22 December 1999 External T.I. 9927555 - CAPITAL COST ALLOWANCE

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.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

Principal Issues:

Appropriate CCA class for geothermal energy equipment installed on leased land.

Position: Class 13 unless Reg. 1102(5) applies.

Reasons: Reg. 1102(4) provides that it is all included in Class 13 unless Reg. 1102(5) applies.

A. Seidel
XXXXXXXXXX 						(613) 957-8974
							992755
Attention: XXXXXXXXXX 

December 22, 1999

Dear Sir\Madam:

Re: Capital Cost Allowance

This is in reply to your facsimile dated October 19, 1999 concerning the appropriate rate of capital cost allowance for capital property used to produce geothermal energy.

The situation described in your letter appears to relate to specific taxpayers and an actual fact situation. To the extent that you require assistance in determining the current tax status of completed transactions, you should contact your local tax services office. To the extent that you require confirmation of the tax consequences of proposed transactions, we bring to your attention Information Circular 70-6R3 dated December 30, 1996 issued by Revenue Canada. Confirmation with respect to proposed transactions involving specific taxpayers should be the subject of a request for an advance income tax ruling. If you wish to obtain an advance income tax ruling for particular taxpayers with respect to specific contemplated transactions, a written request for an advance income tax ruling should be submitted in accordance with the Information Circular. Although we cannot provide any comments with respect to the capital property described in your letter, the following general comments may be of assistance.

Generally, the appropriate classification of depreciable property for purposes of Schedule II of the Income Tax Regulations (the "Regulations") is determined by reference to the particular property and all of the relevant facts applicable to a specific situation. Interpretation Bulletin IT-285R2 provides an overview and general comments relating to capital cost allowance.

Interpretation Bulletin IT-464R provides a general discussion of capital cost allowance for Leasehold Interests. Any amount expended by a taxpayer for or in respect of an improvement or alteration to a leased property is generally considered to be a leasehold interest pursuant to subsection 1102(4) of the Income Tax Regulations (the "Regulations") and therefore included in Class 13 of Schedule II of the Regulations. This would include capital property acquired and used for the production of geothermal energy which may otherwise have qualified for inclusion in another class, such as a pipeline includable in Class 2. However, subsection 1102(5) of the Regulations provides an exception to this general rule.

Subparagraph 1102(5)(a)(i) of the Regulations provides that a reference in Schedule II to a property that is a building or other structure includes a leasehold interest to the extent that it was acquired by reason of the fact that the taxpayer erected a building or structure on leased land. The effect of this provision is that a leasehold interest in a "structure" is included in its respective class and not in Class 13.

Paragraph (q) of Class 1 in Schedule II of the Regulations includes "a building or other structure". Whether or not any particular property qualifies as a "structure" is a question of fact which would be determined by an examination of all of the circumstances of a particular taxpayer and the particular situation. Paragraph 1 of Interpretation Bulletin IT-79R3 provides a general discussion of the meaning of the term "structure".

These comments are provided in accordance with the guidelines set out in paragraph 22 of IC 70-6R3 and are therefore not binding on the Canada Customs and Revenue Agency.

Yours truly,

for Director
Resources, Partnerships and Trusts Division
Income Tax Rulings and Interpretations Directorate
Policy and Legislation Branch
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