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Catalogue of Federal, Provincial and Territorial Taxes on Energy Consumption and Transportation in Canada: 1
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Introduction

This paper fulfills one of the commitments made in a document called Sustainable Development Strategy, which was released in December 1997 by the Department of Finance – that is, to develop a catalogue of available information on the structure and level of existing federal, provincial and territorial taxes on energy consumption and transportation in Canada. The first part of the catalogue gives an overview of federal, provincial and territorial taxes on fuel. This part also describes federal and provincial sales taxes and refers to related taxes such as those imposed on heavy automobiles and automobile air conditioners. The second part of the catalogue provides an overview of federal, provincial and territorial direct taxes on transportation in Canada.

This catalogue, together with two previously released reports describing the tax treatment of virgin versus recycled materials^[1] and renewable versus non-renewable resources^[2], will help to build the knowledge base on the structure of taxation in areas pertinent to environmental concerns.

Part 1
Structure and Level of Existing Federal, Provincial and Territorial Taxes on Energy Consumption

1. Fuel Taxes

1.1 Federal Excise Taxes

Products Subject to Tax

The Excise Tax Act imposes taxes on leaded, unleaded and aviation gasoline, and diesel and aviation fuels.

The definition of gasoline includes gasoline type fuels for use in internal combustion engines other than aircraft engines. The definition of diesel fuel includes any fuel oil that is suitable for use in internal combustion engines of the compression-ignition type, other than any such fuel oil that is intended for use and is actually used as heating oil.

These taxes are payable by the manufacturer or producer at the time the goods are delivered to a purchaser or at the time of delivery of the gasoline or diesel fuel to a retail outlet by the producer or manufacturer. Excise taxes on fuel imports are payable by the importer at the time of importation, and exports are exempted.

Where a manufacturer or producer retains for its own use fuels it has manufactured or produced in Canada, the fuels are deemed to have been delivered to the purchaser at the time they are retained, and the sale price for the goods is deemed to be equal to the price that would have been reasonable in the circumstances if the goods had been sold on that date to a person with whom the manufacturer or producer was dealing at arm’s length.

The excise tax on gasoline has been amended many times since it was implemented in 1975. The diesel fuel tax was introduced in 1985. The history of these taxes is described below.

Increases in Excise Tax Rates for Fuels

Excise Tax on Gasoline

The excise tax on gasoline was first announced in the 1975 federal budget. It was initially imposed at a rate of 10¢/gal., but was subsequently reduced to 7¢/gal.

In 1978 the 7¢/gal. tax on gasoline was extended to aviation gasoline.

On January 1, 1979, the 7¢/gal. rate was converted to the equivalent metric rate of 1.5¢/L.

The tax remained at that rate until September 3, 1985, when it was increased by 2¢ to 3.5¢/L.

In 1987 the rate was increased in two stages by a total of 2¢/L to the new rate of 5.5¢/L.

These increases were followed by an additional 1¢/L increase in 1988.

In the 1989 budget an announcement was made that leaded and unleaded gasoline would be taxed at different rates. The rate on unleaded gasoline was increased by 1¢/L to 7.5¢/L, while the rate on leaded gasoline was increased by 2¢/L to 8.5¢/L.

These rates were both increased by an additional 1¢/L in the 1990 budget.

In the 1995 budget the tax was increased by a further 1.5¢/L to the current rates of 10¢/L for unleaded gasoline and aviation gasoline and 11¢/L for leaded gasoline and aviation gasoline.

Excise Tax on Diesel Fuel

The excise tax on diesel fuel was announced in the 1985 budget. It was imposed at the rate of 2¢/L on diesel fuel and aviation fuel.

In 1987 the rate was increased in two stages by a total of 2¢/L to the new rate of 4¢/L.

The excise tax on diesel fuel has not increased since then.

Current Rates:

Exemptions and Rebates

Gasohol Exemption

Where gasoline or aviation gasoline has been blended with alcohol to produce a gasoline-alcohol fuel or an aviation gasoline-alcohol fuel, containing not less than 1.35 per cent alcohol by volume, the excise tax imposed on the gasoline or aviation gasoline is not payable on the portion of the blend that is equal to the percentage by volume of alcohol in the fuel. This exemption applies to ethanol and methanol (alcohols) produced from biomass or renewable feedstock, but does not apply to ethanol or methanol produced from petroleum, natural gas or coal.

Rebate to Certain Users

A rebate of 1.5¢/L of the excise tax imposed on gasoline is payable to a registered charity, Canadian amateur athletic association, or person who has been certified by a medical practitioner as suffering from a permanent impairment to locomotion to such an extent that the use of public transportation by that person would be hazardous. Application must be made within two years of the purchase.

Other Exemptions

Diesel fuel for use in the generation of electricity is exempt except where the electricity so generated is used primarily in the operation of a vehicle.

Aviation gasoline and aviation fuel for use in international flights are exempt.

Fuels for use in vehicles of foreign governments, international organizations and foreign armies are exempted in certain circumstances.

In the October 18, 2000, Economic Statement and Budget Update, the federal government announced, at a cost of $1.3 billion, a one-time relief of $125 per individual or $250 per family to assist low- and modest-income Canadians in dealing with their home heating expenses.

Diversions

Where a fuel is acquired exempt from tax for a particular use, or a rebate or refund is paid in respect of a fuel, and the fuel is diverted to a use for which an exemption, rebate or refund would not have been provided, the person diverting the fuel is required to repay the amount of the exemption, rebate or refund obtained.

1.2  Provincial and Territorial Product Taxes

In addition to these federal taxes, provinces and territories apply direct taxes on fuels, imposed directly on the consumer of fuel. The producer of fuel or the intermediate vendor collects the tax from the end-users. Imports of fuel into a province or territory are subject to tax. Taxes on imported fuel are generally payable by the importer at the time of the supply of the fuel. Exports from the province or territory are exempted from provincial/territorial tax.

The International Fuel Tax Agreement

The International Fuel Tax Agreement (IFTA) is an agreement among American states and Canadian provinces governing the uniform collection and distribution of fuel taxes paid by interjurisdictional motor carriers. All Canadian provinces participate in IFTA, but the territories do not.

The major benefit of being licensed under IFTA is that membership allows the carrier to significantly reduce the paperwork and compliance burden for fuel tax reporting. A carrier that is licensed under IFTA submits only one quarterly fuel tax return to its Administration covering the distance travelled in all IFTA jurisdictions, rather than preparing separate fuel tax reports for each jurisdiction. The Administration then refunds or collects the net fuel tax for all member jurisdictions.

1.2.1  Ontario

Products Subject to Tax

The Gasoline Tax Act imposes tax on gasoline used to generate power by means of internal combustion, on aviation fuel and on propane used in a motor vehicle. In addition, the Fuel Tax Act imposes tax on any other clear fuel used to generate power in a motor vehicle.

Rates:

Refunds, Exemptions and Rebates

The Fuel Tax Act provides exemptions for the following products or class of persons:

Products:

• gasoline, aviation fuel or propane on which the tax imposed by the Gasoline Tax Act has been paid;
• any product that is a solvent, naphtha or thinner and that is obtained from a petroleum origin or from the destructive distillation of coal, wood or wood products or that is produced by fermentation or by synthetic chemical reaction, except when it is blended, compounded or combined with any fuel taxable under the Act;
• any product which is composed wholly of the previous products, unless placed in a licensed motor vehicle;
• bunker fuel;
• ethyl alcohol, methyl alcohol, natural gas, manufactured gas or any product commonly known as liquefied petroleum gas used for the purpose of generating power by internal combustion;
• coloured fuel when used for other than the operation of a motor vehicle licensed under the Highway Traffic Act or operated for the pleasure and recreation of its owner;
• clear fuel delivered into the tanks of a motor vessel operating under the Canada Shipping Act (Canada); and
• clear fuel for use in service vehicles, aircraft or vessels of a visiting force.

Persons:

• diplomats or consulars and their families; and
• Indians, as defined in the Indian Act (Canada).

The Gasoline Tax Act provides exemptions for the same products and class of persons as those exempted under the Fuel Tax Act and, in addition, for the following products:

• distillate;
• products commonly known as diesel fuel, furnace oil, stove oil; and
• certain types of kerosene.

Rebates of taxes imposed on gasoline and fuel are available in the following circumstances:

• gasoline used in farm machinery, in other equipment not requiring a number plate under the Highway Traffic Act and in auxiliary equipment;
• gasoline used in unlicensed equipment for commercial, industrial or institutional purposes; and
• clear fuel used to operate auxiliary equipment where the same tank supplies fuel for the vehicle engine and the auxiliary equipment.

1.2.2  Quebec

Products Subject to Tax

The Fuel Tax Act imposes taxes on gasoline and fuel oil. Gasoline is defined as natural gas and any derivative of petroleum, natural gas or coal having a specific gravity of 0.8017 or less at a temperature of 15.556 degrees Celsius or that is declared by regulation to be gasoline, except natural or manufactured gas used as a fuel and delivered to the purchaser by means of a pipe distribution system. The definition of fuel oil includes any gas or liquid fuel that is not gasoline within the meaning of the Act that can be used for heating or operating any internal combustion engine, except natural gas or manufactured gas used as fuel and delivered to the purchaser by means of a pipe distribution system.

Rates:

Various reductions apply to the tax rates for fuels delivered in designated regions, border regions, peripheral regions, specified regions or regions bordering on peripheral or specified regions.

However, the gasoline tax is increased by 1.5¢/L when the gasoline is delivered in the area of jurisdiction of the Agence métropolitaine de transport [Metropolitan Transportation Agency].

Exemptions and Refunds

The following fuels are exempt from the tax:

• propane gas;
• butane gas and liquefied petroleum gas when used for supplying the heating system of an immovable or used for any purpose other than supplying an internal combustion engine;
• solvents derived from petroleum;
• gasoline intended for chemical use;
• coloured fuel oil used to operate a pumper truck while it is used to fight a forest fire, a commercial vessel, farm machinery, or a fishing boat or when used for any purpose other than supplying an internal combustion engine;
• bunker fuel and crude oil used for supplying the engine of a commercial vessel, any purpose other than supplying an internal combustion engine, or any other use determined by regulation;
• non-coloured fuel oil acquired or used in the cases, for the purposes and on the conditions provided by regulation;
• aviation fuel used on an international flight within the meaning of the regulations; and
• natural gas.

A tax refund is provided for the following uses of fuels:

• gasoline used to supply a farm machinery engine or commercial fishing boat engine;
• gasoline or fuel oil (bunker fuel or crude oil) that was used to supply a stationary engine;
• gasoline or fuel oil that was used as an ingredient in a product manufactured by a person in the course of his principal occupation; and
• gasoline or fuel oil that was used to operate a motor vehicle registered for use exclusively on private land or a private road, or used for farming, forest or mining operations.

Partial or Full Refund of the Tax

A public carrier who meets the requirements is entitled, upon application, to the reimbursement of that proportion of the tax that exceeds 66.67 per cent of the amount paid by him in the year on the fuel that was used to supply the engine of each bus while it was assigned to provide public transport.

An Indian or a Band is entitled, upon application, to the reimbursement of the tax paid by him or it on the fuel purchased for his or its own consumption from a fuel retail outlet operated on a reserve by a retail dealer who meets the requirements of this Act and the Act Respecting Petroleum Products and Equipment.

Other circumstances that are specifically provided for may give rise to a full or partial excise tax refund.

1.2.3  British Columbia

Products Subject to Tax

The Motor Fuel Tax Act imposes taxes on motor fuel products purchased in British Columbia. The tax rates on clear gasoline and diesel fuel vary across the province because additional fuel taxes are imposed in the Greater Vancouver transit service area and the Victoria regional transit service area to fund transit services.

Portions of the provincial fuel tax on clear gasoline and diesel fuel are also dedicated to provide funding for specific government organizations. Currently 1.25¢/L of the clear fuel tax rate is dedicated to the British Columbia Ferry Corporation (BCFC). To help finance major highway transportation projects, 3.25¢/L of the clear fuel tax is dedicated to the BC Transportation Financing Authority (BCTFA).

Rates:

* Includes the 3.25¢/L tax dedicated to the BCTFA and the 1.25¢/L tax dedicated to the BCFC.

Refunds, Exemptions and Rebates

The following are exempt from tax under the Motor Fuel Tax Act:

• fuel brought into the province in a supply tank or in a supplemental supply tank of an aircraft, ship, or motor vehicle and used in the operation of the conveyance;
• 85 per cent alcohol-based fuel, or compressed natural gas used to propel a motor vehicle;
• coloured fuel used by a bona fide farmer to operate a stationary or portable engine, a tractor off highway, a tractor on a highway when used by or on behalf of a farmer for farm purposes, or a family farm truck that is operated for family farm purposes;
• fuel sold on reserve to status Indians or Indian Bands;
• fuel purchased by diplomats under the Consular Tax Exemption Regulations; and
• fuel purchased by visiting forces as defined in the Visiting Forces Act.

Refunds or partial refunds of tax paid are available in the following circumstances:

• tax remitted on fuel sold to natives on reserve or to approved retailers operating on reserve;
• where clear fuel is used for the following purposes that are authorized to use coloured fuel: prescribed vehicles used off highway in the logging and mining industries; and commercial vehicles used off highway to transport drilling rigs or drilling equipment;
• tax paid on fuel purchased by persons with certain physical disabilities or handicaps – up to $400 per year;
• tax paid on fuel used for prescribed purposes to operate the engine of a stationary motor vehicle;
• tax paid on motive fuel for the operation of a private passenger motor vehicle;
• tax paid by domestic carriers on jet fuel used on international flights;
• tax paid by domestic carriers on jet fuel used to transport cargo on international flights;
• tax paid on fuel used in a family farm truck while being operated internationally for the purposes of the family farm if the truck has a family farm truck emblem; and
• tax paid on coloured fuel purchased by persons who qualify as bona fide farmers where the fuel is used for a prescribed purpose.

Lower-taxed coloured fuel (3¢/L) is permitted for operating:

• a ship;
• a tractor when used on other than a highway;
• an industrial machine when used on other than a highway;
• a prescribed type of motor vehicle when used by the logging industry other than on a highway;
• a prescribed type of motor vehicle when used by the mining industry other than on a highway in respect of a mineral mining operation;
• a stationary engine or portable engine;
• a road building machine within a highway project area;
• a commercial motor vehicle when used on other than a highway for the transportation of
• drilling rigs, drilling equipment and supplies,
• fuel, water, well-servicing equipment and supplies, and
• geophysical and seismic equipment and supplies for persons engaged in exploring or drilling for petroleum products;
• a tractor when used on a highway by or on behalf of a farmer for the purposes of his farm;
• a family farm truck being used for family farm purposes if the operator of the family farm truck is carrying a family farm truck emblem issued for that truck;
• a tractor, industrial machine or road building machine when proceeding to or returning from a location where the use of coloured fuel in the vehicle is otherwise authorized; and
• a vehicle that is ordinarily used for a purpose otherwise authorized by the Act in respect of which a temporary operating permit has been issued under the Commercial Transport Act.

1.2.4  Alberta

Products Subject to Tax

The Fuel Tax Act imposes tax on all fuel oil and aviation fuel. Aviation fuel includes both aviation gasoline and jet fuel.

Rates:

Refunds, Exemptions and Rebates

The following are exempt from Alberta’s fuel tax:

• fuel sold on reserve to status Indians or Indian Bands;
• fuel purchased by members of the diplomatic corps;
• fuel purchased by the federal government;
• fuel purchased by visiting forces personnel;
• fuel purchased by railway companies; and
• propane purchased from bottle-fill dispensers.

Tax-exempt marked fuel is authorized for use in:

• vehicles and equipment not requiring a licence and used exclusively off road by commercial off-road operations (eligible commercial off-road operations include: forestry, mining, seismic oil and gas well servicing and drilling, road building, and pipeline construction);
• farm machinery and plated vehicles used by eligible farmers;
• heating buildings; and
• unlicensed off-road equipment used by municipalities, hospitals, and schools.

A rebate is available for the tax paid on gasoline, diesel and propane used for commercial off-road purposes in licensed and unlicensed vehicles. The Minister may also grant a rebate of the tax paid on fuel oil or liquid petroleum gas when used by a city, town, village, or farmer in certain prescribed circumstances.

In addition to being eligible to use tax-exempt marked gasoline and diesel fuel, farmers are entitled to receive a further 6¢/L price reduction on diesel fuel used to generate farm revenue. The additional 6¢/L reduction is provided under the Alberta Farm Fuel Distribution Allowance.

1.2.5 Saskatchewan

Products Subject to Tax

The Fuel Tax Act imposes tax on all fuels which may be used for propelling a motor vehicle.

Rates:

Refunds, Exemptions and Rebates

The following classes of persons or products are exempt from tax:

• propane and marked diesel fuel used exclusively for cooking, heating or lighting purposes and not used in an internal combustion engine;
• compressed natural gas used for any purpose;
• fuel purchased by federal government departments and agencies when purchased with a government credit card;
• any type of fuel that is not manufactured or designed for use in an internal combustion engine;
• marked diesel and propane when purchased by a farmer with a valid fuel tax exemption permit for use in unlicensed farm machinery and vehicles registered as "Class F" vehicles; and
• marked diesel when purchased by a commercial fisherman, logger, or trapper with a valid fuel tax exemption permit for use in unlicensed equipment used in their off-road primary production activities.

Refunds or partial refunds of tax paid are available in the following circumstances:

• tax paid on gasoline purchased by farmers, commercial fishermen, trappers and loggers. Effective January 1, 2001, farmers will be able to purchase bulk gasoline and propane tax-free (the individual making these purchases must have a Fuel Tax Exemption Permit issued by the Farm Fuel Program and must provide the number to the bulk fuel dealer when purchasing fuel). Farmers can still apply for a rebate for tax paid on farm-use fuel purchased at retail outlets;
• tax paid on fuel used as a direct ingredient in a manufacturing process; and
• tax paid by federal government departments or agencies.

A gasoline competition assistance program for gasoline and propane is also available for fuel dealers located near the Alberta and Manitoba borders. The level of assistance is based on the tax differentials between the provinces.

1.2.6  Manitoba

Products Subject to Tax

The Motive Fuel Tax Act and Gasoline Tax Act impose tax on all fuels which may be used for operating any internal combustion engine or for heating.

Rates:

Refunds, Exemptions and Rebates

Exemptions are available for the following classes of persons and products:

• fuel sold on reserve to status Indians or Indian Bands;
• coloured fuel sold to farmers, fishermen, and trappers for prescribed purposes;
• coloured fuel sold to municipalities for firefighting and other municipal works equipment;
• coloured diesel fuel when purchased exclusively for off-road mineral exploration, and when used exclusively in off-highway mining activities, for the transportation of ore from a Manitoba mine to a Manitoba processing centre, or for the recovery of ore in mining operations;
• propane purchased solely to heat farm buildings or the farmer’s residence, or to operate grain dryers on farmland;
• propane purchased by mining companies to dry mineral ore concentrates or for heating replacement air used to ventilate processing plants or mine shafts;
• aviation fuel purchased to transport the cargo component of direct trans-oceanic flights; and
• fuel sold to international ocean-going ships refuelling at Churchill.

Refunds of the tax are available in the following circumstances:

• tax paid on gasoline by trappers in the operation of a snowmobile;
• tax paid on gasoline by a fisherman in the operation of a boat, canoe, or snowmobile for fishing or transporting fish;
• tax paid on gasoline and motive fuel exported in bulk; and
• tax paid on gasoline used in a single seat aircraft designed and used for aerial spraying of farmland.

1.2.7  New Brunswick

Products Subject to Tax

The Gasoline and Motive Fuel Tax Act imposes tax on gasoline and fuels which may be used for operating any internal combustion engine or for heating, but does not tax manufactured gas that is used as a fuel.

Rates:

Refunds, Exemptions and Rebates

The tax can be refunded or exempted if used by farmers, wood producers, fishermen, aquaculturists, silviculturists, registered ships within the meaning of the Canada Shipping Act, in mining or quarrying operations, in the manufacturing of goods, for the heating or lighting of premises, for the heating of domestic use, in the generation of electricity for sale, or by certain classes of persons. Aviation fuel is exempt from tax by refund when used in international commercial flights. First Nations consumers may obtain gasoline and motive fuel exempt from tax from designated retailers on those reserves with which the province has agreements.

1.2.8  Nova Scotia

Products Subject to Tax

The Revenue Act imposes tax on gasoline, diesel and propane fuels.

Rates:

Refunds, Exemptions and Rebates

Exemptions are available for naphtha gasoline, furnace oil and stove oil used for cooking or heating purposes, public works or services, firefighting, commercial fishing, commercial ferries, aquaculture, railway locomotives, heating buildings, commercial farming, production or harvesting of forest products and manufacture or production of goods for sale.

Nova Scotia’s 2000 budget includes a $50 heating oil rebate for low-income people.

Refunds are available for diplomats, visiting forces and all other activities enumerated above, as well as in specific circumstances.

The following activities are excluded from the exemptions or refund provisions: manufacture of ready mix concrete, repair or maintenance of any kind, salvaging of goods or materials, the production of non-renewable resources (e.g., quarrying, mining, oil exploration), and construction, among others.

There are no provisions for the sale of exempt fuel to First Nations persons; however, this matter is presently under discussion.

1.2.9 Prince Edward Island

Products Subject to Tax

The Gasoline Tax Act imposes tax on gasoline and diesel oil used in the operation of internal combustion engines and on aviation fuels.

Rates:

Refunds, Exemptions and Rebates

The P.E.I. government provides fuel tax exemptions by permit only issued pursuant to the Gas Tax Act Regulations. Only the P.E.I. government is exempt without a permit.

No tax is payable on marked gasoline or diesel oil, naphtha gasoline or propane gasoline when not used to operate an internal combustion engine. Marked diesel oil may only be used in heating other than for the operation of an internal combustion engine. Marked gasoline may be used, among others, by the P.E.I. government, for farming operations, for fishing and aquaculture, for manufacturing, for sawmills, for golf courses, for curling, skating and hockey rinks, for grooming snowmobile trails, for the production of fertilizer, lime and feed grains, for commercial forestry, for custom potato-grading operations and for boats used for water tours.

1.2.10  Newfoundland

Products Subject to Tax

The Gasoline Tax Act imposes tax on gasoline and diesel oil used in the operation of internal combustion engines and on aviation fuels.

Rates:

Exemptions are available for a range of commercial activities, including farming purposes, commercial cutting and harvesting of logs, wood chippers and debarkers, fishing plants, stationary engines for landing fish, commercial fishing boats or vessels, cultivation or harvesting of aquatic plants or animals, vessels operating on scheduled routes in international or interprovincial trade, rock crushing, screening aggregates or producing asphalt, fixed or stationary manufacturing equipment, locomotives, generation of electricity, and certain mining activities. Also, furnace fuel, stove oil, kerosene, propane, butane or naphtha grades of gasoline used for a purpose other than the generation of power in an internal combustion engine are exempt from tax. Finally, Status Indians are exempt from the tax, but only on a reserve.

1.2.11  Northwest Territories

Products Subject to Tax

The Petroleum Products Tax Act imposes tax on liquid petroleum products on an ad valorem basis. Tax is calculated as a percentage of a prescribed taxable price. Liquid petroleum products do not include propane, butane or naphtha. The taxable price per litre of gasoline is determined by using the median price obtained by the Minister from periodic sampling of the retail price, excluding the tax, of regular unleaded gasoline in Yellowknife and is prescribed by the Minister. Where there is a change in the taxable price per litre of gasoline from time to time, the revised amount does not come into force until at least seven days after the registration of a regulation prescribing a different taxable price per litre of gasoline.

Rates:

Refunds, Exemptions and Rebates

No tax is payable by hospitals, municipalities or visiting forces, or for the purpose of heating premises, lubricating, laying or sprinkling on roads or streets, or as cleaning fuels or solvents. Petroleum products purchased or imported for the operation of the Distant Early Warning System are also exempt from taxes. Status Indians can purchase fuel tax-free on a reserve.

1.2.12  Nunavut

The Petroleum Products Tax Act of the Northwest Territories has been adopted by Nunavut as their law.

1.2.13 Yukon Territory

Products Subject to Tax

The Fuel Oil Tax Act imposes tax on gasoline and diesel oil used in the operation of internal combustion engines and on aviation fuels.

Rates:

Refunds, Exemptions and Rebates

Exemptions are available for purposes of lubricating, laying or sprinkling on roads or streets, as cleaning fuels or solvents, medical or pharmaceutical purposes, cooking, and space heating of buildings. Also, under the Yukon Fuel Oil Tax Act, certain commercial users of fuel are exempt of tax and may be eligible to obtain tax-exempt permits according to the Yukon Fuel Tax Exempt Permit Program. Exempt categories are mining, trapping, logging, fishing, outfitting, farming, and stationary generators. The Government of Canada and authorized visiting forces are exempt from tax. Finally, no tax is payable on liquefied petroleum gas used for any purposes.

2. Sales Taxes

2.1 Federal Sales Tax (GST/HST)

The goods and services tax (GST) and harmonized sales tax (HST) are imposed by the federal government under the Excise Tax Act. Most provinces impose retail sales taxes on goods and some services sold for consumption in the province. In general, however, these taxes do not apply to motive fuels subject to provincial product taxes. The federal GST/HST applies to energy products in the same manner as for other goods.

Basic Features of the GST/HST

The GST/HST was designed to tax the value of final consumption of goods and services. The GST/HST is a value-added tax (VAT) and, as such, is applied only on the value added at each stage of production. In Canada, this is done by applying the tax to the full value of each good or service, with businesses able to claim input tax credits equal to the tax paid on inputs.

The main difference between a retail sales tax and a VAT is the way in which the tax is levied, i.e., single stage versus multi-stage. In addition, under a retail sales tax very few services are taxable, although in some provinces a limited number of services are taxed.

Definition of the Tax Base

The GST is imposed at a rate of 7 per cent (the HST is 15 per cent) on the supply of property or services provided in the course of commercial activity – vendors must charge tax on the sale of the good or service and are able to recover all tax paid in the course of business operations. The GST/HST applies to the total consideration paid for the supply of all goods or services in Canada, including fuel products taxed under the Excise Tax Act.

Exceptions to the taxable base are either zero-rated or exempt from tax.

Zero-Rated Goods and Services

The sale of the good or service is completely free of tax – there is no tax on the sale and all GST paid on inputs can be recovered through the input tax credit system.

Zero-Rated Categories:

• exports;
• basic groceries;
• prescription drugs;
• medical devices; and
• agricultural and fishing products.

Exempt Goods and Services

No tax is charged on the final sale of a good or service to consumers; however, the supplier is not able to claim input tax credits on purchases of inputs. Therefore, some tax is indirectly passed on to the final consumer.

Exempt Categories:

• financial services;
• health care and dental services;
• education;
• residential rent and housing;
• municipal transit;
• certain activities of charities and non-profit organizations; and
• governments and selected public sector organizations.

The GST/HST also recognizes special circumstances in various sectors of the economy.

Examples of Special Features:

• small business rule;
• housing;
• tourism;
• agriculture inputs; and
• public sector body rebates.

Liability for the Tax

Liability for the tax lies with the purchaser or recipient of the supply. The tax is collected by the vendor on behalf of the Crown.

2.2 Provincial Sales Taxes

2.2.1 Ontario

The Retail Sales Tax Act imposes tax on the purchase of most goods, certain services and insurance premiums in Ontario. The tax must be collected at the time of sale.

The general tax rate is 8 per cent for most goods with the following exceptions:

• 5 per cent for transient accommodation;
• 4 per cent for automobile insurance^[4];
• 10 per cent for admissions over $4.00;
• 10 per cent for alcoholic beverages sold under the authority of a licence issued by the Liquor Licence Board of Ontario under the Liquor Licence Act; and
• 12 per cent for alcoholic beverages sold under the authority of the Liquor Control Board of Ontario under the Liquor Control Act.

Exemptions are available for certain:

• consumer goods and services;
• agricultural goods;
• producers; and
• class of purchaser or vendor (e.g., diplomats, registered Indians).

Retail sales tax does not apply to motive fuels taxed under either the Fuel Tax Act or the Gasoline Tax Act. Exemption from the retail sales tax is also available for the following energy related products:

• coal;
• coke and wood, as defined by the Minister;
• natural gas and manufactured gas, as defined by the Minister;
• electricity for all purposes; and
• ethanol or methanol that is sold and purchased as fuel to generate power by internal combustion in any engine, provided that such fuel is delivered by the vendor thereof into the engine's fuel tank.

Under the Retail Sales Tax Act, a tax for fuel conservation applies to new passenger vehicles using 6.0 or more litres and to sport utility vehicles using 8.0 or more litres of gasoline or diesel fuel per 100 kilometres of highway driving. This tax applies to all new passenger vehicles whether sold, leased or rented in Ontario for a period of more than 30 days. Light trucks and vans, including mini-vans, are exempt.

The tax for fuel conservation is a flat tax that applies according to the following schedule.

This tax is to be included in the fair value for calculating Ontario retail sales tax.

Any person who buys a vehicle outside Ontario and brings it into Ontario for personal use must pay the appropriate tax for fuel conservation and 8 per cent retail sales tax that might apply.

A tax credit for fuel conservation (maximum $100) is available to buyers of new passenger vehicles that use less than 6.0 litres of gasoline or diesel fuel per 100 kilometres of highway driving. The credit does not apply to sport utility vehicles.

Ontario offers a refund of Ontario retail sales tax for vehicles that operate or are converted to operate exclusively on an alternative fuel (electricity, propane, natural gas, ethanol, methanol) within 180 days of purchase. Dual-powered vehicles that operate on one of the alternative fuels listed, but not using a mixture of an alternative fuel and diesel fuel, also qualify for the rebate.

Propane-powered vehicles get a rebate of the tax paid up to a maximum of $759, while vehicles operating on any of the other identified alternative fuels receive a rebate of up to $1,000.

2.2.2 Quebec

In addition to the provincial specific taxes on gasoline, Quebec also has a sales tax calculated on the sale price including excise tax, provincial product tax and the GST. The Québec sales tax (QST) was implemented on July 1, 1992. The QST is a tax on the consumption of goods and services in Quebec, just as the GST is in Canada. Designed to be paid by the ultimate consumer or purchaser, the QST is also, effective August 1, 1995, collected by businesses or vendors (also referred to as registrants) at each stage in the production or marketing of goods and services.

QST is calculated at the rate of 7.5 per cent on supplies of goods and services made in Quebec and is generally payable, like the GST, by the recipient of the supply at the time the consideration is paid or becomes payable. QST also applies to supplies of intangible property and real property.

Registrants collect tax on the value of the consideration for the supply and are entitled to input tax refunds (the equivalent of the GST's input tax credits) for the tax paid on their purchases. Registrants remit the net amount to the government for specific periods. As under the GST, most persons engaged in commercial activities are required to register. This includes, among others, persons who carry on a business in Quebec. All supplies attract QST except for exempt supplies and zero-rated supplies. As under the GST, no input tax credits are available for exempt supplies.

2.2.3 British Columbia

British Columbia’s social service tax applies to all sales and leases of tangible personal property in the province. Tax also applies to taxable services, legal services, parking services within the Vancouver area, telecommunication services and propane.

The general tax rate is 7 per cent, with the exception of passenger vehicles valued at $32,000 or more, alcohol, and multijurisdictional conveyances. The Social Service Tax Act also imposes a $3 environmental levy on each new pneumatic tire purchased in the province for $30 or more. A $5 environmental levy applies to each new lead-acid battery weighing 2 kg or more.

Motive fuels taxed under the Motor Fuel Tax Act are exempt from retail sales tax. In addition to the exemptions provided for gasoline and fuel taxed under the Motor Fuel Tax Act, British Columbia permits a number of exemptions for heating and lighting fuels. In particular, an exemption exists for the following:

• electricity and natural gas when purchased for use in a residential dwelling unit;
• fuel oil when purchased for use in a residential dwelling unit;
• coal and coke; and
• materials and equipment as prescribed by regulation that are used directly or indirectly for the conservation of energy (i.e., thermal insulation materials, double glazed windows, propane conversion kits for automobiles).

A partial refund of tax is provided for new qualifying motor vehicles that are manufactured to operate on alternative fuels. Persons who purchase, or lease for at least one year, a qualifying alternative fuel vehicle other than a passenger bus or hybrid electric vehicle are eligible for a refund of up to $500 of the tax paid on the purchase or lease of that vehicle.

Persons who purchase, or lease for a period of at least one year, a passenger bus that is an alternative fuel vehicle are eligible for a refund of up to $5,000 of the tax paid on the purchase or lease of that vehicle.

In addition, a concession is provided to ensure that alternative fuel vehicles that are passenger vehicles, other than a hybrid electric vehicle, are not subject to a higher rate of tax (luxury tax) solely because the feature of enabling use of an alternative fuel makes them more expensive than a comparable gasoline or diesel model.

2.2.4 Alberta, Yukon Territory, Northwest Territories and Nunavut

These governments do not impose a general retail sales tax.

2.2.5  Saskatchewan

The Provincial Sales Tax Act imposes a 6 per cent sales tax which applies to the purchase, importation or rental of most goods and certain services.

Residential ready-to-move homes sold on a supply-only basis are subject to tax at the rate of 3 per cent on the total selling price, excluding the GST. Homes sold for non-residential purposes are subject to tax at the full rate of 6 per cent.

Fuels taxed under provincial fuel tax statutes are exempt from the provincial retail sales tax. Exemptions from the Provincial Sales Tax Act are also available for the following:

• electricity used for use in a residential dwelling unit or a farm; for heating a building where the heating is produced solely by the electricity; for operating irrigation systems; and for non-profit public curling rinks, skating rinks and pools;
• coal;
• fuel petroleum products used for heating and cooking in homes or buildings and heating in railway rolling stock; and
• electricity and fuel products used in a manufacturing process.

2.2.6  Manitoba

Tax at a rate of 7 per cent is applied to the selling price of tangible personal property sold in the province. Tax also applies to certain services, such as telecommunication services, repair services, and photography services.

Fuels taxed under provincial fuel taxation statutes are exempt from the provincial retail sales tax. Exemptions from the retail sales tax are also available for the following:

• coal, wood, and coke when used for a domestic purpose;
• electricity used for residential use;
• natural gas and propane used for home heating; and
• heating fuel oil.

2.2.7  Prince Edward Island

Prince Edward Island’s sales tax is imposed on all purchasers, users or consumers of most goods and certain specified services. Tax at the rate of 10 per cent applies to the GST-included selling price of taxable goods and services. In addition to the 10 per cent tax, purchasers of automobiles and light trucks at a private sale where neither party to the sale is a GST registrant are required to pay an additional 2.5 per cent tax.

Prince Edward Island’s sales tax does not apply to motive fuels taxed under other taxation statutes. Exemptions are also provided for the following:

• electricity and natural gas when purchased for use in a residential dwelling unit;
• fuel oil when purchased for domestic use; and
• coal and coke.

2.2.8  New Brunswick, Nova Scotia and Newfoundland

The 15 per cent harmonized sales tax (HST) applies in these three provinces. The HST is imposed under the same rules as the GST, and is administered for the provinces by the Canada Customs and Revenue Agency. For information on the application of the tax see Section 2.1 in Part 1.

3. Other Taxes

The federal government also imposes excise taxes on heavy automobiles and automobile air conditioners.

3.1 Heavy Automobiles

The Excise Tax Act imposes an excise tax on heavy automobiles, not including ambulances or hearses. This includes:

• automobiles, other than station wagons and vans designed primarily for use as passenger vehicles, in excess of 2007 kg ("automobile mass limit"); and
• station wagons and vans, designed primarily for use as passenger vehicles, in excess of 2268 kg ("wagon mass limit").

The excise tax on goods manufactured or produced and sold in Canada is payable by the manufacturer or producer at the time of delivery of the goods to the purchaser.

Tax on imports is payable at the time of importation but may be deferred in the case of automobiles imported by persons who manufacture automobiles in Canada until the imported automobiles are sold in Canada by those persons.

The rates are as follows:

1. $30 for the first 45 kg in excess of the automobile or wagon mass limit;
2. $40 for the next 45 kg;
3. $50 for the next 45 kg; and
4. $60 for each additional 45 kg.

The tax does not apply to:

• vehicles sold under conditions that would qualify the sale as a zero-rated supply under the GST;
• vehicles purchased or imported for police or fire-fighting services; and
• vehicles purchased by and for the personal or official use of foreign diplomats in Canada.

3.2 Automobile Air Conditioners

The Excise Tax Act imposes a tax of $100 on air conditioners designed for use in automobiles, station wagons, vans or trucks, whether factory installed or installed separately at or after the point of sale.

The excise tax is payable by the manufacturer or producer at the time of the delivery of the goods to the purchaser, or by the importer when the goods are imported into Canada.

The excise tax on air conditioners installed in imported vehicles is payable at the time of importation or at the time of sale of the vehicle by the manufacturer or importer.

The tax does not apply to:

• an air conditioner installed in an ambulance or hearse;
• an air conditioner sold, or permanently installed in a vehicle that is sold, under conditions that would qualify the sale as a zero-rated supply for the purposes of the GST; and
• an air conditioner purchased, or permanently installed in a vehicle that is purchased, by and for the personal or official use of foreign diplomats in Canada.