Tax Credits in Relation to Supply of Fuel to Carriers

GST policy statement P-006

Please note that the following Policy Statement, although correct at the time of issue, may not have been updated to reflect any subsequent legislative changes.

Date of Issue

May 19, 1992


Tax Credits in Relation to Supply of Fuel to Carriers

Legislative Reference(s)

Notice of Ways and Means Motion dated November 5, 1991

National Coding System File Number(s)


Effective Date

Applies to fuel which is delivered after November 5, 1991


The policy presented below relates to fuel supplied to air carriers. Although there have been no questions received from operators of ships, it would applicable to ship operators. The K36A Form (Ships Stores Declaration and Clearance Certificate) is used to substantiate claims for drawback or claims for excise tax or sales tax refund or remission of goods. It is not restricted to goods for aircraft but also includes goods for ships. The policy does not deal with supplies of fuel to railway operators as these operators cannot use the K36A.

The policy of the Department on this issue is to maintain current industry practice with some adjustments. It is likely that there may be some variation in practices, however, the following is considered representative.

Currently, the supplier charges all applicable taxes to the air carrier operating both domestic and international journeys. Afterwards, on the strength of a signed K36A certifying that the goods have been loaded on a conveyance proceeding on an international voyage, the carrier is credited by the supplier for the amount of the excise tax and the GST related to the excise tax portion. At the time of the supply of the fuel, the carrier does not know what portion will be used for domestic journeys and what portion for international journeys. As the credit for the GST related to the excise tax portion would, in all likelihood, be received by the carrier in the month following that in which the supply occurred, the carrier being a monthly filer, the carrier would already have claimed the entire amount of the GST paid on the supply as an input tax credit (ITC).

Further, when the carrier receives the credit from the supplier, subsection 232(3) requires the carrier to add the tax amount so refunded or credited in determining the net tax of the carrier for the reporting period in which the credit note is issued. The amount is to be shown on line 104 of the Goods and Services Tax Return as a GST Adjustment.

There is an additional paperwork burden placed on the carrier under current practice and, until the carrier is audited, there is no guarantee that the carrier is actually reporting the tax amount on the credit note as a GST Adjustment.

In view of the above, it will not be necessary for suppliers to credit the portion of the GST that relates to the excise tax, since the carriers would already have claimed an input tax credit for that amount.

Example (Aviation Fuel supplied to domestic Air Carrier):

Sale price (before taxes - $.50/litre) $ 100.00

Excise Tax (250 litres @ $.04)

$ 110.00

GST - 7%

Total (after taxes) $ 117.70

Recovery of Taxes

Recovery of excise tax by credit from supplier on strength of K36A $ 10.00
Recovery of GST on excise tax and on supply by ITC 7.70
Total recovered $ 17.70

This policy removes the risk of refunding the GST twice and simplifies compliance for both the supplier and the carrier. In effect, carriers using fuel in providing both domestic and international transportation services will be required to recover the GST by means of ITC's.

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