Tax and Revenue Administration Fuel Tax Act Information Circular TEFU-2R3

TEFU-2R3 / November 2006

ALBERTA FUEL TAX ACT INFORMATION CIRCULAR - TAX EXEMPT FUEL USERS:
PRESCRIBED REBATE OFF-ROAD PERCENTAGES (PROP)

NOTE: This Information Circular is intended to explain legislation and provide specific information. Every effort has been made to ensure the contents are accurate. However, if a discrepancy should occur in interpretation between this Information Circular and governing legislation, the legislation takes precedence.

• OVERVIEW OF PROP
  • Eligibility
• APPLYING FOR THE FUEL TAX REBATE UNDER PROP
• DOCUMENTATION TO SUPPORT PROP CLAIM
  • Clear Fuel Purchases
  • Fuel Purchase Invoices in Applicant's Name
  • Fuel Purchase Invoices Not in Claimant's Name - Fuel Assigned
  • Carriers and Owner-operators
  • IFTA Vehicles
  • Calculation of Total Litres Consumed in Eligible Off-road Vehicles
  • Unlicensed Equipment - Use of Marked Fuel
• TIME LIMITS AND CLAIM PERIODS
• AUDIT OF PROP CLAIMS
• Appendix A - Prescribed Rebate Off-road Percentages (PROP)
• Appendix B - Fuel Tax Rebate Agreement - PROP

OVERVIEW OF PROP

1. Alberta Finance, Tax and Revenue Administration (TRA) has been actively working with industry to simplify the Tax Exempt Fuel Use (TEFU) claim process. Through consultation, TRA has reached agreement with certain industry sectors on rebate percentages (based on activity and type of vehicle/equipment) and the start date for using the prescribed rebate off-road percentages (PROP). See Appendix A for a detailed list. The prescribed rebate percentages have been set by ministerial orders.
   

2. Discussions are continuing with other industries to develop appropriate PROP percentages. Additional industry groups will be contacted to determine their interest in participating. Any new rebate percentages and effective dates will be announced. Periodically, the existing prescribed rebate percentages will be reviewed with the industry sectors for accuracy and applicability.
   
   
3. Under the PROP process, the claimant no longer prepares surveys, tracks hours in off-road activities, or maintains records of fuel consumption rates. Prescribed rebate percentages are used instead of this type of supporting documentation, but claimants are required keep track of fuel consumed by each activity and vehicle category for claim and audit purposes.

Eligibility

4. To be eligible for PROP, you operate in one or more of the industrial activities listed in Appendix A and complete a registration form (AT341) for Prescribed Rebate Off-road Percentages (PROP). The registration form is available from TRA or from our Internet site at http://www.finance.gov.ab.ca/publications/tax_rebates/fuel/forms/index.html. If you wish to file claims using the Internet, complete the appropriate section of the registration form. On approval of the registration, TRA will send you a letter confirming the effective date and the prescribed rebate percentages for your industry type.
   
   
5. If you use clear fuel off-road in one of the industry sectors use the PROP process for fuel tax rebate purposes for all fuel used on, or after, the implementation date for that sector.
   
   
6. If you are carrying on other commercial off-road activities not currently eligible for PROP, use current filing requirements under the TEFU program (Fuel Tax Rebate Application Form AT342). (See Information Circular TEFU –1, Rebates of Alberta Fuel Tax for details).
   
   
7. If you have activities both in industry sectors eligible for PROP and those that do not qualify for PROP, you may claim rebates under both programs – PROP and TEFU – for the fuel used in the separate activities. When claiming under both programs use the same calendar quarter period to reconcile fuel reported.
   
   
8. If you are an approved PROP claimant and your operations change you are required to file a new registration with TRA. The form must show all activity categories, including the original and new activity categories, and be approved before you submit your claims.

For example: A seismic exploration company with a large vehicle fleet and several branch locations moves its specialty seismic equipment from branch ‘A' to branch ‘B'. Branch ‘A' activity changes to assume a pipeline construction service contract with only bed and picker trucks. When this change occurs, the new branch ‘A' picker and bed trucks are no longer performing eligible seismic off-road activities. Therefore, the claimant submits a new registration form showing the change in vehicle numbers, activities, and estimated fuel usage and receives approval from TRA before claims can be submitted. The fuel consumed by Branch ‘A' picker and bed truck after the change in activity may no longer be claimed under PROP at the Seismic Exploration percentage. Fuel tracked to these vehicles may be claimed under the TEFU program or under a future established PROP activity.

APPLYING FOR THE FUEL TAX REBATE UNDER PROP

9. To apply for a rebate under PROP complete and sign a Prescribed Rebate Off-road Percentages (PROP) Application (Form AT277), following the Instructions for completion of the rebate application (IN-277 Instructions). Once the application is filed, forward your claim application to Tax and Revenue Administration or submit it online at https://extranet.gov.ab.ca/prop/login.jsp . 

   Note: Claims filed online can be processed faster than those sent to TRA by other means.

DOCUMENTATION TO SUPPORT PROP CLAIM

10. If you receive a fuel tax rebate you are required to keep complete and accurate records to support your claim for a rebate under PROP. Retain the records for four years after the end of the year in which the rebate is paid.

Clear fuel Purchases

11. You are not required to submit fuel purchase invoices when filing a claim. However, retain the invoices to support the rebate claim. TRA may request these documents for a specific time period for some claims. Prepare a fuel purchase document or TEFU Schedule A (Form AT343) separately listing each type of Alberta tax-paid fuel purchased. You may use computer-generated forms instead of TRA's pre-printed forms if you provide all the required information in the same format.
    
    
12. List the invoices for each type of fuel chronologically (by date). Invoices for fuel that are not in your/your business name must be listed separately. (See additional information below).

Fuel Purchase Invoices in Applicant's Name

13. Arrange all purchase invoices in chronological (by date) order. Suppliers' statements are also acceptable if they contain all the necessary information described in the next paragraph. Invoices and suppliers' statements requested by TRA will be returned on completion of any rebate application review or audit.
    
    
14. All supporting purchase invoices or suppliers' statements are required to show the name and address of the seller, name of the purchaser, date of the purchase, invoice number, type and quantity of fuel, price paid and that Alberta fuel tax was included in the purchase price. Rebate claims based on invoices or statements that do not meet these requirements will be rejected

Fuel Purchase Invoices Not in Claimant's Name - Fuel Assigned

15. When someone other than the claimant has purchased fuel for which the claimant is seeking a tax rebate, special procedures are to be followed. These are explained below and in further detail in Alberta Fuel Tax Act Special Notice Vol. 1 No. 10, "Tax-Exempt Fuel Users' Rebate Claims - Fuel Used by Owner-Operators".
    
    
16. A claimant may have authorized its employees, shareholders or affiliated companies to purchase fuel on its behalf with the claimant reimbursing the purchaser. If your are such a claimant, provide a signed agreement with the authorized purchaser of the fuel stating the fuel purchased in your name was used in your commercial operations and that the purchaser will not claim a fuel tax rebate for that fuel. Both parties must sign and date the agreement. A sample agreement is attached as Appendix B .

Carriers and Owner-Operators

17. The last purchaser and user of the fuel is eligible to claim the PROP rebate. Where an owner-operator uses fuel purchased from a carrier, it may be more practical for the carrier to file a PROP rebate claim on behalf of all its owner-operators than for each of the owner-operators to file individual PROP claims. If you are a carrier and make a claim for a PROP rebate that includes fuel purchased and used by owner-operators, provide an assignment of the PROP refund entitlement from each owner-operator who purchased and used the fuel included in your claim. The assignment may be made in a clause in the contract between the owner-operator and you or in a separate document.

IFTA Vehicles

18. If you are claiming fuel tax rebates for International Fuel Tax Agreement (IFTA) registered vehicles also used off-road, adjust your PROP rebate claim to reflect the actual fuel consumed in Alberta (noted as AB in the forms) rather than the amount of fuel purchased in Alberta whenever IFTA vehicles are included in your PROP claim.
    
    Obtain the PROP registered vehicle fuel consumption from the party responsible for reporting the vehicle under IFTA. The IFTA return re-allocates fuel and tax between jurisdictions based on where fuel was used. The Alberta IFTA adjustment for fuel used in Alberta is located under AB in column 6 of the IFTA Fuel Type Schedule ( AT2060 ).
    
    You may need to calculate proportionately from your entire fleet the Alberta IFTA adjustment for your PROP registered vehicles. The method you choose to adjust for IFTA registered vehicles forming part of a PROP claim should be representative of the operations for the PROP claimant.

Calculation of Total Litres Consumed in Eligible Off-road Vehicles

19. Using the PROP process, apply for a rebate of fuel tax for off-road fuel consumption:
    
    • based on the litres used and tracked to eligible vehicles,
    • multiplied by the prescribed rebate percentage for the activities and vehicle/equipment categories,
    • the result then multiplied by the applicable tax rate to determine the total amount of the rebate.
      
      
20. For each refund claim TRA may require a complete explanation of the off-road activities and fuel reconciliation/tracking to support the off-road fuel usage. Your explanation should answer the following questions:
    
    
1. What did you do that required some or all of your vehicles to operate off-road? Your vehicles must be performing the prescribed off-road activities to use the related prescribed off-road percentages for rebate.
   
   
2. How many, and what kind of, vehicles and motorized equipment did you operate during the claim period? Which of these used clear (taxed) fuel and operated at least partially off-road?
   
   
3. What fuel – diesel, gasoline or propane – did each of the vehicles and pieces of equipment use? Fuel must be tracked to individual vehicles or to service rig packages.
   
   
4. Total fuel accountability: when vehicles consumed fuel in off-road activities not included under the simplified (PROP) rebate process, how was fuel use tracked and reconciled? Fuel must be tracked and reconciled according to the appropriate vehicles, equipment and activities.
   
   
5. If you are registered for IFTA, did you make the Alberta IFTA adjustment on the PROP claim form fields 27, 28 and 29? Did you make the IFTA fuel adjustment to the same vehicle category that the IFTA vehicles belong? How did you allocate it? The “AB net taxable litres” from the first row (AB) column 6 of the IFTA return should be allocated proportionately in a reasonable and consistent manner to the IFTA vehicles. For example, the net taxable litres can be allocated based on the proportion of fuel volume purchased in Alberta by vehicle. Only the IFTA “net taxable litres” for AB for vehicles being claimed on PROP should be adjusted to/from the “total litres consumed in eligible off-road vehicles” of the vehicles on the rebate application.

Unlicensed Equipment - Use of Marked Fuel

21. To purchase marked fuel, present a tax-exempt fuel user declaration number at the time of purchase. To apply for this exemption number complete a “Declaration of Tax Exempt Fuel User" (Form AT321) and submit it to TRA.
    
    
22. Commercial operations using unlicensed vehicles and equipment are expected to use tax-exempt marked fuel in those vehicles. Fuel tax paid may be rebated for unlicensed vehicles or equipment if, in TRA's opinion, marked fuel was not reasonably available and the consumer has a valid TEFU number.
    
    
23. Marked fuel is considered to be "not reasonably available” only in situations where the claimant has a valid TEFU certificate and number and:
    
    
    1. there is no bulk fuel dealer with marked fuel for sale located within a 50 kilometre radius of the claimant's work site, or
       
       
    2. the fuel is being used in a project where clear fuel must also be used and there is a legal restriction (such as zoning) that prevents the claimant from having more than one storage tank.

TIME LIMITS AND CLAIM PERIODS

24. A complete PROP claim for a fuel tax rebate must be received by TRA not later than three years after the end of the calendar year in which the fuel was purchased.
    
    
25. For administrative purposes amended PROP claims should be filed within 90 days of the date of the letter issued by TRA indicating the disposition of the claim.
    
    
26. Under the Fuel Tax Act objections must be filed within 90 days of the date of the letter issued by TRA describing the disposition of the claim.
    
    
27. File amended PROP claims for time periods covered by previous claims separately, not included with a claim for another period.
    
    
28. TRA staff may contact you for additional information or clarification about the PROP claim. If the requested information is not satisfactory TRA may adjust, disallow, or refer your claim for audit. Payment of all, or part of, a claim does not mean TRA's review has been completed; the claim may undergo an in-depth review by TRA at a later date.

AUDIT OF PROP CLAIMS

29. TRA may conduct audits of PROP claims to ensure you have received the entitled benefit under the program. Ensure your records are available to the auditor if requested. Requested records may include, but not be limited to, the following:

    •  vehicle listings,
    •  vehicle assignment to category/type of operation,
    •  fuel purchase invoices,
    •  fuel allocation per unit,
    •  any other documentation considered necessary to support the claim.

    The onus is on you to demonstrate how your books and records support the off-road fuel rebate claimed under PROP. Retain records and documentation to support PROP claims for four years after the end of the year in which the rebate is paid.

Appendix A - Prescribed Rebate Off-road Percentages (PROP)

To be eligible to use PROP, claimants must be operating in one or more of the industries activities listed and must complete a registration for Prescribed Rebate Off-road Percentages (PROP) (AT341). The implementation date for each section is shown below. The descriptions following the specified sector are examples. If there are any questions, please contact Tax and Revenue Administration.

ALBERTA FUEL TAX ACT

Prescribed Rebate Off-road Percentages (PROP)

1. For those engaged in OIL AND GAS DRILLING:

This includes entities engaged in drilling oil or gas wells for themselves, or others on a contract or fee basis, involving the use of large, heavy-duty stationary drilling rigs capable of drilling several thousand feet into the earth.

Also included is oil and gas well servicing, drilling, and rework, if performed by a mobile service rig and other units as part of the rig package. A mobile service rig is composed of a derrick and draw works and is capable of pulling and running jointed tubulars and conventional/continuous sucker rods. The service rig package may include attendant equipment such as pump trucks, winch trucks and portable doghouse, etc.

The Mobile Service Rig must be permitted on public highways only for short convoy travel distances and spend up to 95 per cent of its total operating time either “off-road” (i.e., not on public roads), stationary or "rigged up" on site. Permits will be confirmed at registration time.

Support vehicles such as crew cabs, pilot trucks, etc. can be included if owned/leased by the drilling company and used to support drilling rig activities.

2. For those engaged in OIL AND GAS GEOPHYSICAL OR SEISMIC EXPLORATION:

To qualify in this industry the entity must be engaged in oil and gas geophysical, geological, and other exploration services using seismic technology for the purpose of locating formations beneath the earth's surface. Included in this category:

•  Shot Hole Drilling (a truck-mounted driller) and the units that support this activity;
•  surveying, permit agents and scouts supporting the exploration activities of sites for seismic activity.

Support vehicles such as crew cabs, pilot trucks etc. can be included, if owned/leased by the company and used to support geophysical or seismic exploration activities.

3. For those engaged in OIL AND GAS PRODUCTION:

This includes entities involved in upstream oilfield activities that generate revenue from the production and sale of clean bitumen/oil sands products, crude oil and/or natural gas. This also comprises field staff such as supervisors, production and process engineers and production operators.

The upstream sector includes the exploration and extraction of crude oil, natural gas and natural gas liquids. This activity involves various methods, such as drilling, steam injection, strip mining and upgrading, used to extract and clean crude oil.

Upstream production facilities include: oil/gas wells, well head equipment, flow line/gathering systems tied into field processing facilities – battery site/compressor stations, crude oil separators and natural gas dehydrators treater/sulfur processing plants, heavy oil projects including steam generation and/or other enhanced recovery methods.

Excluded are the bulk delivery of refined fuel, pipelines, site preparation and the construction of facilities.

4. For those engaged in OIL AND GAS SERVICING:

This includes activities listed below that service and supply within the upstream petroleum industry. Excluded are all snubbing units and stand-along units' cranes, hotshot service, surveying, line cutting, line locating, water drilling, bush clearing, road building, excavating or erecting services and bulk fuel delivery.

5. For persons engaged in FORESTRY:

   This activity does not include access road construction, hotshot service and legal surveying.

* Activities followed by an asterisk (*) must be a sub function of the primary activity of Forestry Management to qualify.

** Log Transport does not include hauling from mills to locations other than cut location.

Appendix B - Fuel Tax Agreement - PROP

APPENDIX B FUEL TAX REBATE AGREEMENT - PROP
(Between Claimant & Purchaser)

1. We hereby agree that the invoices submitted:
____ with this application,*
____ within the period _____________ (start date) to _____________ (finish date),**
____ from the period ______________ (start date) until rescinded,**

(with an "X" select one of the above options, and then complete inserts as necessary)

in the name of _________________________ (initial purchaser's name) represent fuel purchased on behalf of, and consumed in, the operations of ______________________ (claimant's name).

2. _____________________________ (initial purchaser) agrees that it will not use these invoices on a fuel tax rebate claim.

* Only invoices included with this particular application are subject to this particular agreement.

** Any invoices in the name of the Initial Purchaser that are submitted by the Claimant will be subject to this agreement. It is the responsibility of the parties to the agreement to advise Alberta Finance, Tax and Revenue Administration, of any change to, or cancellation of, this agreement prior to the ending date. Without such notification, the agreement in its present form will be binding on both parties.