30 June 1995 External T.I. 9431455 - GRANDFATHER PROVISIONS

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:

1. Whether taxpayer has a "legally binding obligation" if purchaser (a provincial utility corp) does not get Lieutenant Governor-in-Council approval?

2. Whether time limit in subparagraph 8(j)(ii) of class 34 applies on purchase of equipment which qualifies Clause 8(j)(i)(B) of class 34?

3. Whether property acquired by assignee after December 31, 1995 can be included in class 34?

Position TAKEN:

1. YES.

2. No time limit on acquisition of property that qualifies under Clause 8(j)(i)(B) of class 34.

3. NO.

Reasons FOR POSITION TAKEN:

1. Lieutenant Governor-in-Council not required for taxpayer (a provincially owned utility to have a "legally binding obligation.

2. Subparagraphs 8(j)(i) 8(j)(ii) of class 34 are disjunctive.

3. Clause 8(j)(ii)(B) of class 34 requires that the taxpayer acquire the property before 1996.

		943145
XXXXXXXXXX	Wm. P. Guglich

Attention: XXXXXXXXXX

June 30, 1995

Dear Sirs:

Re: September 27, 1994 Draft Legislation

This is in reply to your letters of November 24, and December 8, 1994 concerning proposed amendments to the Income Tax Regulations relating to Class 34.

It appears that the interpretation you seek relates to proposed transactions to be undertaken by specific taxpayers and, therefore, we bring to your attention Information Circular 70-6R2 dated September 28, 1990 issued by Revenue Canada, Taxation. Confirmation with respect to proposed transactions involving specific taxpayers will only be provided in response to a request for an advance income tax ruling. If you wish to obtain an advance income tax ruling for a particular taxpayer with respect to specific transactions which are contemplated, a written request for an advance income tax ruling can be submitted in accordance with the Information Circular. Nevertheless, we can offer the following general comments.

1.Legally Binding Obligation

You describe a situation where a taxpayer enters into a Power Purchase Agreement (the "Agreement") with XXXXXXXXXX prior to February 22, 1994 which was subsequently approved by the Lieutenant Governor-in-Council after February 22, 1994. The Agreement is stated to be made on February 11, 1994 and is executed on that date by the properly authorized officers of the parties to the Agreement. The "Effective Date" is defined as the date the Agreement becomes effective and "is fixed as the date above first mentioned" (i.e. February 11, 1994). The Agreement provides that the taxpayer shall sell Capacity Power exclusively to XXXXXXXXXX and XXXXXXXXXX agrees to purchase all such Capacity Power.

You requested our views as to whether the taxpayer would be considered to have a "legally binding obligation entered into by the taxpayer in writing before February 22, 1994 to sell electricity ..." within the meaning of Clause 8(j)(i)(B) of Class 34 as proposed in the draft amendments dated September 27, 1994.

Whether or not the taxpayer would be considered to have a "legally binding obligation entered into by the taxpayer in writing before February 22, 1994 to sell electricity ..." within the meaning of Clause 8(j)(i)(B) of Class 34 as proposed in the draft amendments dated September 27, 1994 is a question of fact. Neither the fact that the Agreement was approved by the Lieutenant Governor-in Council after February 22, 1994, or that the Order-in-Council approving a power purchase agreement refers to the date of the agreement but does not explicitly state that the agreement takes effect from that time, would not, in and by itself, preclude the taxpayer from complying with the requirement in Clause 8(j)(i)(B) of Class 34 as proposed in the draft amendments dated September 27, 1994, that the property is acquired by the taxpayer to satisfy a "legally binding obligation entered into by the taxpayer in writing before February 22, 1994 to sell electricity ...".

2.Acquisition of Property by Taxpayer

It is our view that there is no time limit on the acquisition by a taxpayer of property that qualifies under Clause 8(j)(i)(B) of Class 34 as proposed in the draft amendments dated September 27, 1994. We agree that subparagraphs 8(j)(i) and 8(j)(ii) are disjunctive.

3.Acquisition of Property by Assignee

Clause 8(j)(ii)(B) requires that the taxpayer acquire the property before 1996. Where, for a particular project, some property is acquired before January 1, 1996 and other property for that project is acquired after December 31, 1995, only that property acquired before 1996 could be considered for inclusion in Class 34. Property which is acquired after December 31, 1995 would be considered for inclusion in proposed amended Class 43.

As Natural Resources Canada is responsible for issuing the Class 34 certificates we suggest you direct your inquiry regarding the requirements for such certificates to:

Class 34/43 Secretariat Phone: (613) 996-6004
CANMET, Energy Efficiency Division (613) 996-2480
Natural Resources Canada (613) 996-9416
580 Booth Street
Ottawa, Ontario
K1A 0E4

We trust our comments will be of assistance to you.

Yours truly,

R. Albert
for Director
Business and General Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch