Home > Energy Facts > Why Gasoline Prices Vary Across Canada

Why Gasoline Prices Vary Across Canada

Why do you pay more or less for gasoline than your friend in another community? Differences in fuel prices are tied to several factors that can push prices up or down:

Factor 1: Taxes

Regional differences in provincial and municipal taxes are the most important factor affecting what you pay at the pump. There are two types of taxes:

• Flat tax – Provincial taxes range from 6.2 cents per litre in the Yukon to 20.2 cents per litre in Prince Edward Island (January, 2006). In addition, municipal taxes are collected in three municipalities: Victoria (2.5 cents per litre), Vancouver (6.0) and Montréal (1.5).
  
  The federal government also taxes gasoline, but the amount is constant across the country: the excise tax is a fixed amount of 10 cents per litre for gasoline and 4 cents per litre for diesel.
  
  
• Sales Tax – The Goods and Services Tax (GST) is calculated at 7% on all fuel products, including gasoline.

Also, some provinces add an additional sales tax on petroleum products.

Factor 2: Competition

Station owners are competing for attention as drivers make their buying decisions from behind the wheel. Unlike other retailers, gas stations advertise their prices on big signs along roadways and at intersections to attract customers.  When a station in an area lowers its price, other stations typically match the price – by lowering what’s called their retail margin*, or the amount they earn from the sale of fuel – to avoid losing you as a customer. At some point, stations are selling at a loss and need to increase prices. At the end of a price war, you frequently will see a uniform and large price increase. Overall, this up and down cycle can sometimes lead to large differences in prices between neighbouring cities or different areas of the same city.

*In 2005, the retail margin averaged 5.0 cents per litre for regular unleaded gasoline.

Factor 3: Amount of fuel sold

The amount of gasoline that can be sold by an individual station will affect its price. A station in a smaller community or neighbourhood with fewer sales may have to charge a higher price to cover its fixed operating costs. Plus, it may not be eligible for volume discounts from gasoline wholesalers. Likewise, if an area has many stations, each has less traffic and fewer sales, which may lead to higher prices. In communities where the station owners are satisfied with how much they sell, consumers tend to see more stable prices and fewer price wars.

Factor 4: Type of and location of gas stations

• Type of stations – More and more, stations are offering car washes, fast food outlets and other services to increase sales. These conveniences draw more customers, which gives the retailer the opportunity to sell other products such as snacks and refreshments. This type of retailing reduces the station’s dependence on gasoline sales to cover operating costs. In fact, so-called “big box” retailers view low-cost gasoline retailing as a way to attract customers in order to increase their in-store sales.
  
  
• Location of stations – Stations that are further away from their suppliers have to pay higher transportation costs. They may pass on these costs to their customers in the form of higher gas prices.