I don’t believe in free lunches. Whenever somebody offers me anything for “free” I immediately ask myself what’s in it for them. If the answer doesn’t bother me, I may go with the offer. microFIT PV is no different, so here is the best explanation I could think of.
This is the fifth part of a series analyzing what are the incentives for the Government to offer such a generous price for the solar-produced electricity. If you didn’t do it before, you may want to read first part 1, part 2, part 3 and part 4.
It’s always about the money, both for you and the Government. And they are usually on the winning end. microFIT is no exception.
Let’s calculate the sale tax that goes into Ontario Government’s coffers. As you surely know, HST is split between the Provincial and Federal governments: Feds keep 5%, while Queen’s Park gets 8%. The solar installations are usually priced at around $8/W, give or take a few cents. A quick estimate of the Ontario part of HST for the current microFIT applications totaling 154 MW is:
154,000,000 W x $8/W x 8% = $98,560,000
It may not seem much compared to the 19 billion or so sales tax income, but it’s still almost 100 million! I quickly agree that the real amount is probably a little less than the above:
- I don’t know if solar installations had to pay PST in the pre-HST days. If they were exempt, we should subtract the portion for the installations paid before July 1st, 2010.
- the above calculations takes into account the microFIT applications. Some people will cancel their plans, and some may end with smaller systems installed.
However, the estimate is only for the current applications (August, 2010), so the numbers will certainly go up! I’m also willing to give them the benefit of the doubt, since I cannot be sure if they really intended this tax grab or it’s just a side effect 
But when the microFIT program was announced at the end of 2009, the government officials certainly knew about HST being implemented at July 1st, 2010. I presume they may even included the microFIT money in their budget. After all, it’s their job, isn’t it?
The government will also get a share of the money through income/corporate tax from the installers, and will get some money in the future from the electricity production once the systems are fully depreciated. But I didn’t dig too deep into this, as I’m only on the consumer side of the transaction.
SearchingForGreen
P.S. If you want to read the rest of my analysis, go on and read part 6.
[…] | Searching for Green on microFIT solar panels: what’s in it for the Government (part 3)microFIT solar panels: what's in it for the Government | Searching for Green on microFIT solar panels: what’s in it for the Government (part 1) « […]
[…] Recent Comments microFIT solar panels: what's in it for the Government | Searching for Green on microFIT solar panels: what’s in it for the Government (part 3)microFIT solar panels: […]
So far, you have been fairly accurate, but when it comes to HST, you should know that most companies selling MicroFIT systems are recommending that their clients register for HST. That way, they get a refund on the HST which they pay for the system, and they simply have to pass along the HST they are paid by the OPA for their electricity. It all comes back to the consumer of the power, and the generators are simply HST-neutral like any other business.
In other words, the HST is a consumption tax; it only taxes the end consumer of goods (people), because only people really exist, and it is fair because each of us pays a portion based on what we spend; those who have lots of money, spend lots, and those with little, spend little. This is why businesses of all sizes like the HST, because with a tiny bit of accounting, they have a simple system where they only pass on to the government the difference between the tax they charge (for their goods and services) and the tax they paid (for their supplies).
So microFIT generators are most likely to be “businesses”, passing through their HST costs, and not adding to the government’s income.
Hi, Mark!
I totally agree that from the electricity-generating business (my solar system) there is no problem with HST as long as I’m registered with CRA; it’s not my money they will get, I’ll just pass along whatever HST amount I receive from OPA/utility. However, this is real money, somebody will pay it (the consumer sits always on the end of the HST chain, since it will be blended in the electricity price) and somebody will receive it (the Federal and Provincial governments). But my point was that the government gets some money.
At the time I originally wrote the post, I didn’t know how the ITC would work. The prevailing opinion was that you will be able to deduct only the HST associated to the amount allowed for CCA. In this case, the govt gets all the HST at the beginning, and then gives it back to you in installments until you totally depreciate the system. After that point, they start collecting again. The calculation above is based on this assumption.
As I understand it today, we are probably allowed to deduct the whole HST in the first reporting period (and get a fat check from CRA). The government will not get any upfront money in this case, but will start collecting as soon as we generate power. It’s not my money, but somebody will pay it down the road, and the government will receive it.
Even now I’m not completely sure which is the accepted way until I hear back from a friend who already installed their system. But my money is on the latter interpretation.
Although it doesn’t make much business sense, there are also people who decided NOT to get registered for HST. The HST on their installation bills is government’s to keep. I cannot estimate what is the proportion of those, but if the return of the system is inflated to look good, regular people tend to not care about optimizing their business.
But you raised a good point, I may write a follow-up post in a few months, after I know for sure the second way of deducting the HST is accepted by CRA.
I filed a NetFile for an HST input tax credit for my new microFIT rooftop PV system on 15 Dec 2010. As of 04 Apr 2011, no refund and simply no answers from the local CRA assessment office in Belleville ON. I call once a month and leave a message……
Has any microFIT system owner, with an HST number collecting HST from the power they sell actually gotten the HST that they paid on their new system refunded?
Hello Mike, We formed a company for microFIT, filed for HST in January 2011 and so far have had a phone call from CRA (mid March) asking us for invoices and so on (which we provided. So far no money.The rumour is that CRA is awaiting a ruling themselves. What they should do is just pay back the money, and treat microFIT like any other business. Let me know if you get yours!
Mike,
If you solar panel is attached to your principle residence you are out of luck for the input on the solar panel purchase. Since the panel is attached to property used for personal enjoyment you cannot claim the input.
Kevin. That is what it sounds like. However, maybe just to appease me…
I have been contacted by CRA and a representative is coming over for an on site inspection and briefing set for Thursday, 21 April 2011. I was contacted in writing as well as via telephone!!
From the written communication: “Please have available for review, the following original documentation:
1. Please complete the enclosed ‘Solar Panel Questionnaire (more on that in a minute);
2. Contract with Ontario Hydro (their term) showing you are attached to grid. I got Hydro One Networks to send me a 1 line e-mail describing that I am connected to the grid in case my canceled check for the connection charge plus attendant receipt from HON plus the form C are not proof enough;
3. Feed-In Tarrif MicroFIT Contract with the OPA;
4. Invoices of revenue received from Hydro/OPA; and
5. Installation Contract along with all related receipts for the installation.
I will do a show and tell, complete with ‘pointee-talkee’ along with a 2010 spreadsheet of costs/investment for system……
That questionnaire: Name;
Business Number;
911 address where panels are installed;
Total size of property in acres (I’m 1/4);
Is property zoned commercial, agricultural or residential?;
If property is commercial, what is nature of the business activity?;
How many acres are used for the business activity?;
If the property is agricultural, what type of activity is it?;
How many acres are being farmed?;
If residential, is there any business activity other than solar energy (so I infer from that question that CRA recognizes solar energy as a business venture)?; and
Are panels affixed to ground or roof of building?
The questionnaire reminds me of the house insurance industry a year ago (I lost my coverage because microFIT as a business was an unknown risk) where an old way of business/global viewpoint has yet to catch up to the reality of the street.
I’ll post results of the visit when they become known.
Hi. I gave a formal 2 hour briefing to the CRA rep. I even walked thru the whole microFIT chain of events via the on-line record of all the message traffic.
Bottom line: they are waiting for Ottawa to make a decision. I already said I would plead my case to a tax judge if CRA comes back with a ‘no’.
The CRA rep did state, under current law, with the system attached to the primary residence, said residence would lose ‘primary residence’ status if CRA allows the ITC for HST and she said then one has a tax (capital gain) implication if one sells the house….
My reply: like the house insurance fiasco I had last spring with this system, the old set of laws cannot capture the spirit of the emerging new economy of renewable energy……I’m told a decision will come in late May from Ottawa…..
So here are my first random thoughts for when I plead this case in federal tax court….· The anticipated yearly yield of our roof mounted PV system based on PV Watts is 6312 kWh. This figure, multiplied by the MicroFIT contract price of $0.802 per kWh translates to an expected financial yield of $5,062.00 per year.
· The nominal payback period for the initial investment of $45,000.00+/- (not including HST) is therefore 8 years and 10.5 months with a MicroFIT contract.
· Proving that our PV system was bought only because of the money making potential of the MicroFIT program and not to ‘enhance’ the value of our primary residence can be gleaned from our first Hydro One Networks invoice.
· Our system went ‘on-line’ on 06 May 2010 but our MicroFIT contract price did not come into force until 07 Jul 2010. Our first invoice shows that the first 1024 kWh produced by our system and fed to the grid earned $48.55 plus HST. 1024 kWh represents 16% of our yearly potential yield of 6312 kWh. Put another way, 1024 kWh is 1/6th of our expected yearly yield. Therefore, without a MicroFIT contract, our system would earn us $291.30 a year.
· The nominal payback period for the initial investment of $45,000.00+/- (not including HST) is therefore 154 years and 6 months without a MicroFIT contract.
· There is NO business argument that could support the initial capital investment unless the provincial feed-in-tariff existed.
· Our expected yearly yield of $5062 will produce $658.06 in HST per year.
· Our system can be expected to produce $13,161.20 in HST over the 20-year contract price.
· Although the CRA deems our initial HST ITC of $3,700.00+/- somewhat onerous to honour ‘up front’, the net gain to the Government of Canada over the 20 year contract period is $9,461.00+/-.
· The Government of Canada would realize the net gain about 5 years and 7 months after system and MicroFIT contract commissioning.
· If just 10,000 other roof mounted MicroFIT systems were to collect HST, the net gain to the Government of Canada over the 20 year contract period would be $94,612,000+/-.
· Alternatively, the CRA could simply let our ITC of $3,700.00+/- be reduced by the amount of HST collected until such time as said ITC is exhausted, much like the CCA technique as it applies to our MicroFIT investment.
· Under this alternative, the Government of Canada would lose nothing in the short term and gain an HST income stream from every rooftop MicroFIT business.
· Finally, I propose a line item ‘exclusion’ to the existing tax code that prevents capital from being attached to the roof of my primary residence. Informally, the CRA understands that the PV system on my roof is a viable business concern. The current tax code simply prevents capital being attached to ones principle residence.
· My proposed change, to reflect the looming reality of an emerging green energy economy:
o An exclusion to section ??? (?) (?) of the act applies to any capital attached to an individuals primary residence for the sole purpose of producing renewable energy AND selling all of the produced renewable energy to the existing electrical grid under a provincial feed-in-tariff contract.
o For purposes of applying for and gaining an HST ITC, the individual is legally bound to collect and forward HST until such time that the applicable provincial feed-in-tariff contract is terminated.
Thoughts anyone?