ETSL65 - Statutory End-User Refund Program and Elimination of Excise Tax Exemption for Renewable Fuels

ET/SL 65

March 2007

Notice to all Tax Practitioners, Licensed Manufacturers and Wholesalers, Fuel Distributors and Filers of End-User Refunds under the Excise Tax Act

On Monday, March 19, 2007, the Minister of Finance, the Honourable Jim Flaherty, tabled a Notice of Ways and Means Motion to amend the Excise Tax Act Relating to Excise Taxes. The Notice of Ways and Means Motion includes changes to the non-GST/HST portions of the Excise Tax Act (the Act). Under the proposed changes, the Act will be amended to provide for a statutory end-user refund program for diesel fuel used under certain tax-exempt conditions. As well, the current excise tax exemption for renewable fuels will be eliminated effective April 1, 2008.

End-user refunds

A proposed new section 68.01 will be added to the Act allowing for a refund, under certain circumstances, of the excise tax on diesel fuel for end-users and unlicensed fuel vendors.

Diesel fuel used as heating oil or for the generation of electricity

Under the Act, heating oil is exempt from excise tax. As well, an exemption of excise tax exists for diesel fuel used in the generation of electricity, except where the electricity so generated is used primarily in the operation of a vehicle.

In circumstances where excise tax-paid diesel fuel has been sold by an unlicensed vendor or used by an end-user as heating oil, a refund of excise tax will be available as follows:

• an unlicensed vendor of diesel fuel will be able to apply for a refund of excise tax for diesel fuel sold as heating oil, if the purchaser certifies that the diesel fuel is for use exclusively as heating oil and the vendor reasonably believes that the purchaser will use it exclusively as heating oil; or
• an end-user who uses the diesel fuel as heating oil will be able to file for a refund of excise tax, provided that the unlicensed vendor of the diesel fuel cannot apply for a refund in respect of the fuel.

A refund of excise tax will be available to an end-user who has purchased excise tax-paid diesel fuel and uses the diesel fuel to generate electricity, except if the electricity so generated is used primarily in the operation of a vehicle. An end-user may continue to purchase diesel fuel for use in the generation of electricity (otherwise than primarily in the operation of a vehicle) on an excise tax-exempt basis from a licensed manufacturer or wholesaler if the end-user so certifies.

Diesel fuel used as ships’ stores

A refund of excise tax will be available to an end-user who purchases excise tax-paid diesel fuel and uses the diesel fuel as ships’ stores. This is provided that no other person has made an application for refund or drawback of the excise tax for the fuel.

An end-user may continue to purchase diesel fuel on an excise tax-exempt basis, at the time of purchase, if they are able to certify that the diesel fuel is for use as ships’ stores. This can be done by providing the supplier of the diesel fuel, at the time of delivery, form K36A Ships’ Stores Declaration and Clearance Certificate that has been authorized by the Canada Border Services Agency or other acceptable documentation.

Time limit for filing end-user refunds

There is a two-year time limit for the filing of an end-user refund. In the case of an unlicensed vendor who sells diesel fuel as heating oil, a refund application must be submitted by the vendor within two years from the date of the sales transaction. All other end-user refund claims must be submitted by the end-user within two years from the date of purchase.

Refund restriction for licensed persons

No refund application made by a licensed person will be allowed under section 68 of the Act if an application for a payment can be made by an unlicensed vendor or end-user under proposed new section 68.01.

Effective date

New section 68.01 of the Act is deemed to have come into force on September 3, 1985. However, prior to March 20, 2007, if any application for an end-user refund was made under section 68 of the Act and the refund could have been made under section 68.01 of the Act if that section had been enacted at the time, the application made under section 68 of the Act is deemed to have been made under section 68.01.

Elimination of excise tax exemption for renewable fuels

Sections 23.4 and 23.5 of the Act provide for an excise tax exemption in the case of the alcohol portion of gasoline-alcohol and diesel-alcohol blended fuel and bio-diesel fuel, whether blended or not. These exemptions will be repealed on April 1, 2008.

The Act will be amended to provide that the excise tax will be levied on renewable fuels as of April 1, 2008 within the existing structure that applies to gasoline and diesel fuel.

The Notice of Ways and Means Motion and the explanatory notes are available on the Department of Finance Web site at the following address: www.fin.gc.ca.

Should you have any questions about this notice, please contact the excise tax information line at 1-866-330-3304.