of the Act apply to reclassify the Class 34 property to another class(es) effective from the time of its original issue?
PositionS:
(a) No, there is no specific relief provision in the Regulations in respect of Class 34 property. Any relief would have to be provided at the discretion of the Minister of Energy, Mines and Resources.
(b) Subsection 13(6) of the Act would apply to the first nonstatute-barred taxation year of the taxpayer.
Reasons:
(a) There is no specific relief provision in respect of Class 34 property similar to subsection 1104(14) of the Regulations in respect of Class 43.1 property. Accordingly, any relief in respect of deficiency, failing or shutdown - that is beyond the control of the taxpayer - of the system of which the property is part, would have to be made at the discretion of the Minister of Energy, Mines and Resources in determining whether to revoke the Class 34 asset certificate under subsection 1104(11) of the Regulations.
(b) Pursuant to subsection 13(6) of the Act, the Minister of National Revenue could direct, with respect to any taxation year which is not statute barred for reassessment or additional assessment under subsection 152(4) of the Act, the misclassified property be deemed to have been property of Class 34 at all times before the beginning of the year specified in the direction, and be deemed to have been transferred from Class 34 to the correct class(es) at the commencement of that year. Subsection 13(5) of the Act sets out the mechanics for dealing with transfers of misclassified property.
Natural Resources Canada
CANMET Energy Technology Centre
Building 3, Room 213A Peter Lee
1 Haanel Drive 957-8977
Nepean, Ontario 991013
K1A 1M1
Attention: Mr. Richard Fry
June 22, 1999
Dear Sirs:
Re: Revocation of Class 34 Asset Certificate
This is in reply to your facsimile of April 16, 1999 wherein you have requested our comments in respect of the subject matter. You also attached for our reference a copy of the letter dated April 14, 1999 written to you by XXXXXXXXXX requesting your comments on this matter.
Legislation
1. A property may qualify as a Class 34 property if the property meets the following requirement together with the other requirements under the provisions of Class 34 in Schedule II of the Income Tax Regulations (the "Regulations")
(d) that is property in respect of which a certificate has been issued...
(ii) after December 10, 1979 by the Minister of Energy, Mines and Resources certifying that the. property is part of a plan designed to
(A) produce heat derived primarily from consumption of natural gas...
(B) produce electrical energy by the utilization of fuel that is petroleum. ., if the consumption of fossil fuel (expressed as the high heat value of the fossil fuel), if any, chargeable to electrical energy on an annual basis in respect of the property is no greater than 7,000 British Thermal Units per kilowatthour of electrical energy produced, or
(C) recover heat that is a by-product of an industrial process...
but not including
(h) property in respect of which a certificate issued under paragraph (d)... has been revoked pursuant to subsection 1104(11)...
2. Pursuant to subsection 1104(11) of the Regulations, for the purposes of paragraph (h) of Class 34 in Schedule II, a certificate issued under...
(b) subparagraph (d)(ii). . . of that class... may be revoked by the Minister of Energy, Mines and Resources
where
(c) an incorrect statement was made in the furnishing of information for the purpose of obtaining the certificate, or
(d) the taxpayer does not conform to the plan described in subparagraph (d)(i) or (d)(ii) of that class, as the case may be,
and a certificate that has been so revoked shall be void from the time of its issue.
3. Pursuant to subsection 1104(14) of the Regulations,
Where property of a taxpayer is not operating in the manner required by paragraph (c) of Class 43.1 in Schedule II solely because of a deficiency, failing or shutdown - that is beyond the control of the taxpayer - of the system of which it is part and that previously operated in the manner required by that paragraph, that property is deemed, for the purpose of that paragraph, to be operating in the manner required under that paragraph during the period of the deficiency, failing or shutdown, if the taxpayer makes all reasonable efforts to rectify the circumstances within a reasonable time.
4. Pursuant to subsection 1104(11) of the Regulations, if the condition in paragraph (c) or (d) thereof is met, the Minister of Energy, Mines and Resources (the "Energy Minister") may revoke the certificate issued under subparagraph (d)(ii) of Class 34 in Schedule II of the Regulations. We note that such a revocation is optional and not mandatory. On the other hand, we also note that there is no specific relief provision in respect of Class 34 property similar to subsection 1104(14) of the Regulations in respect of Class 43.1 property. Accordingly, any relief in respect of deficiency, failing or shutdown - that is beyond the control of the taxpayer - of the system of which the property is part, would have to be made at the discretion of the Energy Minister in determining whether to revoke the Class 34 asset certificate as described in the above.
5. With respect to the Department's general views regarding transfer of misclassified depreciable property and revision of capital cost allowance resulting therefrom, please refer to Interpretation Bulletin IT-190R2 (Capital Cost Allowance-Transferred and Misclassified Property) and Information Circular 84-1 (Revision of Capital Cost Allowance Claims and Other Permissive Deductions), a copy of which is attached herewith for your reference. In a situation wherein the Class 34 asset certificate has been revoked by the Energy Minister, the certificate would be considered void from the time of its issue by virtue of subsection 1104(11) of the Regulations. Pursuant to subsection 13(6) of the Income Tax Act (the "Act"), the Minister of National Revenue could direct, with respect to any taxation year which is not statute barred for reassessment or additional assessment under subsection 152(4) of the Act, the misclassified property be deemed to have been property of Class 34 at all times before the beginning of the year specified in the direction, and be deemed to have been transferred from Class 34 to the correct class(es) at the commencement of that year. Subsection 13(5) of the Act sets out the mechanics for dealing with transfers of misclassified property. Furthermore, as stated in paragraph 7 of Information Circular 84-1, "where there is a misclassification of depreciable property to a taxpayer, revision of the capital cost allowance schedules will ordinarily be made for all years that can be reassessed within the limitation imposed by subsection 152(4)."
We hope that our comments are helpful to you. If we can be of further assistance, please contact the writer.
Yours truly,
Manager
Resource Industries Section
Resources, Partnerships and Trusts Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
Attachments
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