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ONTARIO FUEL TAXES: A MINEFIELD!

HIDDEN PITFALLS FOR FUEL DISTRIBUTORS IN CANADA

Companies in the business of importing or dealing in fuels in Canada quickly learn that the required registrations can be a maze of red tape.  Each province has its own playbook, and for Ontario in particular, the rules can be uniquely complicated.

What businesses need to know is that going at it alone comes with risks.

Some of the licensing statutes are downright antiquated and taking steps that may seem compliant can still open the door to other major exposures. 

Two specifically problematic laws in this area are the Ontario Gasoline Tax Act ("GTA") and Fuel Tax Act ("FTA"), which apply to most fuel products distributed in Ontario, and which, as we highlight below, probably require professional advice before registration.

Ontario Gasoline & Fuel Taxes

Ontario’s GTA and FTA impose a provincial tax on a range of fuels at the end of the distribution chain.  A general tax rate of 9¢ per litre applies to fuel received or used by a purchaser, subject to several exceptions and conditions.  Gasoline and aviation fuel fall under the GTA, while biodiesel and other fuels used to generate power in an internal combustion engine are typically dealt with under the FTA.

To stay compliant, businesses must register under the appropriate law and often require multiple registrations depending on their activities.  Under the GTA, the main categories include the following:

1. Importers & Exporters (subject to possible bond payments – although this may not be recommended!)
2. Collectors (i.e., those designated to collect tax)
3. Wholesalers
4. Manufacturers
5. Carriers
6. Transporters

A parallel (but distinct) set of registrations applies under the FTA. 

Hidden Liability & Exposure

Unfortunately, both the GTA and FTA include inconsistencies which can open businesses to costly liabilities.

For example, on its face, subsection 4.1(2) of the GTA allows an unregistered importer to import bulk gasoline or aviation fuel if it remits security and files a return in respect of the tax that would be due.  However, the relevant penalty and offence provisions in the GTA are worded so broadly that anyone operating as an importer in Ontario without being registered can technically be subject to penalties and offences – regardless of whether security is posted.  Penalties can be as high as 110% of the tax payable, and offences can result in fines of upwards of three (3) times the tax payable!

While the Ontario Ministry of Finance has not (to our knowledge) enforced this strict interpretation, the risk is real enough that most businesses should steer clear of the minefield entirely.  Registration for importers is generally recommended.

The FTA also contains similar “traps for the unwary”.

Takeaways

The Ontario GTA and FTA are antiquated statutes set up decades ago that feature avoidable pitfalls for businesses dealing in fuel in Ontario.  For companies expanding into Ontario or looking to audit their current organization, professional advice is highly recommended. 

For help with Canadian fuel taxes and registrations, please click here.

Download a PDF copy of this Blog here.