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
XXXXX
Attention: XXXXX
XXXXX
Case Number: RITS #106691
March 3, 2009
Subject:
_Excise Interpretation
Clarification of the Canada Revenue Agency Generation of Electricity Policy
Dear XXXXX:
Thank you for your letter of XXXXX concerning the application of the Canada Revenue Agency (CRA) generation of electricity policy (EP-003) as it relates to XXXXX. We apologize for the delay in responding.
Prior to responding to the specific questions posed in your letter, I would like to outline the relevant legislation and provisions of the generation of electricity policy.
Imposition of Excise Tax
Subsection 23(1) of the Excise Tax Act (ETA), subject to subsections (6) to (8), imposes excise tax on items listed in Schedule I to the ETA, at the rate specified in the Schedule. Section 9.1 of Schedule I to the ETA specifies a tax rate of $0.04 per litre on diesel fuel.
Exemption of Excise Tax for Generation of Electricity
Under paragraph 23(8)(c) of the ETA, excise tax is not payable, by a licensed fuel manufacturer, in the case of diesel fuel for use in the generation of electricity, except where the electricity generated is primarily for use in the operation of a vehicle. As well, paragraph 68.01(1)(b) provides for a refund to an end-user who purchases excise tax-paid diesel fuel and subsequently uses such fuel to generate electricity, except where the electricity generated is primarily for use in the operation of a vehicle.
While the word 'vehicle' is not defined in the ETA, the CRA's position is that the word 'vehicle', for purposes of the exemption and refund, means carriages or conveyances of all kinds, which are used to carry or transport persons and/or goods.
Generation of Electricity Policy
Under this policy, a refund of excise tax will be available for the diesel fuel used to generate electricity on a vehicle, where the electricity is primarily for "hotel services" and not primarily used in the operation of the vehicle.
Hotel services are not related to the operation of the vehicle. Rather, they are services that provide for the comfort and convenience of the passengers and/or crew. Examples of hotel services are those that provide heat/air conditioning, light, entertainment, and for the preparation of meals.
Only diesel fuel used to generate electricity will be eligible for the exemption. This means that diesel fuel used to propel the vehicle will not be considered as eligible fuel for purposes of the exemption.
Where the electricity generated in a vehicle is primarily for hotel services and not primarily for the operation of the vehicle, 100 percent of the diesel fuel used to generate electricity will be exempt of excise tax. Where the electricity generated in a vehicle is primarily for the operation of the vehicle, the entire amount of diesel fuel used in generating electricity is taxable. Partial excise tax relief is not available for diesel fuel used to electrically power individual pieces of equipment or components of a vehicle.
In order to determine whether the diesel fuel used in the generation of electricity on a vehicle is primarily for hotel services the following calculation shall be used:
1. Determine and exclude, from the total fuel load on a given vehicle, the amount of diesel fuel used to propel the vehicle or consumed for any other non-electrical purposes. The resulting amount will be considered the eligible diesel fuel for exemption purposes.
2. Analyse the electrical draw placed on the vehicle to determine the percentage amount each piece of equipment places on the total draw for hotel services and operational use.
3. The electrical draw for hotel services and operational use for each piece of equipment must be summed to determine the total vehicle usage for hotel services and operational use.
If the total vehicle hotel services electrical draw is greater than 50 percent, 100 percent of the eligible diesel fuel will be exempt of excise tax and eligible for refund.
The onus will be on the applicant to provide the CRA with appropriate documentation to support a refund request. This would include engineering reports, fuel consumption analysis, and any other documents used to calculate the amount of diesel fuel that is consumed for hotel services or operational uses.
I will now respond to the questions raised in your letter in the order presented.
Question #1
"When a truck is waiting to be unloaded at a customer's facility and is left idling to keep the driver warm or cool, would CRA consider all fuel burned during this time span to be performing hotel service functions? Similarly, if a truck is caught in border or highway congestion, can the fleets, if they can prove the location of the vehicle, claim the fuel used during this period exclusively as hotel service fuel?"
The generation of electricity policy does not specifically provide for a refund of excise tax on diesel for idling trucks. For the diesel fuel (i.e. non-propulsion fuel) to be eligible for refund it must be analyzed to determine if at least 50 percent of the fuel is used to generate electricity for hotel services. There is no provision to allow for a refund of excise tax for specific operations of a truck, such as idling.
Question #2
"Due to the nature of the capital cost associated with acquiring idling reduction devices, coupled with the economic downturn in North America, fleets have not invested in such technology. Currently, many fleets use main engine power to heat and cool the cab during a driver's period of rest. Would the CRA accept log book information and or ECM data from the engine to show the truck fuel was being used to provide hotel service?"
The CRA will accept any reasonable documentation in order to determine the percentage of diesel fuel used to generate electricity for hotel services and operational purposes. It should be noted that in other transportation industries, electrical load engineering reports of specific vehicles have been submitted to the CRA to support refund requests under this policy.
Question #3
"There are several devices XXXXX is deploying to reduce truck idling to heat and cool the cab. These devices, such as in-cab heaters or auxiliary power units, draw fuel from the main engine for their operation. XXXXX believes that such devices should qualify for hotel service fuel rebates, and would like to know if the CRA would agree"
As indicated in the generation of electricity policy, the CRA will not provide a refund for individual pieces of equipment or components on a vehicle. An analysis of the generation of electricity for all the equipment or components must be done to determine if at least 50 percent of the eligible diesel fuel is generating electricity for hotel purposes.
Question #4
Many of the idling reduction devices do not have meters to measure usage but may have time meters. What alternatives to usage meters will the CRA accept for audit purposes? Some possibilities include a combination of time meters or driver's logs with the manufacturers' information on the standard fuel consumption for the idling reduction device."
As indicated above, the CRA will accept any reasonable documentation to determine the amount of fuel used to generate electricity. The onus will be on the refund applicant to provide the CRA with appropriate documentation.
Other Comment
XXXXX
XXXXX
If you require clarification with respect to any of the issues addressed in this letter, please contact me directly at (613) 954-5899 or at the above address.
Yours truly,
Darren Weiner
Excise Taxes and Other Levies Unit
Excise Duties and Taxes Division
Excise and GST/HST Rulings Directorate
UNCLASSIFIED
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