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, 20th Floor
320 Queen Street
Ottawa ON K1A 0L5
[Addressee]
Case number: 151973
June 24, 2013
Dear [Client]:
Subject: EXCISE RULING
[Sales of denatured alcohol]
Thank you for your letter of [mm/dd/yyyy] concerning the application of the Excise Tax Act to denatured alcohol.
All legislative references are to the Excise Tax Act and the regulations therein, unless otherwise specified.
Statement of Facts
We understand the following:
[...][The Corporation] is a Canadian-resident corporation that carries on business as a producer of fuel ethanol, industrial and beverage alcohol and distillers' grain.
[The Corporation] sells, amongst other products, Denatured Alcohol (DA) of the grade DA-2C.
From time-to time, [the Corporation] sells DA-2C to customers in [...][Province X]. [Province X] customers are not registered under the ETA.
In some cases, the DA is delivered to a research/testing facility of a [...] oil and gasoline company in Canada.
In any case, [the Corporation] does not know the ultimate use that will be made of the DA-2C by [Province X] [...][customer] or [to] any research/testing facility.
[The Corporation] is licensed under the Excise Act 2001 (EA 2001).
Ruling Requested
You would like to know if the sales of the Denatured Alcohol of the grade DA-2C by [the Corporation] to [Province X] [customer] or [to] any research/testing facility are subject to excise tax.
Ruling Given
Based on the facts set out above, we rule that the DA-2C is not subject to excise tax when sold by [the Corporation].
This ruling is subject to the qualifications in GST/HST Memorandum 1.4, Goods and Services Tax Rulings. We are bound by this ruling provided that none of the above issues is currently under audit, objection, or appeal, that no future change to the Excise Tax Act, regulations or our interpretative policy affect its validity, and all relevant facts and transactions have been fully disclosed.
Explanation
The production of denatured alcohol (DA), specially denatured alcohol (SDA), spirits ("any material or substance containing more than 0.5% absolute ethyl alcohol by volume, excluding ... denatured alcohol, specially denatured alcohol, ..."), whether it be ethanol (100% alcohol), industrial or beverage alcohol, alcohol produced from grains, are all subject to the Excise Act 2001 (EA 2001) and not subject to the Excise Tax Act (ETA).
Any person who produces spirits, DA or SDA, must possess a spirit licence under the EA 2001. A spirits licensee is the only person authorized to manufacture DA and SDA. A spirits licensee who denatures spirits must ensure that the spirits are denatured in accordance with the prescribed specifications of the Denatured and Specially Denatured Alcohol Regulations (Regulations). Schedule 1 of the Regulations lists all the specified grades of DA and SDA and their chemical compositions.
When a spirits licensee denatures bulk spirits into DA and SDA in accordance with the Regulations, the excise duty imposed on the spirits is relieved.
Unlike SDA, once the spirits are denatured into DA, the EA 2001 does not impose any restrictions on who may possess it, nor is registration required to possess or use DA. However, the EA 2001 states that DA may not be sold, provided for use in, or used in or as a beverage.
In this case, [the Corporation] is manufacturing DA of the grade 2C which means that 2 L to 5 L of petroleum derivative is added in proportion to 100 L of spirits. Once [the Corporation] mixes the petroleum derivative with the spirits to produce DA-2C, the excise duty imposed under the EA 2001 on the spirits is relieved but the DA is still subject to the requirements and restrictions of the EA2001, meaning it can be possessed by anybody, but it may not be sold, provided for use in, or used in or as a beverage.
[The Corporation] must therefore ensure that DA is sold in accordance to those restrictions.
Also, DA is not subject to excise tax under the ETA unless it is subsequently blended to produce gasoline or diesel fuel. In which case, the blended gasoline or diesel fuel would be subject to excise tax in its entirety, including the DA portion. The liability to pay excise tax would therefore fall under the manufacturer of gasoline or diesel fuel.
Please find below the link to the Denatured and Specially Denatured Alcohol Regulations as well as links to publications related to the subject that you might find useful.
http://laws.justice.gc.ca/eng/regulations/SOR-2005-22/index.html
http://www.cra-arc.gc.ca/E/pub/em/edm5-1-1/README.html
http://www.cra-arc.gc.ca/E/pub/em/edm2-3-1/README.html
http://www.cra-arc.gc.ca/tx/tchncl/etsl-eng.html
If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 613 957-4138.
Yours truly,
Nathalie Robitaille
Excise Taxes and Other Levies
Excise Duties and Taxes Division
Excise and GST/HST Rulings Directorate
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