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.
February 2, 1994
XXXXXXXXXX District Office Head Office
Client Assistance Division Rulings Directorate
Technical Business Enquiries 957-8953
XXXXXXXXXX
940030
XXXXXXXXXX
This is in reply to your recent memorandum requesting our comments regarding the CCA related questions submitted by the taxpayer's representative, regarding the Project.
The taxpayer proposes to develop a mine and is considering a hydro electric installation to serve as an alternative energy source that would displace a portion of the electricity that would otherwise be purchased from
XXXXXXXXXX
The taxpayer proposes to include the following in class 34: generation equipment, the plant, powerhouse complete with controls, fishway/bypass, transmission equipment, canal, dam, dyke, penstock and overflow spillway.
The questions were:
1.Are the categories (we assume this means the assets described above) eligible for inclusion in class 34?
2.Does the fact that the development is associated with a mine alter the answer for No. 1 above?
3.Are the Project activities to be included with the mine for income tax purposes?
4.What if the taxpayer chooses to enter into a joint venture with an independent power producer (the "IPP") to build the Project?
OUR VIEWS
1.Subsection 1102(9) of the Income Tax Regulations (the "Regulations") provides that where generating or distribution equipment and plant (including structures) has been acquired by the taxpayer for the purpose of providing power for his own consumption in operating a mine, ore mill, smelter, metal refinery or any combination thereof and at least 80% of the output of electrical energy was so used in the first two taxation years in which he so produced power, the property shall be included in class 41 of schedule II of the Regulations.
Section 11 of the Interpretation Act expressly provides that the expression "shall" is to be construed as imperative and the expression "may" as permissive. As a result property described in subsection 1102(9) of the Regulation must be included in class 41 and cannot be included in class 34.
The taxpayer should only apply to Energy, Mines and Resources Canada for class 34 certification of those assets described in subparagraph (e)(ii) of class 34 that are not required by subsection 1102(9) of the Regulations to be included in class 41.
2.Where the development is associated with a mine the provisions of subsections 1102(8) & (9) of the Regulations may apply. Please refer to our comments above.
3.The Project activities would for income tax purposes be included with the mining activities provided they do not constitute a separate business.
4.If the Project is built as a joint venture with the IPP we assume each joint venturer would own property of the Project and the IPP's share of the power would be sold to the mine.
The generating or distribution and plant (including structures) property of the Project owned by the IPP which are described in subsection 1102(8) of the Regulations would be included in class 41. Subsection 1102(8) of the Regulations provides that where the generating or distributing equipment and plant (including structures) of a producer or distributor of electrical energy were acquired for the purpose of providing power to a consumer for use by the consumer in the operation in Canada of a mine and at least 80% of the producer's or distributor's output for the first two taxation years in which he sold power was sold to the consumer for that purpose, the property shall be included in class 41 of Schedule II.
The IPP could apply to Energy, Mines and Resources Canada for class 34 certification of those assets described in subparagraph (e)(ii) of class 34 that are not required by subsection 1102(8) of the Regulations to be included in class 41.
Insofar as the IPP is concerned subsections 1100(24) to 1100(29) of the Regulations may apply to restrict the claiming of capital cost allowance ("CCA") to the amount of the income generated by the property. However, subsection 1100(26) of the Regulations provides an exception to these restrictions for taxpayers that were, throughout a taxation year, "(a) a corporation, whose principal business was the sale, distribution, or production of electricity, natural gas, or (b) a partnership each member of which was a corporation described in (a) above". Taxpayers which meet the requirements of subsection 1100(26) of the Regulations would not be restricted in the amount of Class 34 CCA that they could claim. It is a question of fact as to whether a particular corporation's principal business throughout the year was any of those described in subsection 1100(26) of the Regulations. This restriction does not apply to class 41 assets.
We trust this will be of assistance.
R. Albert
for Director
Business and General Division
Rulings Directorate
Legislative and Intergovernmental
Affairs Branch
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, 1994
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, 1994
Email this Content