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 StreetOttawa, ON K1A 0L5
[Addressee]
Case Number 145343
August 2, 2012
Dear [Client]:
Subject: EXCISE INTERPRETATION
ETSL76 and Section 48 Reconsideration Request
Thank you for your letter of [mm/dd/yyyy], concerning the application of Section 48 of the Excise Tax Act (ETA) as discussed in the Canada Revenue Agency (CRA) Notice ETSL76; Notice to Excise Tax Licensees in the Canadian Fuel Industry Sector (Notice). I appreciate the additional background information and suggestions you have provided subsequent to our brief discussion. Input is appreciated as the CRA encourages suggestions from industry whose self regulation and compliance are important.
Your letter is also encouraging as your comments, as well as information provided by the Excise Duties and Taxes Division, indicate that ongoing and forthright dialogue continues between […] and the CRA. […].
Following are some additional comments with respect to your letter and a brief summary of the CRA’s position regarding the Notice and Section 48.
By way of clarification, the Notice is not an advisory of a new policy; rather, it is an advisory to ETA licensees in the Canadian fuel industry, outlining concerns that the existing administrative guidelines for Section 48 authorizations for the purchase of goods tax exempt but not for remanufacture, were not being consistently applied. The Notice reprinted the administrative guidelines for Section 48 authorizations that have been in place since the late 1980s, and were previously published in 1990.
It had come to our attention that a number of licensees and non-licensees were not applying section 48 in compliance with the guidelines. Moreover, several complaints were received from qualifying fuel producers about firms that did not legitimately qualify for Section 48 authorizations.
From an industry standpoint, it is important to consider that the Notice established a grace period until March 1, 2012, to permit licensees to ensure that inventories on hand are accounted for properly and that if need be, goods are being purchased on a tax-paid basis.
In general terms, the publishing of this Notice was as a result of the CRA’s role in ensuring compliance with existing legislation, regulations and administrative policy. Part III of the ETA imposes an excise tax on petroleum fuel products whether imported or manufactured in Canada. Manufacturers or producers, including refiners, are required to be licensed under the ETA, as well as account for and remit excise tax on sales of goods. Excise tax is payable on petroleum products at the time of sale, deemed to be upon delivery by or on behalf of the licensee.
The licence granted to manufacturers or producers, often referred to as an “E” Licence, allows holders to purchase petroleum fuel products excise tax exempt if the goods are for further manufacture. Where excise taxable goods are purchased for resale and not for further manufacture, the purchases must be on an excise tax-paid basis. Also, just to clarify, the CRA considers that “swaps and exchanges” should be treated as purchases and sales.
Section 48 of the ETA allows licensees to apply to the CRA to be considered as manufacturers of “similar goods” sold in conjunction with the goods they manufacture. This enables the similar items to be purchased excise tax-exempt, which as indicated in your letter, is advantageous for the licensee for a number of reasons.
As mentioned previously, the Notice is neither a new nor amended policy of the CRA. Interestingly, section 16 of Memorandum ET105 published August 1, 1978, discusses the subject of “similar goods” stating; “permission may be granted only when sales of the goods obtained for resale are small in relation to total sales of goods of the licensee’s manufacture and the goods are either for sale with goods of the licensee’s manufacture at an all-inclusive price or are identical to and intended to round out the range, sizes or colours of regular lines manufactured.” The administrative guidelines, published in 1990 and reprinted in ETSL76, were an evolution of this policy developed to maintain uniformity and equity in the administration of Section 48.
I note with interest, your suggestion that reconsideration be given to the administrative policy and an expansion of the criteria for Section 48 authorization to include […] regardless of the percentage of sales volume from their own production. In that regard, I have been informed that my officials had previously expressed their willingness to accept industry proposals aimed at reviewing Section 48 of the Excise Tax Act, and possibly approaching the Department of Finance, with a view to modernizing or amending that section of the law. Of course, once all proposals are received from industry, the CRA will review and share them with the petroleum industry and its associations to ensure that a reasonable consensus exists to proceed in approaching Finance.
The CRA has committed to the review and potential development of new and more innovative approaches to the Section 48 administrative provisions, including possible amendments to the existing guidelines that are consistent with the spirit of the Act. In the meantime, however, the CRA will continue with the measures announced in ETSL76 to ensure consistency with the existing guidelines that have been in place for the last 30 years.
In summary, I would again like to thank you for your letter and input as to the administration of Section 48 of the ETA. Your letter has been made available to the Excise Taxes and Other Levies Unit of the Excise Duties and Taxes Division as valuable input to our ongoing dialog and future considerations.
If you require clarification with respect to any of the issues discussed in this letter, please contact Mr. Duncan Jones, Manager, Excise Duties and Other Levies, at 613-957-8154.
Yours truly,
Danielle Laflèche
Director General
Excise and GST/HST Rulings Directorate
Canada Revenue Agency
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