Need help with tax preparation for income earned from this program. Does anyone have experience in this?
Feel free to email or give me a call. Happy to help
6733 Rideau Valley Drive South, P.O. Box 160, Kars, ON K0A 2E0 Phone: (613) 489-3583 x227 | Toll Free/Fax: 1-888- 877-2505
NOTE: If you are not the intended recipient of
this e-mail, please delete it immediately. Unauthorized transmission of this e-mail is prohibited
Likewise I can help…if Norm cannot help you (unlikely so) give me a call… Doug Burns (my files are all farms and Solar Energy filings!
J D Burns and Associates
Wow… we have lots of resources here!
I also have clients with both Fit and MicroFit projects.
We actually have our own 10Kw MicroFit system on our office roof.
First government subsidy I ever received.
If you post your questions here for others to see I can try to help as well.
My questions follow:
Should reshingling costs prior to install of Solar Panels on a private home be expensed or should it be capitalized?
When an owner sells his principal residence with solar panels installed how is the selling price of the solar panels calculated for the purpose of determining whether there is a recapture, capital gain or terminal loss?
How does one determine if there is an actual incremental increase in property taxes because of the existence of the solar panels?
Should my client register for the HST in year 1 in order to get the ITC on the capital cost of the solar panels and then cancel his registration in year 2?
What is the industry code for use on the T2125?
Your help is appreciated.
My feeling is the re-shingling of the roof is likely to be a personal expense. The solar panel installation itself does not require a roof to be re-shingled. In many cases it might be a great idea to replace an older roof prior to installation of the panels primarily because it’s a much easier and cheaper job to shingle the roof when the solar equipment is not in the way. This doesn’t change the nature of the cost from personal to business though. If your engineering showed that you required structural support to the existing trusses to carry the increased load, then that would be a cost that could be capitalized. Other reasonable costs, such as the added house insurance premium to cover the new system would be obviously a current expense.
I haven’t run into this yet, and there is no specific CRA guideline to determine the amount other than “a reasonable amount of the sale price must be allocated towards the renewable energy property.” These are all 20 year contracts, so I think that you could take the cost of the project, divide by 20, and use that number x number of years remaining on the contract as your selling price or proceeds of disposition for the panels. Remember though, these are generally class 43.2 assets with an accelerated CCA rate of 50% (subject to annual net income limit), so the potential for recapture is quite high.
Although your client will need to obtain a local building permit for a roof mount solar panel project, my understanding is that MPAC are not assessing additional property tax for installations up to 10kw (MicroFit). We did not have any property taxes assessed on our installation. Industrial turbines, however, do attract commercial property taxes.
Yes, the client should register for HST in order to recover the HST paid on the system and installation. The local utility company will also want the client’s HST number, as they pay HST in addition to the monthly power generation fee. I don’t think you could cancel the registration in year 2, as many utility companies actually request the client be registered, even though it is optional from a CRA point of view. Also, since the equipment still has value at the end of year 1, would the client not need to self assess and remit HST on the remaining value of the system if he was to cancel the HST number? In any event, since the utility company pays the HST to the MicroFit participant, the client is not out of pocket. Perhaps he could elect to use the quick method of accounting for HST and make a few bucks… ?
The Industry code that I use for a client who’s business is primarily derived from Fit or MicroFit solar income would be 221119
Hope this helps a bit.
Thanks so much for your helpful quick response.
Another question please:
- My client has just finished his solar panel install for the Microfit Program in the last week of May 2018 and will start receiving income from it for the balance of 2018. My understanding is that I would classify this asset in Class 43.2 and not 43.1 on his 2018 tax return . Is this correct?
Fixed location photovoltaic equipment acquired between February 22, 2005 and December 31, 2019 for the purposes of earning income from generating electrical energy falls into class 43.2. The normal rate of CCA is 50% but the equipment would be considered “specified energy property”, which limits the annual CCA claim to the lesser of 50% of the prior year’s UCC or the net income received from solar generation after deducting any expenses.
Since the client has already finished the solar install… and you were discussing HST registration… make sure the client is either already registered for HST or back dates the registration to at least the day the system was purchased. I believe you can back date an HST registration up to 30 days.
Thanks so much for all your help. I will be meeting with my client next week to walk him through all of this. Much appreciated.
With regard to your last point about back dating the registration to at least the day the system was purchased: I talked with HST today and they said if he is a small supplier and is registering for the HST today then the registration does not have to be backdated since he is allowed to claim the ITC’s on the capital purchase of the solar panels regardless of when they were purchased since they consider that the registrant bought the property at the time you became a registrant.
See extract below from page 22 of RC4022 General Information for HST registrants for the exact wording:
If you are a new registrant, and you have been a small supplier immediately before you became a registrant, you may be eligible to claim an ITC for the GST/HST paid or payable on property such as capital property, real property, and inventory that you had on hand to use in your commercial activities at the time you became a registrant. We consider that you bought the property at that time and paid GST/HST equal to the basic tax content of the property. For more information, see “Change-in-use rules for capital personal property” on page 24.
As always you are helpful.