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Canadian Fuel Taxes: US Traders Beware!

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An often-overlooked aspect of Canadian indirect tax is the degree to which provincial fuel and carbon tax statutes vary across the country — and the surprising and significant consequences for non-resident businesses with limited connections to Canada.

US and international petroleum traders selling fuel into Canada present a good example of the complexities in this area, and how the rules can vary substantially from province-to-province leading to unforeseen registration, licensing, and Fuel Tax collection requirements!

Background

Fuel taxes are an important revenue generation tool for Canada’s provinces and territories, and their administration has grown increasingly complex in recent years. Some provinces appear to be overhauling historical systems on a patch-work basis (Nova Scotia), other provinces have enacted bold new tax regimes (British Columbia), while others retain systems that have not changed much in years.

Existing provincial systems are now forced to work alongside the federal government’s “carbon tax” standards in the Greenhouse Gas Pollution Pricing Act (the “GGPPA”), or risk having those federal standards apply on top of existing provincial rules.

The GGPPA operates in two parts, imposing a further fuel charge on, among other things, imports of certain types of fuel (the “Fuel Charge”), as well as an “output-based pricing system” (“OBPS”) for large “emitters”. Although, these only apply in provinces that have either expressly opted-in to the GGPPA OR which have implemented provincial measures that, in the federal government’s view, do not sufficiently protect the environment.

Bottom Line

As a result, Canada has developed into its own patchwork of provincial and federal fuel and complementary carbon tax regimes, each with its own standards and thresholds for licensing, registration, and tax collection and remittance obligations.

This complexity makes it difficult for international traders to develop “cookie-cutter” approaches for dealing with Canada. Rather, a province-by-province analysis is usually required, and the ultimate answer in one province (e.g., no licensing or registrations required; no tax collection obligations) could be the exact opposite of the next province over.

These technical requirements often leave room for interpretation and uncertainty (because the language of provincial fuel statutes is often broadly drafted) and are also sometimes tempered by local administrative policy. Getting to the bottom of things usually requires specialized Canadian indirect tax advice.

Navigating the complexities of provincial fuel and carbon taxes requires careful attention to detail and traders unsure of their responsibilities should seek professional legal advice!

Do you require assistance in this area?  If so, please click here.

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