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 and GST/HST Rulings Directorate
Place de Ville, Tower A, 15th floor
320 Queen Street
Ottawa ON K1A 0L5
[Addressee]
Case Number: 155936
Business Number: [...]
October 23, 2013
Dear [Client]:
Subject: EXCISE INTERPRETATION
Excise Tax Implications of Certified Clear Diesel Production
Thank you for your letter of August 16, 2013 concerning the application of the Excise Tax Act to [...][the Company]'s certified clear diesel production.
All legislative references are to the Act and the regulations therein, unless otherwise specified.
We understand the following facts:
• [...] ([...][the Company]) has formulated a fuel creation process for the production of certified clear diesel.
• The process involves the combination of standard diesel fuel with water in a [...] ratio using special equipment.
• [the Company] does not have any bulk plants or refinery locations.
• All fuel is physically processed on the sites of [the Company]'s customers.
• [the Company] rents the equipment to their customers and the customers solely purchase and own the input fuel, input ingredients, and the output diesel created.
• Included in the rental cost, [the Company] provides staff to operate and maintain the equipment on the customer's sites.
• [the Company] charges a fee for every litre of output fuel created by the customer.
Interpretation Requested
You would like to know who is liable for the excise tax on the newly created clear diesel fuel and how the excise tax is to be remitted to the Canada Revenue Agency.
Interpretation Given
Based on the information provided, the newly created clear diesel fuel would be subject to federal excise tax at the rate prescribed in Section 9.1 of Schedule I of the Act (currently 4¢ per litre). Further, the federal excise tax would be due at the time of appropriation of the diesel by any of [the Company]'s customers for its own use, as each would be considered to be a "manufacturer or producer" under the Act.
Subsection 2(1) defines "diesel fuel" as "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 the instant case, you state that the "customers of [the Company]...utilize large quantities of diesel fuel every year in their trucks and equipment". As the output diesel fuel would not be used as heating oil, but rather would be used in engines, it would consequently meet the definition of "diesel fuel" under the Act.
Subsection 2(1) further defines "manufacturer or producer" as including "any person who, by himself or through another person acting for him, prepares goods for sale by...blending [or] mixing...the goods". Additionally, Subsection 23(10) - Appropriation by manufacturer or producer - states that "If goods of any class mentioned in Schedule I that were manufactured or produced in Canada are appropriated by the manufacturer or producer for their own use, the goods shall be deemed to have been delivered to a purchaser thereof at the time of the appropriation." Therefore, even though the diesel fuel is being produced for the use of [the Company]'s customers themselves rather than for retail sale, they would still be considered manufacturers or producers and the end product would nevertheless be subject to federal excise tax.
Excise Taxes and Special Levies Memoranda X2-1 - "Licenses" - states that "As a general rule, persons who manufacture goods that are subject to excise tax are required to operate under an excise tax license ("E" license) when the sales value of the goods is in excess of $50,000 per calendar year. Persons whose annual sales of taxable goods are less than $50,000 qualify as small manufacturers and have the option to apply for a license." Given the numbers quoted in your letter, specifically that "each piece of equipment can output...36,000,000 litres" of diesel per year, it is clear that the $50,000 would easily be eclipsed. Accordingly, [the Company]'s customers would be required to apply for a manufacturer's "E" license.
Finally, Subsection 23(7) states that "The tax imposed...is not payable in the case of goods that are purchased...by a manufacturer licensed for the purposes of this Part...that are to be incorporated into and form a constituent or component part of an article or product that is subject to excise tax under this Act, if the tax on the article or product has not yet been levied under this section...". What this means is that initially, federal excise tax would not be payable by [the Company]'s customers (manufacturers or producers) upon the purchase of the regular diesel to be used as a component in the end product, which itself would be subject to the federal excise tax upon 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 Excise Tax Act, 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) 957-1140.
Yours truly,
Neil Varan
Excise Taxes and Other Levies Unit
Excise Duties and Taxes Division
Excise and GST/HST Rulings Directorate
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