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.
Principal Issues: Whether certain proposed wind turbines will qualify as test wind turbines within the meaning of subsection 1219(3) of the Income Tax Regulations?
Position: Yes, provided the Project is carried out as described.
Reasons: Opinion from NRCan and compliance with the legislation.
XXXXXXXXXX Fiona Harrison
2006-020127
September 27, 2006
Dear XXXXXXXXXX:
We are writing in response to your request of August 16, 2006, for an opinion concerning the eligibility of one (1) proposed wind turbine to be installed by XXXXXXXXXX (the "Corporation") as a "test wind turbine" within the meaning of subsection 1219(3) of the Income Tax Regulations (the "Regulations").
The Corporation is pursuing the development of a proposed wind farm project to be located on the XXXXXXXXXX on a site of approximately XXXXXXXXXX acres (the "Project"). The Corporation proposes to use the wind turbine (the "Test Wind Turbine") for the primary purpose of testing the level of electrical energy production at the place of installation. The Corporation has signed an option and/or lease agreement with each of the landowners for XXXXXXXXXX-year renewable terms for the land encompassed by the Project. At the termination of the leases, the Corporation will remove the turbines from the land.
The Test Wind Turbine will be located at the following site:
Turbine 1 XXXXXXXXXX.
The capacity of the Test Wind Turbine to be installed as described above will be XXXXXXXXXX megawatts ("MW"). The planned nameplate capacity for the Project is XXXXXXXXXX MW. It is anticipated that the Test Wind Turbine will be commissioned and enter into service before XXXXXXXXXX.
Provided successful results are obtained from the Corporation's testing program involving the Test Wind Turbine, the Corporation plans to complete a second phase of the Project which would involve the erection of XXXXXXXXXX in-fill turbines, each having a capacity of XXXXXXXXXX MW. The Corporation is seeking to include XXXXXXXXXX additional parcels of land which lie between XXXXXXXXXX to the in-fill phase of the Project.
The Corporation will own all of the wind turbines relating to the Project upon completion of the Project and has contracted with XXXXXXXXXX to develop, construct and manage the Project. In a phone conversation of September 14, 2006, you advised that the Corporation deals at arm's length with XXXXXXXXXX. The Corporation has executed a XXXXXXXXXX year power purchase agreement with XXXXXXXXXX (the "Utility") for the output of the Test Wind Turbine.
Grid connection for the Test Wind Turbine will be at the XXXXXXXXXX distribution line that runs along XXXXXXXXXX the site. The grid connection equipment will be owned by the Utility.
Natural Resources Canada ("NRCan") has reviewed the application for technical opinion for the Test Wind Turbine (the "Application")( NRCan file number XXXXXXXXXX).
It is our understanding, based upon representations and information provided on behalf of the Corporation in the Application, that:
(i) at least 50% of the capital cost of the depreciable property to be used in the Project would be the capital cost of property that is included in either Class 43.1 or 43.2 of Schedule II to the Regulations or that would be such property but for subsection 1219(1) of the Regulations;
(ii) the Test Wind Turbine will be a fixed location device that is part of a wind energy conversion system that would, but for section 1219 of the Regulations, be property of the Corporation that is included in either subparagraph (d)(v) of Class 43.1 or paragraph (b) of Class 43.2 of Schedule II;
(iii) the Project will not share with any other project a point of interconnection to an electrical energy transmission or distribution system;
(iv) the primary purpose for installing the Test Wind Turbine is to test the level of electrical energy produced by the Test Wind Turbine from wind at its place of installation;
(v) no other test wind turbine (as defined in subsection 1219(3) of the Regulations) will be installed within 1,500 meters of the Test Wind Turbine;
(vi) no other wind energy conversion system will be installed within 1,500 meters of the Test Wind Turbine until the level of electrical energy produced from wind by the Test Wind Turbine has been tested for at least 120 calendar days; and
(vii) the electrical energy produced from wind by the Test Wind Turbine will not exceed 20% of the planned nameplate capacity for the Project.
Provided that:
(a) the Project will be undertaken as described in the Application with the Test Wind Turbine being installed and used for the testing program described therein; and
(b) the facts and representations relating to the Project remain as stated in the Application and as described herein
it is our opinion that the Test Wind Turbine will constitute a test wind turbine for purposes of subsections 1219(1) and (3) of the Regulations at the time the wind energy conversion system that it forms part of would, but for section 1219 of the Regulations, be property included in Class 43.1 or Class 43.2 of Schedule II to the Regulations. In other words, the cost of the Test Wind Turbine will not qualify as a "Canadian renewable and conservation expense" ("CRCE"), as defined in subsection 66.1(6) of the Income Tax Act (the "Act"), until such time as it is commissioned and enters into service.
(I) Except as expressly stated, our opinion does not imply acceptance or approval of any income tax implications relating to the Project. In particular, we are not providing any confirmation as to the extent to which the cost of any particular property may be considered to be CRCE.
(II) CRCE does not include any amount that is paid or payable to a person or partnership with whom the taxpayer does not deal at arm's length.
(III) Pursuant to paragraph (g.1) of the definition of "Canadian exploration expense" ("CEE") in subsection 66.1(6) of Act, expenses incurred by a taxpayer that qualify for inclusion in CRCE will be included in the taxpayer's CEE. Consequently, a taxpayer that qualifies as a "principal-business corporation" ("PBC", as defined in subsection 66(15) of the Act) may be able to renounce amounts, in respect of the CEE incurred by it, to an investor that has acquired a "flow-through share" (also as defined in subsection 66(15) of the Act) in its capital stock. However, amounts may only be renounced to a particular investor in respect of CEE incurred by the PBC on or after the date the agreement in writing relating to the acquisition of the flow-through share was made.
(IV) Pursuant to subsection 66(12.66) of the Act, qualifying expenses incurred by a PBC in a particular calendar year may be deemed, in certain circumstances, to have been incurred by the PBC on the last day of the immediately preceding calendar year (this provision is generally referred to as the "look-back rule"). Where a PBC renounces CEE pursuant to subsection 66(12.6) of the Act having reliance on the look-back rule to an investor who has acquired a flow-through share of the PBC, it will be subject to tax under Part XII.6, as determined under subsection 211.91(1) of the Act.
(V) Where the amount of CEE that a PBC has renounced relying on the look-back rule exceeds the actual amount that it is entitled to renounce due to its failure to incur sufficient CEE in the next calendar year, the PBC must file form T101B with the Minister of National Revenue on or before March 31 of Year 3 (with Year 1 being the year in which the agreement to issue the flow-through shares was entered into) and must apply the excess fully to reduce one or more of the renunciations.
Except for the purpose of Part XII.6 of the Act, any amount that has been renounced to any person will be deemed under paragraph 66(12.73)(d) of the Act, after the form T101B is filed, to have always been reduced by the portion of the excess identified therein in respect of that renunciation.
Yours truly,
for Director
Reorganizations and Resources Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
c. c. Mirko Maksimcev
Engineering, Research and Technical Team
Industrial Programs Division
Office of Energy Efficiency
Natural Resources Canada
580 Booth St., 18th Floor
Ottawa ON K1A 0E4
All rights reserved. Permission is granted to electronically copy and to print in hard copy for internal use only. No part of this information may be reproduced, modified, transmitted or redistributed in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, or stored in a retrieval system for any purpose other than noted above (including sales), without prior written permission of Canada Revenue Agency, Ottawa, Ontario K1A 0L5
© Her Majesty the Queen in Right of Canada, 2006
Tous droits réservés. Il est permis de copier sous forme électronique ou d'imprimer pour un usage interne seulement. Toutefois, il est interdit de reproduire, de modifier, de transmettre ou de redistributer de l'information, sous quelque forme ou par quelque moyen que ce soit, de facon électronique, méchanique, photocopies ou autre, ou par stockage dans des systèmes d'extraction ou pour tout usage autre que ceux susmentionnés (incluant pour fin commerciale), sans l'autorisation écrite préalable de l'Agence du revenu du Canada, Ottawa, Ontario K1A 0L5.
© Sa Majesté la Reine du Chef du Canada, 2006
Email this Content