As we wrote about here Canada’s carbon tax system is complicated and causing problems.
Recently, the Canada Revenue Agency (“CRA”) has been auditing and issuing assessments based on the technical requirements of the legislation.
Background
Canada’s carbon tax legislation is called the Greenhouse Gas Pollution Pricing Act – and we will refer to it as the Carbon Tax Act or “CTA”. The CTA was enacted in 2018. Part of it enacts a “fuel tax” (called a “Fuel Charge” for optics) which adds additional Canadian taxation points to all transactions involving combustive fossil fuels. The Fuel Charge is levied under Part I of the CTA.
When one is involved in the purchase and resale of such fossil fuels (e.g., traders and other distributors), liability for the Carbon Tax can usually be avoided through registration.
But therein lies the potential problem. If the particular purchaser is NOT registered, taxes are potentially collectible, and rebate or refund provisions are less than robust!
Worse, CRA seems to have clued in to the potential revenue generator that is the Canadian Carbon Tax, and is auditing suppliers for their potential tax collection obligations when selling to unlicensed distributors.
Licensing Requirements
The CTA has approximately eleven (11) different license classes, and licenses are also required based on the type of fossil fuels – with some twenty-one (21) different types of fuels and combustible waste caught by the regime.
Typical license classes include classes for distributors, producers, importers and users. Other special classes exist by industry (e.g., air carriers, rail carriers and marine carriers).
Timing of License Applications
The CTA requires licensing by distributors, producers and importers, among others. These license applications are due immediately upon engaging in most production activities, with the registration rules for pure distributors being a bit murkier. While the Minister of Environment is required to notify a registrant of the assigned registration number and “the effective date of the registration”, it is unclear whether the Minister has the power to actually provide retroactive registration.
Late licensing (e.g., after the point of a particular trade in fossil fuels) can thus be technically problematic, as it could give rise to a technical collection requirement on the part of the supplier, with limited rebate / refund potential.
The Bottom Line
If you are a wholesaler or distributor and you have been charged or paid the Canadian Fuel Charge, you may be eligible for a rebate or exemption from the tax where registered. Unregistered parties may face a current challenge in trying to get these taxes back – especially if CRA chooses not to provide administrative largesse to allow for that. Thus it remains a “best practices” approach to register early and often.