Dear Sirs:
Re: Power Plant and Capital Cost Allowance
This is in reply to your letter of January 3, 1991 requesting an opinion with respect to the capital cost allowance of an electrical power plant.
Firstly, we would like to confirm that a hydro electric installation of a producer of hydro electric energy with a planned maximum generating capacity exceeding 15 megawatts upon completion will not qualify for Class 3 capital cost allowance treatment.
Your second question relates to whether a dam, which is part of the power plant, should be included in class 1 or alternatively should be categorized as a Class 2 asset. Class 2 includes property that is:
"the generating or distributing equipment and plant (including structures) of a producer or distributor of electrical energy, except a property included in Class 10, 13, 14, 26 or 28;" acquired before 1988 or before 1990 (if conditions in paragraph (h) are met).
In order for the dam to be included in paragraph (c) of the Class 2 with electrical generating equipment of a producer or distributor it would have to be shown that it was a structure and that it met the conditions of either paragraph (g) or (h). If it was acquired or is to be acquired after the dates in question, it and the producer's other electrical generating equipment and plant would automatically be included in Class 1 regardless of whether or not a dam meets the description of a "structure" because a dam is included in paragraph (d) of Class 1. As described in the British Columbia Forest Products case, 71 DTC 5178, a structure is something of substantial size which is built up from component parts and intended to remain permanently on a permanent foundation.
In view of comments with respect of the meaning of "structure" in paragraph 1 of Interpretation Bulletin IT-79R2 and the example of a dam as a similar "structure" in paragraph 1 of IT-92R2, we are prepared to accept that the component parts of a dam may be included in the words "including structures" as set out in Class 1 and Class 2, providing that it can be shown that the dam is an integral part of the generating or distributing equipment and plant of a producer of electrical energy. Thus it will only be necessary to determine the application date of acquisition in order to determine which of the two classes the property should fall into.
We trust these comments will be of assistance to you.
Yours truly,
for DirectorBusiness and General DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch