Ryan Tax Review

The New Federal Fuel Charge Took Effect on April 1, 2019

It was no April Fools’ Day joke!  Several clients have been surprised to learn that a new federal fuel charge took effect on April 1, 2019, in four Canadian provinces. Once they get over the shock of how little time was provided to prepare for this new tax, most of our clients want to understand how this levy might impact their businesses. 

The federal fuel charge is being levied under the Greenhouse Gas Pollution Pricing Act and applies to fuel supplied in Manitoba, New Brunswick, Ontario and Saskatchewan, effective April 1, 2019, and in Nunavut and the Yukon, effective July 1, 2019. These provinces and territories are known as the “listed provinces” for the purposes of this fuel charge. Purchases of fuel in other Canadian jurisdictions are not subject to the federal fuel charge, as they are already subject to various provincial or territorial measures designed to place a price on carbon.

Depending on its activities and where they occur in a listed province, an organization may be required or permitted (i.e., volunteer) to register for the fuel charge under one or more types of registration. The fuel charge legislation provides for 12 different types of registration, including fuel distributors, importers, emitters, users, users of combustible waste, and organizations that transport goods or people as an air, marine, rail or road carrier.

The most common form of registration will likely be that of a distributor. An organization is considered to be a distributor if it produces, imports or delivers natural gas, measures another person’s consumption of marketable or non-marketable natural gas, or produces any other type of fuel in a listed province. Where this is the case, mandatory registration is required. An organization may also voluntarily register as a distributor where it carries on the business of selling, delivering or distributing fuel (other than marketable or non-marketable natural gas) and, in the ordinary course of that business, delivers fuel of that type in a listed province for certain purposes. It is also possible for importers, emitters, users of fuel, and specified carriers to register for the fuel charge voluntarily under limited circumstances. 

Certain businesses, including a registered distributor, carrier (air, marine or rail), emitter or user, or an unregistered farmer or fisher, may be eligible to use an exemption certificate. By issuing this certificate to a supplier, these businesses will be able to take delivery of fuel in a listed province without the fuel charge applying to the supply.

The fuel charge applies to 21 types of fuel delivered, transferred, used, produced, imported or brought into one of the listed provinces. The charge also applies when combustible waste (e.g., tires and asphalt shingles) is burned in order to produce heat or energy in a listed province. Typically, the new fuel charge applies at the first stage of the supply chain and is payable by a registered distributor. End users ultimately bear the cost of the fuel charge, but generally do not have any obligations related to this tax, since fuel purchases already have the charge embedded in the price.

Generally, an organization registered for the fuel charge is required to file returns monthly with the Canada Revenue Agency (CRA). Registered road carriers are the only exception and are required to file returns on a quarterly basis, with the filing dates being the first day of January, April, July and October.

Organizations that are not required to register for the fuel charge are not necessarily “off the hook” and may still be affected by the tax – albeit a one-time impact. Under the provisions for the federal fuel charge, every person that holds fuel (other than in a supply tank of a vehicle) in a listed province immediately prior to an adjustment day and that is, or expected to be, liable to pay the fuel charge must take an inventory of fuel held at that time, subject to certain exceptions. The adjustment days for the fuel charge are April 1, 2019, for Manitoba, New Brunswick, Ontario and Saskatchewan, and July 1, 2019, for Nunavut and the Yukon. Based on the amount of fuel on hand prior to the adjustment date, the organization is required to make a payment equal to the fuel charge in order to true up the tax included in the fuel on hand. This is a one-time charge and after the adjustment day, the fuel charge will be paid by the organization whenever it purchases fuel from a registered distributor in order to replenish its inventory. This adjustment day charge is not required if the person is a registered distributor, registered air, marine or rail carrier, or the fuel is considered to be ships’ stores for use on board a conveyance. In addition, an organization is not required to make this payment where it is determined that the fuel charge amount in respect of a particular fuel is less than $1,000.  

For additional information on the federal fuel charge, please refer to the CRA webpage: Carbon pollution pricing – what you need to know