Tax & Trade Blog
OIL & GAS INDUSTRY: Fuel Charge Registration Required!
Carbon pricing in Canada can be confusing for both new entrants to the market and established players. This comes from Canada’s patchwork system of rules which vary across the country. Adding to the complexity is the fact that the federal Greenhouse Gas Pollution Pricing Act (“GGPPA”) only applies (as a “backstop”) where provincial/territorial legislation is not strict enough (in the opinion of the federal government)!
US businesses with Canadian carbon activities need to be aware of multiple different rules – federal (under the GGPPA, which applies in the so-called “listed provinces” outlined below) and provincial/territorial (applicable to the particular province in which they are operating).
Figuring out where one has to register is just the first step!
What is the Canadian “Fuel Charge”?
Canada’s federal government essentially taxes fossil fuels and combustible waste, which is meant to set a “price” on the emission of carbon dioxide. One part of this – the so-called “Fuel Charge” – is pegged to an estimated per-tonne price of emissions, which rises each year. This Fuel Charge filters through as different unit rates for different fuels (e.g., 11.05 cent/L of gasoline starting April 1, 2022 – a significant amount to add at the pump!)
Where does the Fuel Charge Apply?
Because the federal Fuel Charge is meant to be a backstop where Canadian provincial or territorial rules are insufficient (e.g., because Alberta chooses NOT to provide this sort of tax), some places in Canada operate under the federal rules, while others operate under the local rules. For example, the federal rules currently operate in Ontario, Manitoba, Yukon, Alberta, Saskatchewan and Nunavut (i.e., “listed provinces”), all because these provinces / territories have resisted implementing their own systems. (Ontario, for example, scrapped its cap-and-trade system, while Alberta repealed its carbon tax). Other Canadian jurisdictions which have implemented carbon pricing systems have their own separate requirements (e.g., BC’s carbon tax and Québec’s cap-and-trade system).
Who has to Register Federally?
Under the federal rules, businesses are generally required to register if they are distributors, importers, emitters or certain users of fuel or combustible waste (namely, air carriers, marine carriers, rail carriers, and road carriers), and there are also some situations where businesses may voluntarily register.
For example, under section 56 of the GGPPA, a person is generally required to register as an importer if they import or bring fuel into a listed province. However, certain interjurisdictional rail carriers of fuel may voluntarily register as an importer. The Canada Revenue Agency (CRA) administers this system and may also require businesses to register under multiple categories (e.g., distributor, importer, etc.).
What Happens After Registering?
After registering, businesses are expected to submit periodic returns, generally each calendar month: see section 68 of the GGPPA.
The bottom line is that Canadian and US businesses with any carbon activities in Canada need to need to get professional advice, understand exactly how the Canadian Fuel Tax rules apply to them (there are unfortunately no “cookie cutter” answers) and then register for the applicable system, and begin complying!
Do you require assistance in this area? If so, please click here.