Personal Finance

ONT ONLY - microFIT solar panel program: 10-14% return for 20 yrs * FAT LADY HAS SUNG

  • Last Updated:
  • May 21st, 2018 9:29 am
Member
Apr 28, 2014
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Waterloo, ON
JWL wrote:
Jan 7th, 2018 12:32 pm
You have a choice to make on HST:

You could choose not to collect or remit HST. This would make things simple. You'd need to notify your Hydro company to not pay you HST on your solar revenue. Downside is that if you have any solar business related costs in the future you would not be able to claim/collect the HST you paid.

You could choose to collect or remit HST. You'd need to report and remit annually. You'd need to notify your Hydro company of your HST number. If you have any solar business related costs in the future you would be able to claim/collect the HST you paid.

If you collect HST initially you can switch to not collecting later.

Either way you want to do this ASAP as you don't want to be receiving HST initially and then have to "sort it out" later.
Really? If so, this is great, but that seems strange to me: most microFIT owners would have registered for HST in order to claim the HST they paid on the installation of the system. They could then simply decide to stop collecting and remitting HST in (say) year two or three?
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Mar 18, 2005
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SouthOnt wrote:
Jan 7th, 2018 1:21 pm
Really? If so, this is great, but that seems strange to me: most microFIT owners would have registered for HST in order to claim the HST they paid on the installation of the system. They could then simply decide to stop collecting and remitting HST in (say) year two or three?
I assume it's the same rules for owning a business cause I guess this is what it is. So as long as your revenue is below $30 000 you don't need to collect HST. If I remember correctly though, you have to file within the first 3 months of the fiscal year to become exempt from HST.

edit: really though, why not just continue to collect the HST, put the HST collected in another savings account and just send the Government a cheque at the end of the year? The form is pretty easy to fill out.
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louistim wrote:
Jan 7th, 2018 1:17 pm
ok yes hydro one asked me if i had a hst number and i said i didn't so in the contract it says the generator is not registered for hst purposes for the excise tax act, so does that mean i don't have to claim it at all then and can just put it in my pocket? or am i understanding that wrong?
Hydro One will pay you but won't add HST. You won't have anything to remit and you won't need to report anything for HST.
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Evil Baby wrote:
Jan 7th, 2018 1:30 pm
I assume it's the same rules for owning a business cause I guess this is what it is. So as long as your revenue is below $30 000 you don't need to collect HST. If I remember correctly though, you have to file within the first 3 months of the fiscal year to become exempt from HST.

edit: really though, why not just continue to collect the HST, put the HST collected in another savings account and just send the Government a cheque at the end of the year? The form is pretty easy to fill out.
I believe your recollection is correct.

I continue to collect, report and remit HST because:
1. It is easy
2. If I have any expenses over the 20 years of the contract I'll be paying HST and this will allow me to get it back.

I already had to replace one piece of equipment that was about $350 so I was able to claim the $45 HST I paid. Whether it is removing panels to fix roofing or labour on warrantied repairs (only the equipment is covered) or something else, I suspect I may have some expenses over the 20 year life of the contract.
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Aug 31, 2015
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Scarborough, ON
I thought that your local utility will remit the HST to CRA. I am with Toronto Hydro and I could swear that is how it works.

Regarding taking over the solar panels when you buy a house - do you have to know the remaining CCA amount on the panels from the previous owner? Or do you start over with an assumed value and start the CCA off of that?
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wayner9 wrote:
Jan 8th, 2018 12:19 pm
I thought that your local utility will remit the HST to CRA. I am with Toronto Hydro and I could swear that is how it works.
Either way the homeowner doesn't have to worry about it.
wayner9 wrote:
Jan 8th, 2018 12:19 pm
Regarding taking over the solar panels when you buy a house - do you have to know the remaining CCA amount on the panels from the previous owner? Or do you start over with an assumed value and start the CCA off of that?
CCA value doesn't have any real relationship to market value. Ideally the market value of the panels should be specified in the purchase/sale agreement so the seller knows how much they received (they have to report the sale of their solar panel business assets) and the buyer knows how much they purchased the assets for as their CCA starting point.

Since it wasn't specified in the agreement both parties will have to make assumptions and will likely come up with different numbers (even though they should be the same).

If the seller's CCA value seemed like a reasonable value to use, both parties could use it.
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JWL wrote:
Jan 8th, 2018 1:00 pm
CCA value doesn't have any real relationship to market value. Ideally the market value of the panels should be specified in the purchase/sale agreement so the seller knows how much they received (they have to report the sale of their solar panel business assets) and the buyer knows how much they purchased the assets for as their CCA starting point.
Thanks - that makes sense. Then it seems like the buyer of the panels would want to use the highest amount possible for market value to increase the tax shield of CCA. For example if you used $25,000 vs $20,000 as the value of the panels you would save almost $2,700 in taxes over the next few years, assuming that you make over $220k. And presumably you could deduct a portion of the interest from your mortgage or HELOC as well - it might makes sense to set up a portion of your HELOC in the amount of the solar panels to make it easier to report to CRA.
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wayner9 wrote:
Jan 9th, 2018 4:32 pm
Thanks - that makes sense. Then it seems like the buyer of the panels would want to use the highest amount possible for market value to increase the tax shield of CCA. For example if you used $25,000 vs $20,000 as the value of the panels you would save almost $2,700 in taxes over the next few years, assuming that you make over $220k. And presumably you could deduct a portion of the interest from your mortgage or HELOC as well - it might makes sense to set up a portion of your HELOC in the amount of the solar panels to make it easier to report to CRA.
Since the purchase/sale agreement doesn't specify any amount I'd be cautious in being too aggressive on the value of the panels without any real backup.
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Aug 31, 2015
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Scarborough, ON
How about this:
Dear CRA,

I am buying a house with solar panels that were installed in 2009 as part of Ontario's microFIT program. These pay income at the rate of $0.802/kWh of electricity produced. The average revenue from these panels on an annual basis has been $10,000. I am assuming that I will continue to earn $10,000 per year until 2029 when the microFIT contract runs out. The Net Present Value of these cash flows through 2029 is $102,577 using a discount rate of 2.5% which is the yield on Govt of Ontario bonds that mature in 10 years (the MicroFIT program is an obligation of the Province of Ontario). I also assume that the panels will still have value of $10,000 in 2029 and the NPV of that residual value is $7621. Therefore the solar panels that I purchased have a current value of $110,200. I am using that as the beginning balance for CCA calculations.
Any flaws in the above argument? When you buy a cash flow producing business it's economic value is the NPV of the cash produced. You could argue a higher NPV if you used a yield curve to discount the cash flows rather than the 10 year rate.
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wayner9 wrote:
Jan 10th, 2018 4:51 pm
How about this:

Any flaws in the above argument? When you buy a cash flow producing business it's economic value is the NPV of the cash produced. You could argue a higher NPV if you used a yield curve to discount the cash flows rather than the 10 year rate.
1. I would not initiate the discussion with CRA, just be prepared if you get audited.
2. The buyer needs a market valuation of the panels. A 10K solar array NEW costs $30K max. An array that is 8 years old would be worth substantially less.

You have valued the microFIT CONTRACT (+ a residual value of the panels which is way too high). It might be possible to make a theoretical arguement that you are buying the solar panel business from the vendor, which includes the microFIT contract, but any purchase price you supposedly paid would the the house seller's selling price and they would have to pay capital gains tax on that. So the seller would not agree to that since they'd be moving a non-taxable house sale gain to a taxable gain.

If the house purchase/sale agreement is silent on the value of the panels, CRA could very reasonably assert that the value is $0. Anything more than that taking some risk. $110K is VERY VERY VERY aggressive and would result in almost no taxable income over the remainder of the contract. That would definitely lose a CRA challenge.
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Aug 31, 2015
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Scarborough, ON
A new solar array costs $30k but it doesn't come with a revenue stream of $.80/kWh! And solar panels were a lot more than $30k in 2009, which is why you got $.80/kWh.

A bond that has a par value of $100 but has an annual coupon of 10% and 10+ years to maturity is worth a lot more than $100 - why because the coupon on that bond is well above current yields. That is no different than my analysis above. You are buying cash flows, just like when you buy a business. And you are buying cash flows guaranteed by the province of Ontario. Your main risk is sunshine risk.

I say that you are buying a house + an electricity distribution business and the latter should be priced like a business. Its value is the NPV of future cash flows discounted at a suitable discount rate.

p.s. This is just a hypothetical exercise as I have not done this. I have panels on my house installed in 2015 and earn $0.384/kWh.
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wayner9 wrote:
Jan 11th, 2018 1:34 pm
A new solar array costs $30k but it doesn't come with a revenue stream of $.80/kWh! And solar panels were a lot more than $30k in 2009, which is why you got $.80/kWh.

A bond that has a par value of $100 but has an annual coupon of 10% and 10+ years to maturity is worth a lot more than $100 - why because the coupon on that bond is well above current yields. That is no different than my analysis above. You are buying cash flows, just like when you buy a business. And you are buying cash flows guaranteed by the province of Ontario. Your main risk is sunshine risk.

I say that you are buying a house + an electricity distribution business and the latter should be priced like a business. Its value is the NPV of future cash flows discounted at a suitable discount rate.

p.s. This is just a hypothetical exercise as I have not done this. I have panels on my house installed in 2015 and earn $0.384/kWh.
I fully understand your hypothetical arguement. And as a seller with a microFIT system on their house I would try to convince buyers of its value. And ultimately any reasonable value that is specified in the purchase/sale agreement would be the transaction value. But the seller would want the specified amount to be as small as possible and the buyer would want it to be as big as possible. If it isn't specified in the agreement and the buyer wants to attribute/make-up a value I think they are on shakey ground with the CRA. I expect the CRA might do something like compare house values as guidance (sales with and without microFIT systems) and the difference could be attributed to the microFIT system.

Just because the theoretical financial math says it should be worth an amount doesn't mean it is the market value. Especially in something like microFIT systems that are very illiquid and not transferable separate from the house sale. Others in this thread who've sold their homes with microFIT systems have suggested they have got nothing for them (one person even thought it hurt their home value). As a rational investor who understands microFIT this seems crazy to me but it doesn't change the facts (sparse as they may be). This is why I say illiquidity is the biggest risk of the microFIT systems: If you sell your home you are unlikely to get the real value from them, if anything at all.
Last edited by JWL on Jan 11th, 2018 1:47 pm, edited 1 time in total.
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Aug 31, 2015
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Scarborough, ON
JWL wrote:
Jan 11th, 2018 1:47 pm
Just because the theoretical math says it should be worth an amount doesn't mean it is the market value. Especially in something like microFIT systems that are very illiquid and not transferable separate from the house sale. Others in this thread who've sold their homes with microFIT systems have suggested they have got nothing for them (one person even thought it hurt their home value). As a rational investor who understands microFIT this seems crazy to me but it doesn't change the facts (sparse as they may be). This is why I say illiquidity is the biggest risk of the microFIT systems: If you sell your home you are unlikely to get the real value from them, if anything at all.
You know - this creates a business opportunity - securitizing the revenue stream from the panels. Start a business that will buy the solar panel cash flow as part of the sale of a home with a microFIT install. If the buyer says they don't have any value then the seller can say - go talk to these guys - they will buy the revenue stream from your panels for $20,000. The only problem is that I don't know if this is legal. It may make more sense outside of Toronto as well as $20,000 (or even $50,000) is a rounding error in the price of a house large enough to have 5kW+ of panels in Toronto. That's not so true in other parts of the province.

You could likely find existing installs by trolling around Google Maps. But I am not sure that this is legal as I believe the microFIT customer has to be the electrical utility customer. But there might be a way to get around that with creative structuring.
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Jan 15, 2018
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wayner9 wrote:
Jan 11th, 2018 1:34 pm
A new solar array costs $30k but it doesn't come with a revenue stream of $.80/kWh! And solar panels were a lot more than $30k in 2009, which is why you got $.80/kWh.
Hi guys, first post here! I have solar installed but I'm still curious what the state of new solar is in Ontario now that the microFIT program is finished. What does the numbers look like for a ROI now? Is all production sold to the grid at time of use cost or some set number now?

Thanks!
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Aug 31, 2015
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Scarborough, ON
Falkirk - I recognize that name from TMC! Hopefully JWL chimes in as he has been the Grand Poobah of this thread and is very knowledgeable. As I mentioned on TMC I think that net metering is the best option from a financial perspective but that means that you can't use TOU pricing, you need to go to tiered. So if peak ends up becoming a lot more than the tiered rate then you might be better off not even being on net metering.

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