Please note that the following document, although correct at the time of issue, may not represent the current position of the Agency. / Veuillez prendre note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'Agence.
Excise and GST/HST Rulings Directorate
Place de Ville, Tower A, 15th floor
320 Queen Street
Ottawa ON K1A 0L5
XXXXX
XXXXX
XXXXX
Attention: XXXXX
XXXXX
Case Number: 100399R
December 10, 2008
Dear XXXXX:
Subject:
EXCISE INTERPRETATION- AMENDED LETTER
Excise Tax Status of Kerosene
This letter is an amendment to our original letter XXXXX concerning the application of the Excise Tax Act (the "Act") to the status of kerosene.
All legislative references in this amended letter are to the Act and the regulations therein, unless otherwise specified.
Interpretation Requested
The "Interpretation Requested" in your original letter was whether kerosene is subject to excise tax pursuant to subsection 23(1) of the Act?
Interpretation Given
The Interpretation provided in our original response was that kerosene is exempt from excise tax as it does not fall within the charging provision of subsection 23(1) and is not listed in Schedule I to the Act.
Subsequent examination of the subject, specifically with respect to the production of "frac" fluid, necessitates an amendment to our original interpretation.
AMENDED INTERPRETATION
Subsection 23(1) of the Act, subject to subsections (6) to (8), imposes excise tax on items listed in Schedule I to the Act, at the rate specified in the Schedule. Section 9.1 of Schedule I specifies a tax rate of $0.04 per litre on diesel fuel.
Diesel fuel is defined in subsection 2(1) of the Act to include 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. In order for fuel oil, which would include kerosene, not to be subject to the excise tax imposed under subsection 23(1) the fuel oil must be intended for use and actually be used as heating oil.
The facts presented in your original correspondence indicate that the kerosene is purchased to be blended with products such as methanol, gelatine, and sand to produce "frac" fluid. The resulting "frac" fluid is XXXXX.
While kerosene can be used as a heating fuel it is also widely utilized as aviation and diesel fuel. Jurisprudence from The Federal Court of Canadai has held that kerosene falls within the definition of diesel fuel. Consequently, when kerosene is taken for use to produce "frac" fluid, it does not meet the exclusion from tax provided by the definition of diesel fuel, as it is not used as a heating fuel, and would thus be considered a fuel oil and fall within the charging provision of subsection 23(1), and be subject to tax.
It is our understanding that the kerosene purchased by your client to produce "frac" fluid is currently purchased on a tax paid basis, this current practice is correct as the kerosene will not actually be used as heating oil. However, should the kerosene be purchased tax exempt and used to produce "frac" fluid, this would be considered to be a diversion under subsection 23(9.1) of the Act and the tax would be payable by the person who sells the fuel, at the time of delivery to the purchaser, or by the person who appropriates the fuel, at the time of that appropriation.
The foregoing comments represent our general views with respect to the subject matter of your request. These comments are not rulings and, in accordance with the guidelines set out in GST/HST Memorandum 1.4, Goods and Services Tax Rulings, do not bind the Canada Revenue Agency with respect to a particular situation. Future changes to the subsection 23(1), regulations, or our interpretative policy could affect this interpretation.
If you require clarification with respect to any of the issues discussed in this letter, please call me directly at (613) 954-6720.
Yours truly,
Sharon Kendall
Excise Taxes and Other Levies Unit
Excise Duties and Taxes Division
Excise and GST/HST Rulings Directorate
i 1. Suncor Inc. v. The Queen [1995] ETC 2814; International Forest Products Ltd. et al. v. The Queen [1991] ETC 2811
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