Regulation 1219

In the course of a general response to a question as to whether expenses incurred in respect of a ground-source heat pump system would qualify as "Canadian renewable and conservation expense" ("CRCE"), CRA stated:

We direct your attention to the Technical Guide to Canadian Renewable and Conservation Expenses (CRCE) …In particular, Appendix II contains project development activities that are typically eligible as CRCE…[f]or example… :

• Undertaking pre-feasibility studies;
• Obtaining and analyzing the regional soil and ground-water data;
• Determining the technology and capacity of the overall system;
• Identifying the options for horizontal ground collector or vertical wells;
• Negotiating and obtaining access to the site or building for testing and assessment;
• Undertaking feasibility studies;
• Undertaking the collection and preliminary analysis of the site data, such as, soil thermal response, ground water characteristics and soil profile; and
• Commissioning and start-up activities.

Would a particular application in a "waste heat to power project" qualify as "Canadian renewable and conservation expense" in Reg. 1219 if this project does not proceed beyond the feasibility study stage? CRA stated:

[T]he fact that the development of a particular project is subsequently abandoned due to factors that were not foreseen at the time that the initial stages of the project development were undertaken will not necessarily preclude such expenditures from being treated as CRCE. In such circumstances, it will be necessary to establish that at the time the expenditures were incurred it was reasonable to expect that at least 50% of the capital cost of the depreciable property to be used in the proposed project would be the capital cost of any property that is described in Class 43.1 and Class 43.2.

The corporate "Vendor" disposes of the "Property" (including land options agreements, permits, engineering data and technical and environmental reports) acquired in the development phase of a proposed wind turbine farm. Before discussing the consequences of sale, CRA stated:

CRCE may include the costs of certain pre-feasibility studies, feasibility studies, environmental assessment expenses and the expenses for negotiating power purchase agreements. In particular, paragraph 1219(1)(c) includes the costs of negotiating a site access agreement with landowners, obtaining approval to use the site from various regulatory authorities and obtaining permits (e.g., environmental, building and drilling permits) for the project from various regulatory authorities.

A corporation implementing a Canadian renewable and conservation expenses (CRCE) project that uses landfill sites, and injects them with bacteria to produce recoverable gas, puts a structure (pipes) into the ground to recover the gas and also uses other equipment such as computers. Could CCA deducted by the taxpayer qualify as CRCE? CCRA responded:

CCA claimed by a taxpayer under paragraph 20(1)(a) of the Act would not be an ""expense incurred by a taxpayer". In fact, CCA is a deduction that paragraph 20(1)(a) … and the Regulations allow to offset the capital cost of acquiring a property. Absent these provisions, such capital cost would otherwise be non-deductible under the terms of paragraph 18(1)(b) … . [See] McKee ... .

A change to the GPS coordinates for the wind installation described in 2013-0490631E5 did not affect that interpretation.

Opinion of CRA that for the purposes of Reg. 1219(1)(g), each of the subject “Test Wind Turbines” will be a test wind turbine as defined in Reg. 1219(3), from the time, if it were not for Reg. 1219, that it would be included in Class 43.1 by the effect of s. (d)(v) or in Class 43.2 by the effect of s. (b) is based on an opinion of the Department of Natural Resources Canada (“NRCan”) that:

• At least 50% of the capital cost of depreciable property that will be used in the Wind Project would be that of property that is included in Class 43.1 or 43.2 of Schedule II or that would be included in the absence of subsection 1219(1).
• Each of the Test Wind Turbines will be a fixed installation consisting of a wind energy conversion system which, if it were not for section 1219, would be included in Class 43.1 of Schedule II by the effect of subparagraph (d)(v) or in Class 43.2 of that Schedule by the effect of paragraph (b).
• The Wind Power Project will not share, with any other project, a point of interconnection to an electric power transmission or distribution grid.
• The purpose of the construction of each of the XXXXXXXXXX Test Wind Turbines is to verify the level of electrical energy produced from the wind by each of them where they are located.
• No other Test Wind Turbine will be within 1,500 meters of each of the Test Wind Turbines.
• No other wind energy conversion system will be installed within 1,500 meters of the Test Wind Turbines until the level of electrical energy produced from the wind has been tested for at least 120 calendar days.
• The electrical energy generated from the wind by the XXXXXXXXXX Wind Test Turbines of the Wind Project will not exceed 20% of the nameplate capacity, according to the nameplates, of the Wind Project.

Two models of wind turbines are proposed to be installed on a new wind farm by a limited partnership, with land use rights obtained under option contracts with land owners. The application was respecting test wind turbines to be installed in relation to the first phase of the project. CRA provides an opinion that each of the test wind turbines will be a Test Wind Turbine, as defined in Reg. 1219(3), from the time that, but for Reg. 1219, it would be included in Class 43.1 by the effect of s. (d)(v) or in Class 43.2 by the effect of s. (b).