Principal Issues: Whether equipment used in a co-gen system that uses straw as feedstock would qualify for inclusion in class 43.1
Position: Provided the straw is first converted to bio-oil which is then used primarily for the purpose of generating electricity
Reasons: see paragraph (d)(xi) of Class 43.1....the straw is "plant residue", confirmed informally with NRCan
April 19, 2011
XXXXXXXXXX
House of Commons
Ottawa ON K1A 0A6
Dear Colleague:
Thank you for your correspondence received on March 7, 2011, on behalf of XXXXXXXXXX , concerning XXXXXXXXXX agriculture residue.
The Income Tax Act provides incentives to encourage investments in energy efficiency and renewable energy projects. Classes 43.1 and 43.2 in Schedule II of the Income Tax Regulations allow taxpayers an accelerated write-off of certain equipment that is designed to produce energy in a more efficient way or from alternative renewable sources.
Under subparagraph (d)(xi), Class 43.1 includes equipment used by the taxpayer in a system that converts wood waste or plant residue into bio-oil, if the bio-oil is used primarily for the purpose of generating electricity, generating heat that is used directly in an industrial process or a greenhouse, or generating electricity and heat. "Plant residue" is a specific term, defined in subsection 1104(13) of the Regulations as "the residue of plants that would, but for its use in a system that converts biomass into bio-oil or biogas, be waste material, but does not include wood waste or waste that no longer has the chemical properties of the plants of which it is a residue."
I understand from the brochure you enclosed with your letter that XXXXXXXXXX is involved in renewable energy technologies that use straw as feedstock. Officials of the Canada Revenue Agency (CRA) consulted with officials of Natural Resources Canada, who have confirmed that straw is a plant residue because it has the chemical properties of the plant of which it is a residue. Therefore, certain equipment used by XXXXXXXXXX in a system that converts straw into bio-oil will qualify for inclusion in Class 43.1 under subparagraph (d)(xi), provided that the bio-oil is used primarily for the purpose of generating electricity, or electricity and heat, in the cogeneration facility.
I trust that the information I have provided clarifies the CRA's position on this matter.
Yours sincerely,
Keith Ashfield
Lena Holloway, CA
(613) 946-3553
2011-039885