25 November 2025 External T.I. 2025-1049831E5 - Capital Cost of a XXXXXXXXXX - Temporary Workspace

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 fees incurred pursuant to a Temporary Workspace Agreement can be included in the capital cost of a XXXXXXXXXX for purposes of computing the CCUS ITC of a Taxpayer pursuant to section 127.44 of the Income Tax Act?

Position: Question of fact but likely no.

Reasons: While a question of fact, it appears that the TWA Fees would not be eligible to be included in the capital cost of the XXXXXXXXXX as the associated rights do not appear to form an integral part of or necessary to the use of the XXXXXXXXXX. As well, these fees do not fall within the meaning of an installation cost, site preparation cost, or other cost to put the XXXXXXXXXX into service. Rather, the TWA Fees appear to be an expenditure incurred in connection with a separate asset that is of a capital nature and therefore, would not be a cost that could be included in Class 57 for CCUS ITC purposes.

XXXXXXXXXX 2025-104983
Christina Foggia

November 25, 2025

Dear XXXXXXXXXX:

Re: CCUS ITC - Temporary Workspace Fee to Construct a XXXXXXXXXX

This is in reply to your correspondence of November 4, 2024, wherein you requested our views concerning whether certain fees paid under a Temporary Workspace Agreement could be included in the capital cost of a XXXXXXXXXX, and thereby potentially qualify for the carbon capture utilization and storage investment tax credit (“CCUS ITC”) provided under section 127.44 of the Income Tax Act (“Act”).

You provided the following description of the taxpayer’s situation:

1. The taxpayer is a taxable Canadian corporation (“Taxpayer”) that proposes to construct a XXXXXXXXXX in Canada to XXXXXXXXXX (“CCUS Project”).

2. In order to access the location where the XXXXXXXXXX will be installed (“XXXXXXXXXX Worksite”), the Taxpayer must obtain access to a property (“Property”) owned by an arm’s length party (“Landowner”).

3. To that end, it is anticipated that the Taxpayer will enter into a Temporary Workspace Agreement (“Workspace Agreement”) with the Landowner pursuant to which:

• The Landowner will grant the Taxpayer access to the Property during the XXXXXXXXXX construction period. Such access will allow the Taxpayer to move employees and major construction equipment through the Property to the XXXXXXXXXX Worksite.
• In consideration for the right to access the Property, you have indicated in the description of the Taxpayer’s situation that the Taxpayer would typically pay the Landowner the following fees:
• A fee for the right to access the Property; and
• A fee for the restoration of the Property to its original condition.
• (together theses fees are referred to herein as the “TWA Fees”)
• For clarity, the Taxpayer does not acquire an ownership interest in the Landowner’s Property through the Workspace Agreement, but is merely acquiring the right to use the Property to access the XXXXXXXXXX Worksite for a limited period of time.

4. You have determined that the XXXXXXXXXX is property that is part of a qualified CCUS Project of the Taxpayer that has been verified by Natural Resources Canada as being described in capital cost allowance Class 57 of Schedule II to the Income Tax Regulations (the “Regulations”).

Specifically, you have asked whether the TWA Fees can be included in the capital cost of the XXXXXXXXXX, Class 57, for purposes of computing the CCUS ITC of the Taxpayer pursuant to section 127.44 of the Act.

Our Comments

This technical interpretation provides general comments about the provisions of the Act and related legislation. It does not confirm the income tax treatment of a particular situation involving a specific taxpayer but is intended to assist you in making that determination. The income tax treatment of particular transactions proposed by a specific taxpayer will only be confirmed by this Directorate in the context of an advance income tax ruling request submitted in the manner set out in Information Circular IC70-6R12, Advance Income Tax Rulings and Technical Interpretations.

The definition of a “qualified CCUS expenditure” in subsection 127.44(1) of the Act is relevant to determine the amount of a taxpayer’s CCUS ITC and includes, among other things, a XXXXXXXXXX. (footnote 1) As noted, you have explained that the XXXXXXXXXX is property that is part of a qualified CCUS Project that Natural Resources Canada has verified as being eligible to be included in Class 57 of Schedule II to the Regulations, and is therefore an expenditure that is eligible for the CCUS ITC. Accordingly, if the TWA Fees are included in Class 57, as part of the capital cost of the XXXXXXXXXX, they will also qualify for the CCUS ITC, assuming all the other relevant requirements are met.

The term “capital cost” is not defined in the Act, we must therefore rely on its ordinary meaning and the meaning established by jurisprudence, which is summarized in Income Tax Folio S3-F4-C1, “General Discussion of Capital Cost Allowance.” You have noted paragraph 1.45 of the Folio which explains that the capital cost of property generally means the full cost to the taxpayer of acquiring the property and, among others, includes legal and accounting fees incurred to acquire the property, as well as site preparation, delivery, installation, testing or other costs incurred to put the property into service.

While a question of fact, it appears that the TWA Fees would not be eligible to be included in the capital cost of the XXXXXXXXXX as the associated rights do not appear to form an integral part of or necessary to the use of the XXXXXXXXXX. As well, these fees do not fall within the meaning of an installation cost, site preparation cost, or other cost to put the XXXXXXXXXX into service because these types of costs would generally include costs in respect of the provision of services and would not typically include the cost of another asset. Rather, the TWA Fees appear to be an expenditure incurred in connection with a separate asset that is of a capital nature and therefore, would not be a cost that could be included in Class 57.

In the situation described, it is our view that the rights granted under the Workspace Agreement could be viewed as a property separate from the XXXXXXXXXX. The definition of property in subsection 248(1) of the Act includes “a right of any kind whatever” and is therefore broad enough to include the rights under the Workspace Agreement. A review of the complete facts and circumstances of the situation including the Workspace Agreement and any other relevant agreements would be required to make a determination as to the appropriate capital cost allowance class for these rights.

In regard to the portion of the TWA Fees for the Landowner to restore the Property, if they are established to be an acquisition cost in respect of the access rights, then arguably these fees could be treated in a manner similar to the rest of the TWA Fees. That is, the portion of the TWA fees for restoration could be included in the capital cost of the access rights for capital cost allowance purposes. On the other hand, if the restoration fee is not an acquisition cost in respect of the access rights, then consideration must be given to whether the expenditure is current or capital in nature and whether any of the limitations in subsection 18(1) of the Act would apply to prohibit its deduction. In particular, for the restoration fees to be deductible as a current expenditure in a particular taxation year, in accordance with the requirements of subsection 18(1), it must be an expense that has been incurred in the year.

We trust our comments will be of assistance.

Yours truly,

Sarah Springate CPA, CA
For Division Director
Business and Capital Transactions
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. That is, property described in paragraph XXXXXXXXXX of Class 57 of the Regulations and or paragraph (d), (e), (f), or (g) of Class 57 in relation to equipment described in paragraph XXXXXXXXXX of Class 57.