Please note that the following document, although correct at the time of issue, may not represent the current position of the Canada Revenue Agency. / Veuillez prendre note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'Agence du revenu du Canada.
Excise Duties and Taxes Division
Place de Ville, Tower A, 11th Floor
320 Queen Street
Ottawa ON K1A 0L5
[Addressee]
Case number: 198258
Dear [Client]:
Subject: EXCISE INTERPRETATION
Fuel sold for use as ships’ stores
Thank you for your letter of March 22, 2019, concerning the application of the Excise Tax Act to fuel sold for use as ships’ stores.
All legislative references are to the Excise Tax Act (ETA) and the regulations therein, unless otherwise specified.
INTERPRETATION REQUESTED
You would like to know if the Export Certificate issued under section 273.1 of the ETA provides an exemption from excise tax imposed under Part III of the ETA on fuel sold for use as ships’ stores. You would also like to have further clarification on the application of excise tax on ships’ stores.
INTERPRETATION GIVEN
In order to answer your question, we offer the following explanation of the application of the ETA on ships’ stores.
Export Certificate
First, we would like to clarify that the ETA provides the legislative framework for (1) GST, and (2) the non-GST portion of the Act which covers excise tax on commodities listed in Schedule 1 of the Act, as well as tax on insurance premiums other than marine as per Part I of the ETA. Fuels listed in section 9 of Schedule I, such as diesel, are subject to excise tax.
Section 273.1 of the ETA is listed under Part IX - Goods and Services Tax and therefore strictly applies to GST and not excise tax. Consequently, the Export Certificate issued under section 273.1 for GST purposes, does not provide for any relief of excise tax.
Imposition of Federal Excise Tax (FET) under Part III of the ETA
Subsection 23(1) of Part III of the ETA, subject to subsections (6) to (8), imposes excise tax on items listed in Schedule I, at the rate specified in the Schedule, when goods are imported or are manufactured or produced in Canada and delivered to a purchaser.
Subsection 23(2) states that “where goods are imported, the excise tax imposed by subsection (1) shall be paid in accordance with the provisions of the Customs Act by the importer, owner or other person liable to pay duties under that Act, and where goods are manufactured or produced and sold in Canada, the excise tax shall be payable by the manufacturer or producer at the time of delivery of the goods to the purchaser thereof.”
According to subsection 23(4) of the ETA, excise tax is also imposed on goods mentioned in Schedule I that are sold by a licensed wholesaler, at the time the goods are delivered to the purchaser.
Paragraph 23(6) states that tax is not payable in the case of “goods mentioned in Schedule I that are purchased or imported by a licensed wholesaler for resale by him”.
Thus, when a non-licensed distributor imports or purchases fuel, whether from a licensed manufacturer, licensed wholesaler (licensee) or another non-licensed distributor (distributor), the fuel must be acquired on a tax-paid basis.
Licensees under the ETA are required to remit to the CRA all excise taxes collected on goods listed in Schedule I that are sold and delivered to the purchaser.
Refund to vendor for Fuel Sold for Use as Ships’ Stores
Paragraph 59(3.2)(a) of the ETA provides that the Governor in Council may make regulations designating certain classes of goods as ships’ stores for use on board a conveyance of a prescribed class. The Schedule of the Ships’ Stores Regulations provides a list of conveyances and associated goods that qualify as ships’ stores.
Section 68.17 of the ETA provides that “if tax under Part III has been paid in respect of any goods and a manufacturer, producer, wholesaler, jobber or other dealer has sold the goods for use as ships’ stores, an amount equal to the amount of that tax shall, subject to this Part, be paid to that dealer if that dealer applies for it within two years after that sale of the goods.”
In other words, a licensee or a distributor can claim a refund of excise taxes on fuel sold as ships’ stores.
Deduction of Tax in Lieu of Refund
Subsection 73(1) of the ETA allows for a licensee (not a non-licensed distributor), upon authorization from the CRA, in lieu of applying for a refund under section 68.17 of the ETA, to take a deduction on their FET return for an amount equal to the refund application. In other words, a licensee when submitting their FET return would account for excise tax on fuel sold for use as ships’ stores and take a corresponding deduction on their return for any such fuel. In no instances does the ETA allows for the sale of fuel as ships’ stores on a tax-exempt basis. The licensee must always account for the sale on their return.
Refund to purchaser for fuel used as Ships’ Stores in lieu of refund/deduction to vendor
According to subsection 68.01(2) of the Act, “if tax under this Act has been paid in respect of fuel and no application is made in respect of the fuel by any person under section 68.17 or 70, the Minister may pay an amount equal to the amount of that tax to a purchaser who applies for the payment and who uses the fuel as ships’ stores.”
If the vendor chooses not to claim a refund on fuel sold as ships’ stores and sales the fuel with the excise tax imbedded in the price; the use of the fuel is not known at the time of purchase; or the fuel has multiple uses; it must be purchased on an excise tax-paid basis. Subsection 68.01(2) allows the purchaser to file a refund claim directly with the CRA for FET on the fuel that was actually used for Ships’ Stores. The refund claim must be submitted within two years after the purchase.
Refund claims
All refund claims mentioned above can be made using form N15 Excise Tax Act - Application for Refund/Rebate and must be accompanied by a Canada Border Services Agency’s form K36A Ships’ Stores Declaration and Clearance Certificate, as evidence that the fuel sold qualifies as ships’ stores. However, when a K36A form cannot be obtained, the CRA will accept other alternate documentation. At a minimum, the alternate documentation must include the following information:
- Date
- Name and address of the supplier/purchaser
- Name of the conveyance
- Port where the fuel was taken on board as ships’ stores
- Destination port
- Type of fuel and volume taken on board
- Any other information to substantiate the refund claim
Wholesale licence
In order for a person to qualify for a wholesaler’s licence, one of the requirements is that at least fifty per cent of their sales for the three months immediately preceding their application must have been exempt from excise tax, such as fuel sold to a licensed wholesaler. Please note that fuel sold for use as ships’ stores does not constitute an exempt sale as it is always addressed under the ETA as a refunding provision and therefore cannot be accounted for purposes of a wholesaler’s licence application.
In accordance with the qualifications and guidelines set out in GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service, the interpretation(s) given in this letter, including any additional information, is not a ruling and does not bind the Canada Revenue Agency (CRA) with respect to a particular situation. Future changes to the Act, regulations, or the CRA’s interpretative policy could affect the interpretation(s) or the additional information provided herein.
If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 613-670-7276.
Yours truly,
Dennis Dekleva
Manager, Excise Taxes and Other Levies
Excise Duties and Taxes Division
Excise and GST/HST Rulings Directorate
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