2019-0828841E5 Enhanced Net Metering Program of Nova Scotia

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA. Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Principal Issues: What are the income tax consequences for participants in the Nova Scotia Enhanced Net Metering Program?

Position: 1. For taxpayers generating electricity solely for personal consumption the electricity credits are not taxable. 2. For taxpayers generating electricity for commercial use, the electricity credit is taxable at the time the credit is earned under the Nova Scotia Net Metering Program.

Reasons: Application of the law.

Author: Christov, Boriana

Section: s.3, 9, 12(1)(b), 18(1)(a)

XXXXXXXXXX                                                                         2019-082884
                                                                                                 Boriana Christov
January 16, 2020


Re. Nova Scotia Enhanced Net Metering Program

This is in response to your electronic inquiry of October 31, 2019 requesting general information with regard to the federal income tax and the harmonized sales tax consequences to participants in the Nova Scotia Enhanced Net Metering Program (the “Enhanced Net Metering Program”) administered by the Nova Scotia Power Incorporated (the “NSPI”).

Please note that the Income Tax Rulings Directorate (the “Directorate”) is responsible for the interpretation of the Income Tax Act (footnote 1) (the “Act”), the Income Tax Regulations (footnote 2) (the “Regulations”) and all related statutes. The Excise and the GST/HST Rulings Directorate is mandated to interpret any questions related to the goods and services tax/harmonized sales tax in Canada. Consequently, we transferred your request to Jeff Frobel, a manager at the Excise and the GST/HST Rulings Directorate who will respond to the GST/HST aspects of your question in a separate letter.


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 70-6R9 dated April 23, 2019 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 statutory references herein are to provisions of the Act or to the Regulations.


We understand that the NSPI has offered net metering to its customers since 1989. In April 2010, the Nova Scotia Department of Energy released its Renewable Electricity Plan which set out a detailed program to move Nova Scotia away from carbon-based electricity towards greener, more local sources. This plan included conservation and efficiency programs as well as a transition to renewable energy sources. One of the initiatives was to provide individuals and small businesses with an opportunity to participate in green energy projects through an expanded and enhanced net metering program.

Under the Enhanced Net Metering Program participants residing in Nova Scotia can install a source of renewable energy such as a wind turbine, solar panels, biomass generator, a turbine using tidal energy or a small hydro station to power their home or business. The goal of the program is for participants to satisfy all or part of their own consumption needs with the excess electricity, if any, to be supplied to the provincial electrical distribution system (the “grid”). This is achieved through the method of “net billing” under which the participant is billed only for the difference between the value of the electricity consumed by the participant and the value of the electricity supplied to the grid.

If the participant’s renewable generating unit produces more energy than the participant’s use at any one time, the surplus electricity will flow onto the local grid for others to use. These surplus kilowatt-hours (kWh) will be “banked” and applied to the participant’s next bill to offset any electricity drawn from the grid. If any surplus kilowatt-hours remain on the account at the end of a 12-month cycle, the participant will generally be paid for that energy at the same rate they pay for electricity from the grid. Notably, interim energy credit balances on a participant’s account do not have any cash value and cannot be converted to cash. (footnote 3) The flow of electricity is measured by a bi-directional electricity meter.

The renewable energy generator is sized to meet, but not exceed the participant’s expected yearly electricity consumption. Furthermore, effective December 18, 2015, the maximum nameplate capacity was reduced from 1,000 kW (1 Megawatt) to 100 kW.

As a result, after December 18, 2015, the overall capacity of the generator cannot exceed more than 100 kW of electricity on an annual basis. (footnote 4) NSCI evaluates and approves the generator capacity at the time of the application for participation in the Enhanced Net Metering Program.

It is our understanding that the participant can only receive an actual monetary payment for the value of the generated credit at the end of any 12-month cycle or at the time of termination of the contract. Otherwise, the credit is available only for use against the participant’s future electricity consumption in the next billing period.

It is possible for a participant with multiple accounts to use only one generator to supply electricity to all other accounts as long as they are within the same geographical area known as a distribution zone. For example, while a larger wind turbine may not be feasible to use for a single home, it could potentially be used to help power multiple properties with the same account owner in a given community.


You advised us that you have only one account with the NSPI and that you plan to use solar energy as a renewable source of electricity. Moreover, due to the specific geographic factors in Nova Scotia, you advised us that your generator’s capacity would be below your annual electricity needs and that it would be unlikely that the solar panels could generate more than 60% of your annual electricity consumption. More precisely, in your case the existing roof surface cannot support a sufficient number of solar panels that could generate electricity to cover all your annual electricity needs.


There are two principal issues that arise under the Act with respect to the involvement by a participant in the Nova Scotia Enhanced Net Metering Program:

(a)   whether amounts or credits earned by a participant for electricity supplied by the participant to the provincial electricity grid are required to be included in computing the income of the participant under the Act; and

(b)   whether the participant is entitled to claim capital cost allowance (“CCA”) with respect to the renewable energy equipment acquired by the participant.

A.    Income Inclusion – Overview

Pursuant to the Act, a taxpayer that is resident in Canada is subject to income tax on all items of revenue received from all sources inside or outside of Canada. Section 3 and other sections of the Act describe various sources of income such as income from office, employment, business and property. If a receipt has no recognized source, it is not considered income and therefore not subject to tax. For more information on the tax treatment of various receipts, please refer to Income Tax Folio S3-F9-C1, Lottery Winnings, Miscellaneous Receipts, and Income (and Losses) from Crime. (footnote 5)

The tax treatment of an earned credit received by a participant in the Enhanced Net Metering Program would depend on the specific facts and circumstances of each case and could only be determined after a complete review of the particular situation. Nonetheless, we can provide you with some general comments that may assist you in making this determination.

Generally, where an earned credit, which is not transferable or redeemable and that cannot be carried forward beyond a limited period, is received by a participant who generates electricity for purely personal consumption (i.e., the credit is not received in connection with a commercial activity that is carried on with a view to earning a profit), the amount of the credit would typically not be subject to income tax under the Act. In this case, the participant will not be engaged in a commercial activity with a view of earning a profit. Therefore, the supply of electricity by the participant will not be considered to be a source of income of that participant for income tax purposes.

In addition, an earned credit that is potentially redeemable for cash (as is the case under the Enhanced Net Metering Program) may also not be subject to income tax under the Act if it can be established that the participant did not intend to earn a profit under the Enhanced Net Metering Program, but instead only intended to meet the participant’s personal electricity consumption needs. This may be the case, for example, where geographic limitations together with the limit on the energy generating capacity of the renewable energy generator will effectively ensure that the participant would likely never generate electricity in excess of their annual consumption.

In such a case, the participant would generally not be considered to be engaged in a commercial activity with the view of earning income and thus, would not be considered to have a source of income from the supply of electricity. Nonetheless, this determination will depend on all of the facts and circumstances of each particular situation.

On the other hand, where a participant in the Enhanced Net Metering Program generates electricity that is consumed in the course of carrying on a business or earning income from another property (such as a rental building), the value of such a credit would be included in the participant’s income from such business or property. This income inclusion will be realized in the taxation year in which the credit is earned and it will be equal to the value of the credit. Generally, the credit is considered to be earned at the time the surplus electricity is generated and the credit is “banked” or allocated to the given participant. However, the participant would generally be entitled to claim CCA on the cost of the renewable energy equipment subject to certain limits, as discussed below.

B.    CCA – Overview

A taxpayer may claim CCA only on property described in Schedule II of the Regulations that was acquired for the purpose of earning income. (footnote 6) Class 43.1 and Class 43.2 of Schedule II to the Regulations provide accelerated CCA rates for qualifying investments in clean energy generation and energy conservation equipment situated in Canada.

Where the participant in the Enhanced Net Metering Program uses a renewable energy property for personal consumption which is not related to an income earning purpose, the property would not be a depreciable property and thus would not be eligible for inclusion in any class, including Class 43.1 or 43.2.

On the other hand, if a participant in the Enhanced Net Metering Program uses the renewable energy property for the purpose of producing income from a business or a property (such as a rental property), the renewable energy property may fall within Class 43.1 or 43.2 if it meets all the other requirements of those classes.

Moreover, a participant in the Enhanced Net Metering Program with multiple accounts some of which are commercial may be entitled to a reasonable apportionment of the cost of the eligible equipment in such manner that a portion of the capital cost that relates to the commercial (rather than personal use) could be eligible for inclusion in Class 43.1 or 43.2. Such apportionment among different accounts would also be required for the amount of the credit according to paragraph of the Regulations 3.6 Net Metering Service.

Your query is specifically limited to equipment which generates electricity for purely personal use. Therefore, we have not examined any questions concerning possible commercial use or mixed use (for example, in the case of a participant with multiple accounts some of which are residential and some commercial). For more information relating to Class 43.1 and 43.2, please refer to the Income Tax Folio, Tax Incentives for Clean Energy Equipment which can be found at the CRA 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
Resources Section
Reorganizations Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch


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

1     R.S.C. 1985, c. 1 (5th suppl.) as amended (the “Act”).
2     C.R.C c. 945 as amended (the “Regulations”).
3     See Nova Scotia Regulation 3.6 Net Metering Service as it appears on the webpage of NSCI: https://www.nspower.ca/docs/default-source/pdf-to-upload/regulation-3-6-net-metering.pdf?sfvrsn=76f8897a_0 and more precisely paragraph which explicitly states that “[a]ny interim energy credit balances on a [participant’s] account […] will not have any cash value or be convertible to cash.”
4     See Electricity Plan Implementation (2015) Act, N.S.S. 2015, c. 31. In 2016, annual electricity consumption per capita in Nova Scotia was 11.1 megawatt hours (see the provincial and territorial comparison of the Canada Energy Regulator https://www.cer-rec.gc.ca/nrg/ntgrtd/mrkt/nrgsstmprfls/ns-eng.html). Arguably, the existing limit on the energy generating capacity of 10 KW would ensure that a participant would likely never generate electricity in excess of their annual consumption, unless their consumption varies significantly from the provincial average.
5     Income Tax Folio S3-F9-C1 can be found on the CRA’s Webpage: https://www.canada.ca/en/revenue-agency/services/tax/technical-information/income-tax/income-tax-folios-index/series-3-property-investments-savings-plans/series-3-property-investments-savings-plans-folio-9-miscellaneous-payments-receipts/income-tax-folio-s3-f9-c1-lottery-winnings-miscellaneous-receipts-income-losses-crime.html.
6     See paragraph 1102(1)(c) of the Regulations.

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