Principal Issues: Whether in the situation described wind turbines would be properties included in Class 43.1?
Position: Yes
Reasons: Requirements of the Regulations are satisfied.
XXXXXXXXXX 2005-015071 R. Gagnon December 21, 2005
Dear Madam,
Subject: Category 43.1 of Schedule II of the Regulations
This is in response to your fax of September 8, 2005, in which you asked whether wind turbines would be included in Class 13 or Class 43.1 of Schedule II to the Income Tax Regulations in the situation described below.
Unless otherwise indicated, all statutory references herein are to the provisions of the Income Tax Act or the Income Tax Regulations ("Regulations"), as applicable.
An officer from the Income Tax Rulings Directorate called you to obtain additional information regarding your request. In particular, we were interested in knowing whether the wind power producer retains ownership of the wind turbines and understanding the legal nature of the contractual relationship between the producer and the landowner regarding the ownership of the wind turbines. Since we have not received this information, we have responded to your request on the basis of certain assumptions set out below, which may well apply to your situation. If your situation is different, you may wish to write back to us with all the necessary information that would allow us to give you a relevant opinion.
Facts and assumptions
1. Opco is a "taxable Canadian corporation" as defined in subsection 89(1).
2. Opco carries on the business of generating electricity from wind turbines. The wind turbines were acquired by Opco in XXXXXXXXXX for the purpose of earning income from a business carried on in Canada, and were not used for any purpose prior to their acquisition by the taxpayer. The wind turbines are capital property (as defined in section 54), used primarily for the generation of electrical energy.
3. Opco has constructed a wind farm on leased land that is located in the province of XXXXXXXXXX. The wind farm consists of XXXXXXXXXX wind turbines. The lease between Opco and the landowner provides for a lease period of XXXXXXXXXX years. The leased land covers an area of approximately XXXXXXXXXX square kilometers.
4. We have assumed that the lease also provides that Opco retains ownership of the XXXXXXXXXX wind turbines that have been installed on the leased land, throughout the term of the lease. The lease provides for an express waiver by the landowner in favour of Opco of the benefit of accession. The lease also provides that at the end of the lease, Opco shall remove the turbines and restore the land to its original condition.
5. Each turbine occupies only a small portion of the land. The landowner may use the remaining land for other purposes.
6. Each wind turbine is built on a foundation, and consists of a tower, nacelle, rotor hub and rotor blades. A transformer is located at the base of the tower, which receives the electricity generated by the turbine.
7. We have assumed that the wind turbines were acquired before February 23, 2005 and are not property described in subsection 1102(1) of the Regulations.
Our Comments
It appears to us that the situation described in your letter may be an actual situation involving taxpayers. The Canada Revenue Agency does not generally provide written opinions on proposed transactions otherwise than by way of advance ruling. Furthermore, it is the responsibility of the relevant Tax Services Office to determine whether completed transactions have received the appropriate tax treatment. We can, however, offer the following general comments which may not apply in full to the particular situation.
In a situation as described where the wind generator retains ownership of the wind turbines, the equipment described in paragraph 6 above would be included in Class 43.1 of Schedule II of the Regulations by virtue of, among other things, paragraph (d)(v) of Class 43.1.
Please note that this opinion is not an advance ruling and, as stated in paragraph 22 of Information Circular 70-6R5 dated May 17, 2002, is not binding on the Canada Revenue Agency with respect to any particular factual situation.
Best regards,
Maurice Bisson, CGA
for the Director
Corporate Reorganizations and Resource Industries Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch