5 May 2005 External T.I. 2005-0124801E5 - Test Wind Turbine - CRCE

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: Whether certain revisions to the transactions detailed in our files 2004-005784 and 2004-010162 would alter our opinion regarding the ability of each of three wind turbines to qualify as a "test wind turbine" for purposes of CRCE under proposed amendments to section 1219 of the Regulations.

Position: No. Provided the amendments come into force as proposed and the taxpayer proceeds with the development of the wind farm projects under the revised plan, each of the wind turbines would so qualify.

Reasons: Based upon the wording of the proposed amendments, written opinions received from Natural Resources Canada and the facts of the situation.

2005-012480
XXXXXXXXXX A. A. Cameron
(613) 347-1361
May 5, 2005

Dear XXXXXXXXXX:

Re: Wind Farm Projects

We are writing further to your electronic mail message, as well as your facsimile, of April 11, 2005 setting out certain changes to the transactions relating to the three wind farm projects (the "Projects") that were the subject of our letters of July 19, 2004 (our file 2004-005784, the Opinion") and November 15, 2004 (our file 2004-010162, the "Revised Opinion"; collectively, the "Opinions"). In particular, the Opinions concerned the eligibility of each of three planned wind turbines, which XXXXXXXXXX was planning to have installed, as a "test wind turbine" within the meaning of the proposed amendments to subsection 1219(3) of the Income Tax Regulations (the "Regulations"), now published in Part I of the Canada Gazette, Vol. 139, No. 15 dated April 9, 2005 (the "Proposed Amendments").

The changes you have outlined are as follows:

1) XXXXXXXXXX will transfer all of its interest in each of the Projects, including any easements and lease agreements relating to the land upon which the wind turbines would be located, to XXXXXXXXXX (the "Corporation"). As such, the Corporation will now be the party to pursue the development of each of the Projects (at the same three separate locations in XXXXXXXXXX specified in the Revised Opinion) and will own and operate all the wind turbines relating to each of the Projects. It continues to be the case that one of the three wind turbines referred to above (collectively referred to herein as the "Wind Turbines") will be located at each of the three sites indicated in the Revised Opinion.

2) The planned nameplate capacity for each of the Projects will now be XXXXXXXXXX megawatts and it is intended that three wind turbines will be installed at the site of each of the Projects. The capacity of each of the Wind Turbines is now proposed to be XXXXXXXXXX megawatts. The capacity of the two additional wind turbines that will be installed as part of the Projects will now be XXXXXXXXXX megawatts. It remains anticipated that each of the Wind Turbines will be commissioned and enter into service before the end of XXXXXXXXXX.

As noted in the Opinions, Natural Resources Canada ("NR Can") reviewed the applications for technical opinions on the Wind Turbines (the "Applications"; NR Can file numbers XXXXXXXXXX). You have indicated that, except to the extent detailed above or as reflected in the Revised Opinion, the representations and information contained in the Applications remain unchanged. Also as previously noted in the Opinions, NR Can is of the opinion that the planned nameplate capacity for each of the Projects is limited from an engineering or scientific perspective.

Notwithstanding the foregoing amendments to each of the Projects and provided that:

(a) the conditions set out in paragraphs (i) to (vii) on page 2 of the Opinion continue to be valid,

(b) subject to the changes described above and in the Revised Opinion, the Projects will be undertaken as described in the Applications with the Wind Turbines being installed and used for the testing programs described therein;

(c) the facts and representations relating to these Projects remain as stated in the Applications as amended herein and in the Revised Opinion; and

(d) subsections 1219(1) and (3) of the Regulations are amended substantially in the form contained in the Proposed Amendments;

it continues to be our opinion that each of the Wind Turbines will constitute a test wind turbine for purposes of subsection 1219(1) and (3) of the Regulations, as amended by the Proposed Amendments, at the time the respective wind energy conversion system that they form part of would, but for section 1219 of the Regulations, be property included in Class 43.1 to Schedule II of the Regulations because of subparagraph (d)(v) thereof.

The "Other Comments" noted in the Opinion continue to be applicable.

Yours truly,

for Director
Reorganizations and Resources Division
Income Tax Rulings Directorate
Policy and Planning Branch

c.c. Micheline Brown
Engineering, Research and Technical Team
Industrial Programs Division
Office of Energy Efficiency
Natural Resources Canada
580 Booth St., 18th Floor
Ottawa ON K1A 0E4