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Vol. 140, No. 23 — June 10, 2006 Regulations Amending the Income Tax Regulations (Capital Cost Allowance — Forestry Bioenergy Equipment)Statutory authority Income Tax Act Sponsoring department Department of Finance
REGULATORY IMPACT (This statement is not part of the Regulations.) Description A portion of the capital cost of a taxpayer's depreciable property is deductible as a capital cost allowance (the "CCA") each year in computing the taxpayer's income. The maximum CCA rate for each type of depreciable property is set out in the Income Tax Regulations (the "Regulations"). The CCA rates are normally set to reflect the useful life of assets. As an exception to this norm, accelerated CCA rates are used to encourage firms that produce energy to invest in equipment that does so by using renewable energy sources and waste fuels, or by using fossil fuel efficiently. Class 43.1 in Schedule II to the Regulations provides a CCA rate of 30% for such assets. Budget 2005 announced a further acceleration of the CCA rate to 50% for the full range of renewable energy generation equipment in Class 43.1 and for certain high-efficiency cogeneration equipment (which produces both electricity and heat simultaneously). This increased rate (under Class 43.2 in Schedule II to the Regulations) applies to equipment acquired on or after February 23, 2005, and before 2012. The Economic and Fiscal Update of November 2005 proposed to extend eligibility for Class 43.1 and Class 43.2 to cogeneration systems that use a type of biomass called "spent pulping liquor" used in the pulp and paper industry and commonly referred to as "black liquor." Budget 2006 reaffirmed the Government's commitment to this proposal. Spent pulping liquor is a by-product of the chemical process of transforming wood into pulp and consists of wood residue and pulping agents. This liquor can be burned to fire a boiler to produce steam that can be used in the pulp and papermaking process and that can also be used to generate electricity, thus reducing a pulp and papermaking plant's need for external energy sources. In particular, these proposed amendments to the Regulations
Where the majority of the tangible property acquired for use in a project is included in either Class 43.1 or Class 43.2, certain start-up expenses for the project may be eligible for treatment as Canadian Renewable and Conservation Expenses (CRCE). These expenses may be deducted in the year incurred, carried forward indefinitely for use in future years, or transferred to investors under qualifying flow-through share agreements. These proposed amendments to the Regulations are being published for public consultations for the first time in this edition of Part I of the Canada Gazette. Alternatives These amendments are necessary to implement the accelerated CCA measure relating to forestry bioenergy equipment announced in the 2005 Economic and Fiscal Update and reaffirmed in the 2006 Budget. No other alternatives were considered. Benefits and costs The provision for the accelerated CCA rates for Class 43.1 (30%) and Class 43.2 (50%) property are intended to encourage efficient use of fossil fuels and renewable and alternative energy sources by taxpayers. To the extent that this measure encourages the development of a successful domestic renewable energy and energy conservation sector, significant environmental benefits could accrue in the form of reduced greenhouse gas emissions and reduced reliance on fossil fuels. Increasing energy self-sufficiency in the pulp and paper sector will help improve the international competitiveness of Canadians mills. The estimated annual fiscal cost of this proposed measure, as announced in the Economic and Fiscal Update of November 14, 2005, starting with fiscal year 2005-2006 is $5 million, $10 million, and $20 million, respectively, and $25 million for each of the next three years thereafter. Consultation These proposed amendments to the Regulations have been the subject of submissions received by the Department of Finance from industry. These amendments were developed in consultation with officials from the Department of Natural Resources, the Department of the Environment and the Canada Revenue Agency. They are being released for the first time for public consultation in this edition of Part I of the Canada Gazette. Strategic environmental assessment The accelerated CCA rates available for Class 43.1 (30%) and Class 43.2 (50%) apply to certain efficient and renewable energy generation equipment and are meant to encourage efficient use of fossil fuels and increased use of renewable and alternative energy sources. In particular, extending the list of fuels that can be used in certain cogeneration systems described in Class 43.1 and Class 43.2 to include spent pulping liquor is expected to encourage investment by the pulp and paper industry in newer, cleaner and more efficient technology that may displace some of the demand for fossil fuels. The increased use of such technology contributes to broader policy objectives including the reduction of greenhouse gas and other harmful emissions and the diversification of Canada's energy supply. Compliance and enforcement The Income Tax Act provides the necessary compliance mechanisms. These mechanisms allow the Minister of National Revenue to assess and reassess tax payable, conduct audits and seize relevant records and documents. The Class 43.1 Technical Guide and Technical Guide to Canadian Renewable and Conservation Expenses (CRCE), published by Natural Resources Canada, sets out engineering and scientific criteria applicable in determining if property is included in Class 43.1 or in Class 43.2. Gurinder Grewal, Tax Legislation Division, Department of Finance, L'Esplanade Laurier, 140 O'Connor Street, Ottawa, Ontario K1A 0G5, (613) 992-1862. Notice is hereby given that the Governor in Council, pursuant to section 221 (see footnote a) of the Income Tax Act, proposes to make the annexed Regulations Amending the Income Tax Regulations (Capital Cost Allowance — Forestry Bioenergy Equipment). Any interested person may make representations concerning the proposed amendments within 30 days after the date of publication of this notice. All such representations must be addressed to Gurinder Grewal, Tax Legislation Division, Department of Finance, L'Esplanade Laurier, 17th Floor, East Tower, 140 O'Connor Street, Ottawa, Canada, K1A 0G5, and cite the Canada Gazette, Part I, and the date of this notice. Ottawa, June 1, 2006
DIANE LABELLE REGULATIONS AMENDING THE INCOME TAX REGULATIONS (CAPITAL COST ALLOWANCE — FORESTRY BIOENERGY EQUIPMENT) AMENDMENTS 1. (1) The definition "wood waste" in subsection 1104(13) of the Income Tax Regulations (see footnote 1) is replaced by the following: "wood waste" includes scrap wood, sawdust, wood chips, bark, limbs, saw-ends and hog fuel, but does not include spent pulping liquor and any waste that no longer has the physical or chemical properties of wood. (déchets de bois) (2) Subsection 1104(13) of the Regulations is amended by adding the following in alphabetical order: "spent pulping liquor" means the by-product of a chemical process of transforming wood into pulp, consisting of wood residue and pulping agents. (liqueur résiduaire) 2. Clause (c)(i)(A) of Class 43.1 in Schedule II to the Regulations is replaced by the following: (A) is used by the taxpayer, or by a lessee of the taxpayer, to generate electrical energy, or both electrical and heat energy, using only fuel that is fossil fuel, wood waste, spent pulping liquor, municipal waste, land-fill gas, digester gas or bio-oil, or any combination of those fuels, and APPLICATION 3. Section 1 is deemed to have come into force on November 14, 2005. 4. Section 2 applies to property acquired on or after November 14, 2005 that has not been used or acquired for use before that date. [23-1-o] S.C. 2000, c. 12, s. 142 (Sch. 2, par. 1(z.34)) C.R.C., c. 945 |
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