2017-0726891E5 Eligibility of Wind Turbines for ITC

Principal Issues: Is a wind turbine that is described in Class 43.1 or 43.2 eligible for an investment tax credit pursuant to ss. 127(5) of the Act?

Position: Yes, if it otherwise meets all the conditions.

Reasons: Text of the law following legislative amendments adopted pursuant to Budget 2012, Second Bill.

Author: Christov, Boriana
Section: Definition of "qualified property," "investment tax credit," "specified percentage" in s. 127(9), ss. 4600(3) of the Regulations, Classes 43.1 and 43.2

XXXXXXXXXX                                                                                                          2017-072689
                                                                                                                                  Boriana Christov
November 27, 2017

Dear XXXXXXXXXX:

Re:  Investment Tax Credit for Wind Turbines

This is in response to your letter of October 12, 2017 concerning the eligibility of investment tax credits for wind turbines.

In your request, you asked whether the cost of a new wind turbine that meets the requirements for Class 43.2 of Schedule II of the Income Tax Regulations (footnote 1) and that has been acquired to be used in Atlantic Canada (footnote 2) is eligible for inclusion in the computation of the investment tax credit provided for in subsection 127(5) of the Income Tax Act. (footnote 3)  Your question is in relation to Technical Interpretation 2011-0409111E5, dated July 25, 2011, where we determined that a wind turbine described in subparagraph (d)(v) of Class 43.1 or in paragraph (b) of Class 43.2 was not a “qualified property” as that term was then defined in subsection 127(9) of the Act.

OUR COMMENTS

Written confirmation of the income tax implications inherent in particular transactions is given by this Directorate only where the transactions are proposed and are the subject matter of an advance income tax ruling request as described in Information Circular 70-6R7 dated April 22, 2016 issued by the Canada Revenue Agency (“CRA”). A fee is charged for this service. Although we are unable to provide any comments with respect to a particular fact situation otherwise than in the form of an advance income tax ruling, the following general comments may be of assistance.

Unless otherwise indicated, all references herein are to the Act or the Regulations, as the case may be.

Whether any particular piece of equipment qualifies for inclusion in one of the classes described in Schedule II of the Regulations is a question of mixed fact and law, which requires a review of all the facts of the situation.

The cost of a wind turbine will be eligible to be included in the computation of the investment tax credit provided for in subsection 127(5) if the wind turbine is a “qualified property” as that term is defined in subsection 127(9) of the Act. Budget 2012 amended the definition of “qualified property” for depreciable properties acquired after March 28, 2012. (footnote 4)  New paragraph (b.1) includes in the definition a “prescribed energy generation and conservation property” acquired after March 28, 2012.

Further, new subsection 4600(3) of the Regulations provides that a property is “prescribed energy generation and conservation property” if, among other requirements, it is a property included in any of Classes 43.1 and 43.2. Typically, property that is described in paragraph (d)(v) of Class 43.1 and that is acquired after February 22, 2005 and before 2020 will qualify for inclusion in Class 43.2.

Consequently, the cost of a wind turbine will generally be eligible for inclusion in the computation of the investment tax credit provided for in subsection 127(5) of the Act if the wind turbine:

1. is a depreciable property that is a fixed location device that is a wind energy conversion system described in sub-paragraph (d)(v) of Class 43.1;
2. has not been used, or acquired for use or lease, for any other purpose before it was acquired by the taxpayer; and
3. is to be used in Canada primarily for any of the following purposes:
* manufacturing or processing goods for sale or lease,
* farming or fishing,
* logging,
* storing grain, or
* harvesting peat. 

We note that there may also be other circumstances where a wind turbine could meet the definition of “qualified property” which are not addressed herein.

Where the wind turbine satisfies the requirements for “qualified property” in subsection 127(9) of the Act, the taxpayer may deduct an amount determined under subsection 127(5) from his or her tax otherwise payable in respect of the taxpayer’s “investment tax credit.” Through the interplay of paragraph (a) of the definition of “investment tax credit” and paragraph (a) of the definition of “specified percentage,” both in subsection 127(9), a 10% investment tax credit is available in respect of qualified property acquired after 1994 primarily for use in Atlantic Canada.

To the extent that our previous position expressed in Technical Interpretation 2011-0409111E5, is no longer in conformity with the Act and the Regulations due to any legislative amendments subsequent to its issuance, such position should not be considered to represent the current views of this Directorate.

For more information concerning the income tax incentives for clean energy equipment, please refer to the Income Tax Folio S3-F8-C2, Tax Incentives for Clean Energy Equipment which can be found at our webpage: http://www.cra-arc.gc.ca/tx/tchncl/ncmtx/fls/s3/f8/s3-f8-c2-eng.html.

We hope that these comments will be of assistance.

Yours truly,

Kimberley Wharram
Acting Manager
Reorganizations Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch

FOOTNOTES

Note to reader:  Because of our system requirements, the footnotes contained in the original document are shown below instead:

1   C.R.C c. 945 as amended; hereinafter (the “Regulations”).
2   References to “Atlantic Canada” in this letter mean the Province of Nova Scotia, New Brunswick, Prince Edward Island, Newfoundland and Labrador or the Gaspé Peninsula.
3   R.S.C. 1985, c. 1 (5th suppl.) as amended; hereinafter (the “Act”).
4   See subsection 27(12) of the Jobs and Growth Act, 2012, S. C. 2012, c. 31, assented to December 14, 2012.

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