Employment income and investment income are not subject to HST and would not be considered in this calculation.

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1 People Count. HST and Income Tax Considerations for Participants in Ontario s microfit Solar Energy Program The Ontario Power Authority has developed a Feed-In Tariff (the "FIT") Program for the province to encourage greater use of renewable energy sources. The microfit program allows participation in renewable energy projects of 10km or less. Under the program a participant will enter into a contract with the OPA to supply electricity generated from a renewable energy project, such as roof mounted solar panels. Individuals who participate will have certain GST/HST and income tax consequences as outlined in this publication. Partnerships and corporations may also participate in the program and may also have tax consequences, which are not covered in this publication. This publication is for general purposes and may not suit every individual's particular situation. Please consult your RLB tax advisor for complete tax advice. HST Consequences Registration Required Individuals may be required to register for HST based on income earned from the mircofit program. Individuals are required to register for HST, if the individuals gross income from sources that would ordinarily be subject to HST is greater than $30,000 in a particular quarter or any four consecutive calendar quarters. Typically, income from the microfit program would not in itself require an individual to register, however it may require registration when other activities are considered. Example 1 A person earns $25,000 in a painting business and earns $5,500 in microfit revenue. The person will not qualify as small supplier once the income has exceeded $30,000 in four consecutive quarters, at which point the person would be required to register and charge HST on both sources of income. Employment income and investment income are not subject to HST and would not be considered in this calculation. Voluntary Registration Most participants in the program will not be required to register; nonetheless, participants may choose to voluntarily register. If an individual chooses to register voluntarily, they will be required to collect and remit HST on the energy supplied and will be entitled to claim an input tax credit (ITC) to reduce the net tax or entitle a refund of HST paid on expenditures related to the program. Due to the cost of the upfront costs, many individuals choose to register for HST which will entitle them to a refund of the HST paid on the installation of the solar panels, net of any HST collected. HST is paid by the microfit program in addition to the per kw amount, so the net amount received on energy is the same whether or not the individual is registered. If you choose to register, you will be required to account for HST if you sell your solar panel, cease using the system, or cancel your registration. The CRA has produced GST/HST INFO SHEET GI-122 which details registration for HST under the microfit program. Example 2 A person spends $22,600 ($20,000 plus $2,600 HST) on the installation of a rooftop solar panel system in the year. The program is entered into for the last six months of the year and receives $2,825 ($2,500 plus $325 HST)

2 If the person voluntarily registers for HST, HST collected on the energy will be $325 and HST paid on the installation is $2,600; therefore the registrant is entitled to a refund of $2,275 upon filing the HST return. For income tax purposes, CCA will be available on the $20,000 pre-tax cost of the panels. If the person does not register for HST, the amount received for energy is $2,500, there is no refund of the HST paid, and the amount available for CCA for income tax purposes is $22,600. Obligations for Registrants A registrant is required to file and complete a GST/HST return annually (or more frequently if income exceeds a certain amount, but is not typical for microfit participants). Reporting is on a calendar basis and returns must be filed by June 15th of the following year. Payment of any net tax is due by April 30 th of the following year. Interest and penalties may apply to late remittances and late filed returns. Returns can be filed using the pre-printed personalized return provided by the CRA, or through internet or telephone options. Completing your HST Return The following is instructions for an HST registrant with only solar income. The CRA will provide a preprinted return with the name, business number, reporting period and address completed. Otherwise a generic form can be used where this information is entered. Line Enter the amount of total sales and other revenue. Line Enter the amount of HST collected in the period - flow to Line 105. Line Enter the amount of HST paid or payable on your expenditures - flow to Line 108. Line 109, 113A and 113C - Enter the net of line 105 and line 108. Ensure to put a dash - in the box to the left if the amount is negative. Line If net tax is negative, enter the refund claimed. Line If net tax is positive, enter the amount payable. Ensure to transcribe the information from the body of the return to the bottom part and send only the bottom part to CRA or provide the bottom part when making a payment and filing your return at your financial institution. Returns with amounts owing can not be filed at your financial institution.

3 Completing your RC1 Application for a Business Number Part A - General Information A1 - Ownership Check individual for ownership. (See the FAQ section for discussions about joint ownership). Check "No" for incorporation Check "sole proprietor for type A2 - Owner(s) information Enter your Social Insurance Number, First and Last Name, a contact number and your occupation. Title is not necessary for a sole proprietor Contact person - enter your name. If you would like another person to act you your behalf Form RC59 should be completed and sent (Your RLB representative can provide you with this form).

4 A3 - Identification of Business Typically your solar business will not have a name; you can simply enter your name here. This should match the name on your statements from OPA invoices on expenses. Leave the operating / trading name field blank (three lines below) Enter your address in business location and mailing address with postal code. Select your language of preference Tick "No" on the third party question A4 - Major business activity Enter "Solar energy generation - Ontario microfit program" in the first field Enter "Solar energy generation" and "100"% in the second field A5 - GST/HST Information If your only business activity is from the microfit program, answer the questions as follows: Tick YES in the first box - "Do you provide or plan to provide;." Tick NO in the second box - "Are your worldwide taxable sales;" unless you have another businesses or multiple microfit projects. Tick NO in the third box - "Are you a public service body; Tick NO in the fourth box - "Are all the goodsâ exempt;" Tick NO in the fifth box - Unless of course you also have a taxi business Tick NO in the sixth box - re: exclusively commercial rent Tick NO in the seventh box - "Are you a non-resident" unless you are resident of another country Tick NO in the eight box - re: admissions Tick YES - under voluntary registration Part B - GST/HST Account Info B1 - Account Info Tick the box if the name and addresses are the same as Part A3 B2 - Filing information If microfit is your only business income, enter zero in your "sales in Canada" and "worldwide sales". If you have other business income, enter the amount for the prior year here. Leave the fiscal year end blank. As an individual, this will be December 31st Leave the election of year end blank Enter the effective date of registration: Typically this can only be backdated to the first day of the month registered, or when you started charging HST. If you are already a member of the microfit program and have been receiving HST payments from the OPA, enter the first month that the amount was received. B3 - Reporting Period Tick "No" in the reporting period election. Except for the ability to have your ITC on purchase of the equipment refunded earlier, the usual choice is to file your return once a year. Tick the box for "$1.5m or less"

5 B4 - Direct Deposit Info Enter your account info here if you would like your refunds to be direct deposited. Part C - Payroll Account Info It is unusual for a microfit business to have employees. Leave Part C blank. Part D - Import Export Account Info It is unusual for a microfit business to be an importer/exporter. Leave Part D blank. Part E - Corporation Income Tax Info If you are an individual or partnership, leave this section blank. Part F - Certification - Tick the box as owner and sign the form. Alternate Registration You can register by telephone, online, by fax or by mail. Follow this link to find out the tax centre to send your application Income Tax Consequence CRA has made it clear that income from the microfit program is taxable income from either business or property. A participant can deduct reasonable expenses against the income such as incremental increases in property taxes and house insurance, maintenance costs, interest on loans to purchase the equipment and capital cost allowance (CCA) or "tax depreciation" on the cost of the equipment. Individuals report the net income on the T1 Income Tax and Benefit Return on line 135. This line is linked to form T2125 Statement of Business or Professional Activities. Completing Form T2125 Part 1 - Line A -- Business Income - Enter the total amount received from microfit payments Part 1 - Line B - HST charged -- enter the HST received on the microfit payments Part 1 -Line C - Subtract Box B from Box A and enter the net gross sales; this number is entered in the following five lines: Part 3 - Box Adjusted Gross Sales Box 8299 Gross Business Income -- Enter the amount from Line C in Part 1. Part 4 - Line I - Gross Business Income Box 8915 Gross Profit - Enter the amount from Box 8299

6 Part 5 - Line K - Gross profit Part 5 - Net Income Box 8690 Insurance Expense - Enter the incremental difference in insurance premiums due to the installation of solar panels. Box 8710 Interest Expense - Enter the interest payments made on amounts borrowed invest directly in the purchase and installation of the solar panels. Box 8860 Legal, accounting and other fees - Enter the amounts paid for legal and accounting related to the solar panels. Box 8960 Repairs and Maintenance - Enter the amounts paid for repairs or maintenance related to the solar panels. Box 9180 Property Tax - CRAs administrative position is that the incremental difference in property tax due to the installation of solar panels is deductible for business purposes, rather than a percentage or other allocation of taxes. Based on this position, if there is no change in property taxes, there is no amount deductible. However, this position has not been contested in tax court. Box 9936 Capital Cost Allowance - Enter the amount of capital cost allowance (tax depreciation) from Area A on page 4. (See below) Other expenses - The amount listed above are typical expenditures relating to the microfit program. Any other direct expenditures relating to generating energy may be deductible. Box Total Expenses Box Net Income-Net Income for the year - flows through Box 9946 to line 135 of the personal tax return. Completing Area A - Calculation of Capital Cost Allowance Claim Capital cost allowance is the amount available to deduct from income for the cost of the solar panels. Because of the enduring nature of the equipment, the full cost is not deductible in the first year but rather is deductible over several periods based on the specific rules for this particular type of equipment. Column 1 - Class Number - Enter This is the class of equipment for solar electrical generating equipment as defined by the Income Tax Act Regulations. Column 2 - Undepreciated Capital Cost at the beginning of the year If this is the first year of operations, this amount is zero. Otherwise it is the undeducted portion of the original cost from Column 10 on your prior year return. Column 3 - Cost of additions in the year Enter the cost of the solar equipment excluding HST. Column 4 - Proceeds of disposition in the year If your equipment is sold during the year (either on its own or part of a sale for the home) enter the amount received (excluding HST charged on the sale). If you receive more than you paid for the equipment, enter the original amount paid. Column 5 - Add columns 2 and 3 minus Column 4 Column 6 - Adjustments for current year additions - This is 50% of additions. Rather than prorate the depreciation in the first year for the number of days held, the allowable deduction is half in the first year to reflect the fact that the property was not held throughout the whole year. Column 7 - Base amount for CCA Column 5 minus column 6

7 Column 8 - CCA Rate This is 50% for Class 43.2 equipment Column 9 - CCA for the year This is the amount of the deduction for the year. The maximum deduction is either the calculated amount of 50% of Column 7 or the amount which would bring net profit to zero. A special rule with limits the CCA deduction so that a loss is not created. An individual may choose a lesser amount. When the equipment is sold any amount greater than the depreciated value, the difference is taxable income. If the tax rate at the time of sale is much greater than the tax rate during the year of deduction, it may create a bad tax result. Example 3 Solar equipment was purchased by a GST/HST registrant for a total price of $22,600. The HST on the price ($2,600) is claimed as an input tax credit on the HST return. The maximum CCA claim in the first year is $20,000 x ½ x 50% = $5,000. Since the panels were installed part way through the year, there were only a few months of electrical generation, so the net income before CCA is $1,000. The maximum CCA deduction is limited to $1,000 since a CCA deduction can not create a loss. Column 10 - UCC at the end of the year - Column 5 minus column 9 Selling the panels or your home When you sell your solar panels, whether on its own or as part of a sale of your home, you must charge and remit HST on the sale. If you sell your home with the panels, there is considered to be two separate sales, a sale of your home (which is technically HST exempt) and a sale of the panels. You must ensure a separate value is indicated for the panels and that HST is charged and remitted on this amount. If you cease to operate your business or voluntarily deregister your business, you are deemed to have made a sale of your panels for HST purposes. You will be required to report and remit an amount equal to the basic tax content of the panels. Essentially, you have to repay the credit that you received on purchasing the panels. Reporting HST on sale or deregistration Report the HST charged on the sale or the ITC originally claimed on the panels in the case of deregistration in line 103 of your HST return. Reporting income tax on sale of panels If you have been taking CCA (tax depreciation) on the panels, you will have to reverse this amount to match the actual amount received (recapture). Enter the amount received in column 4 in Area A of T2125. The difference between the amount received and the UCC (undepreciated cost) is taxable income. In the rare case that you've sold the panels for more than the cost, the portion greater than the original cost is a capital gain.

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12 FAQ Q: What if I become a registrant after I've started in the microfit program. Will I still get a refund? A: As long as you are a small supplier before you register, you can claim an input tax credit on the capital property (any equipment on which you claim CCA) but not on other expenses. Since this typically is a large amount, you will be able to claim an ITC on the value of the solar panels at the date of registration. Q: My spouse makes less than me, can I put the panels in the spouse's name and have income taxed in their hands. A: There is still a question as to whether or not income from solar panels is income from a business or from property. Income from property is subject to attribution rules, where the person who provides the funds for the investment must report the property income. There are certain ways to plan around these rules to achieve the desired result. Q: My spouse has a small side business and wants to avoid charging HST. Can I put the solar panels in my name? A: Yes. It may be desirable for one spouse to operate the solar business in order to keep the businesses of the other spouse separate. Q: I own the solar panels equally with my spouse, why do I check individual instead of partnership on the RC1? A: There can be a distinction between a partnership and co-ownership for income tax and HST purposes. A partnership is generally a more formalized agreement between two partners. Although the two are similar, there can be different tax results depending on the distinction. If it is advantageous, a partnership agreement can be entered into to make the distinction. Q: Why is there still reference to GST now that Ontario has HST? A: HST is simply an additional amount of GST. It is charged under the same section of the Excise Tax Act. There are certain rules such as rebates that apply exclusively to harmonized provinces but these are additional sections of the same legislation. RLB LLP - People Count The information provided is of a general nature and may not apply to every client situation. At RLB LLP, we practice integrated accounting, tax and business advisory services customized to meet the specific needs of our clients. Please consult your RLB representative for more information and to discuss tax needs and planning tailored to your situation.