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.
XXXXXXXXXX 992244
Attention: XXXXXXXXXX
XXXXXXXXXX, 1999
Dear Sirs/Mesdames:
Re: XXXXXXXXXX Advance Income Tax Ruling
We are writing in response to your letter of XXXXXXXXXX wherein you requested an advance income tax ruling on behalf of the above taxpayer. We also acknowledge receipt of the information provided in your letters of XXXXXXXXXX, your facsimile transmission of XXXXXXXXXX and during our telephone conversations.
To the best of your knowledge, and that of the taxpayers involved, none of the issues contained herein is:
(i) dealt with in an earlier return of the taxpayers or a related person;
(ii) being considered by a tax services office or taxation centre in connection with a previously filed tax return of the taxpayers or a related person;
(iii) under objection by the taxpayers or a related person;
(iv) subject to a ruling previously issued by the Income Tax Rulings & Interpretations Directorate; or
(v) before the courts or, if a judgment has been issued, the time limit for appeal to a higher court has not expired.
In this letter, the following terms have the meanings specified:
(a) "Act" means the Income Tax Act, R.S.C 1985 (5~ Supp.) c.1, as amended to the date hereof, and, unless otherwise stated, every reference herein to a Part, section, subsection, paragraph or subparagraph is a reference to the relevant provision of the Act;
(b) "CBCA" means Canada Business Corporations Act;
(c) "C Act" means XXXXXXXXXX Act;
(d) "E Act" means XXXXXXXXXX Act;
(e) "Regulations" means the Income Tax Regulations;
(f) "Province" means the province of XXXXXXXXXX.
Our understanding of the facts, proposed transactions and purpose of the proposed transactions is as follows:
FACTS
1. The following taxpayers are referred to in this advance income tax ruling:
"A Co." means XXXXXXXXXX,
"General Partner" means XXXXXXXXXX,
"Limited Partnership" means XXXXXXXXXX,
"Power Co." means XXXXXXXXXX,
"X Co.,, means XXXXXXXXXX,
"Y Co." means XXXXXXXXXX.
2. Power Co. is a Provincial Crown corporation continued under the E Act. It is a corporation that, by reason of paragraph 149(1)(d) of the Act, is exempt from taxation under Part I of the Act.
3. General Partner is a corporation incorporated under the C Act and is the general partner of Limited Partnership.
4. Limited Partnership is a limited partnership organized under the Limited Partnership Act of the Province, the members of which are X Co. (as to a XXXXXXXXXX% interest) and A Co. (as to a XXXXXXXXXX% interest). X Co. is a corporation incorporated under the CBCA.
5. Between XXXXXXXXXX and XXXXXXXXXX Power Co. constructed, XXXXXXXXXX (the "Power Assets") on a site adjacent to XXXXXXXXXX. The Power Assets include boilers, steam turbine generators (the "Steam Turbines"), condensers, ancillary equipment, certain buildings and certain lands. The Power Assets utilize heavy oil XXXXXXXXXX, and water for cooling is taken from XXXXXXXXXX.
6. Unit #XXXXXXXXXX of the Power Assets ("Unit #XXXXXXXXXX") is comprised of a boiler, the Unit #XXXXXXXXXX Steam Turbine and auxiliary plant. It is a conventional steam generating plant that normally burns XXXXXXXXXX heavy oil in conventional radiant furnace vertical boilers. in recent years, a sulphur limit of XXXXXXXXXX (by weight) has been imposed in winter and XXXXXXXXXX in summer. Steam from the boiler is supplied to Unit #XXXXXXXXXX Steam Turbine where it is converted into electricity. XXXXXXXXXX.
7. The Unit #XXXXXXXXXX Steam Turbine had an unusually high efficiency at the time it was built
XXXXXXXXXX
PROPOSED 'IRANSACTIONS
8. Limited Partnership has contracted with Y Co. for the supply and installation, on a turnkey basis, of a stand alone plant comprising a XXXXXXXXXX natural gas-powered turbine (the "Gas Turbine") generator, a heat recovery steam generator (the "'IRSO"), fuel gas compressors, output transformer, deaerator, buildings, foundations, piping, controls and ancillary equipment. These assets (collectively, the "Facility") will be new at the time they are acquired by Limited Partnership and will not have been used for any purpose prior to such time.
9. The Facility will be located on land leased from Power, adjacent to the existing Power Assets.
10. Limited Partnership will lease the Power assets from Power Co. and use such assets to create a combined cycle generation facility in the Province. The draft Site Lease Agreement provides for an initial lease for a twenty (20) year term, with an option to renew for a five (5) year term.
11. The Gas Turbine is a Y Co. type
XXXXXXXXXX
12. The Facility will utilize waste heat from the Gas Turbine to produce high pressure steam in the HRSG. This steam will flow to the Unit #XXXXXXXXXX Steam Turbine in the Power Assets, where it will generate additional power, which will flow to the Provincial power system through the existing transformer and switchyard. Some modifications will be made to the Power Assets as part of their "repowering" to a combined cycle. The existing Unit #XXXXXXXXXX boiler and its ancillaries will be disconnected and taken from service permanently. The existing water feed heaters will also be disconnected. Other auxiliary equipment such as generator exciters and steam turbine start up system will be replaced, while instrumentation and other equipment will be upgraded. All such replaced and upgraded equipment will be owned by Power Co.
13. The only fuel used by the Facility to generate electricity and steam will be fossil fuel.
14.
XXXXXXXXXX
15. Y Co. will supply Limited Partnership with a new deaerator for the Facility, which will be an integral part of the HRSG. It will deaerate the condensate returned from Power's Unit #XXXXXXXXXX condenser before that condensate is passed to the HRSG to be converted to steam. Virtually all of the steam supplied by the HRSG to the Unit #XXXXXXXXXX Steam Turbine is condensed to water or condensate in the condenser and returned for reuse in the HRSG. Only about 2% of the steam and water that is circulated is lost to the system.
16. The gas supplied to the XXXXXXXXXX pipeline will not be at a sufficiently high pressure for use in the Gas Turbine. Limited Partnership will purchase XXXXXXXXXX compressors from Y Co. to boost the pressure of the gas.
17. Limited Partnership will purchase a high voltage generator transformer from Y Co. to convert power produced by the Gas Turbine to XXXXXXXXXX KV for supply to Power Co.'s system. In addition, Limited Partnership will purchase from Y Co. all other electrical equipment, including auxiliary breaker, auxiliary transformer, CT's, PT's, protection relaying, which are required to supply reliable power to the existing grid. The Unit #XXXXXXXXXX Steam Turbine will continue to supply electric power to Power Co.'s system through its existing generator transformer.
18. The Facility will be a complete and self-sufficient generating facility which can produce electricity and steam for sale.
19. The Facility will use some of the Power Assets, in particular the water connection to the City of XXXXXXXXXX, the waste water treatment facility, and the demineralizing water facility. The Facility will obtain construction power and some of its standby power from the Power Assets.
20. The Limited Partnership Assets will bum gas from XXXXXXXXXX, and supply power to Power Co. through an extension to Power Co.'s switchyard in Power's Assets. The Facility will be connected to the XXXXXXXXXX pipeline. Limited Partnership will sell electricity generated from the Facility to Power Co. in the winter months and export most of its electricity to XXXXXXXXXX in the summer months.
21. The Facility together with the existing Unit #XXXXXXXXXX Steam Turbine form a combined cycle that will displace power now generated in the Province by Power Co. at the XXXXXXXXXX Generating stations using XXXXXXXXXX heavy oil, a small amount of power produced with XXXXXXXXXX oil and power produced in the XXXXXXXXXX using low sulphur oil. The Facility will produce a major reduction in Greenhouse and Acidifying gas emissions. The reduction of carbon dioxide will be over XXXXXXXXXX tonnes per year. Sulphur dioxide emissions from XXXXXXXXXX will be almost completely eliminated and the total sulphur dioxide reduction, including emissions displaced at other plants close to XXXXXXXXXX, will be over XXXXXXXXXX tonnes per year. Regional NOx emissions will be reduced by over XXXXXXXXXX tonnes per year.
PURPOSE OF THE PROPOSED TRANSACTIONS
22. The purpose of the proposed transactions is to enable Limited Partnership to carry on business producing electricity in the Province in a manner that reduces the requirement for fossil fuel (thereby reducing substantially the emissions of carbon dioxide, sulphur dioxide and NOx emissions) and to sell such electricity to Power Co. and XXXXXXXXXX-situated purchasers.
RULINGS GIVEN
Provided that the preceding statements constitute a complete and accurate disclosure of all of the relevant facts, proposed transactions and the purpose of the proposed transactions, and provided that the proposed transactions are completed in the manner described above, our rulings are as set forth below.
A. Provided that all of the other requirements (including those in class 43.1) have been satisfied in order for the Facility to be included in Class 43.1 of the Regulations, we confirm that the Facility will comprise a system (other than an enhanced combine cycle system) used by Limited Partnership to generate both electrical and heat energy using only fuel that is fossil fuel for the purposes of subparagraph (c)(i) of Class 43.1 of the Regulations.
B. For the purposes of subparagraph (c)(i) of Class 43.1 of the Regulations, the Power Assets will be separate and distinct from the system referred to in Ruling A.
The above rulings are given subject to the limitations and qualifications set out in Information Circular 70-6R3 dated December 30,1996 and are binding on Revenue Canada provided that the supply and installation of the Facility as described in paragraph 8 above commences by XXXXXXXXXX.
The above rulings are based on the law as it presently reads and do not take into account any proposed amendments to the Act which, if enacted into law, could have an effect on the rulings provided herein. In addition, nothing should be construed as implying that Revenue Canada has agreed to or reviewed any tax consequences relating to the facts and proposed transactions described herein other than those specifically described in the rulings given above.
Yours truly,
for Director
Resources, Partnerships and Trusts Division
Income Tax Rulings and Interpretations Directorate
Policy and Legislation Branch
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© Her Majesty the Queen in Right of Canada, 1999
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© Sa Majesté la Reine du Chef du Canada, 1999
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