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.
XXXXX
XXXXX
XXXXX
Excise and GST/HST Rulings Directorate
Place de Ville, Tower A, 15th floor
320 Queen Street
Ottawa ON K1A 0L5
Case Number: 126897
Business Number: XXXXX
Attention: XXXXX XXXXX
Dear XXXXX:
Subject:
EXCISE INTERPRETATION
the use of diesel fuel as hydraulic fracture fluid in the practice of oil drilling
Thank you for your XXXXX and XXXXX, concerning the use of diesel fuel as hydraulic fracture fluid in the practice of oil drilling.
All legislative references are to the Excise Tax Act (the Act) and the regulations therein, unless otherwise specified.
Interpretation Requested
You would like to know whether the sale of diesel fuel for incorporation into hydraulic fracturing fluid for the purpose of oil drilling qualifies as a sale exempt from the Federal Excise Tax or is eligible for a refund of the Federal Excise Tax.
Interpretation Given
The sale of diesel fuel for incorporation into hydraulic fracturing fluid for the purpose of oil drilling does not qualify as a sale exempt from Federal Excise Tax nor is it eligible for a refund of Federal Excise Tax.
Diesel fuel is defined in subsection 2(1) of the Act to include any fuel oil that is suitable for use in an internal combustion engine of the compression-ignition type, other than any such fuel oil that is intended for use and is actually used as heating oil.
Subsection 68.01(1) of the Act provides for an end-user refund of excise tax paid in respect of diesel fuel where it is used as heating oil or when it is used in the generation of electricity, other than electricity used to operate a motor vehicle. The use of diesel fuel as a component of fracturing fluid is a use neither for the purpose of heating nor for the purpose of generating electricity. Therefore, it fails to fall under either of the two categories listed under Subsection 68.01(1).
Subsection 68.2(1) of the Act provides for a refund of excise tax where tax under Part III or VI has been paid in respect of any goods and subsequently the goods are sold to a purchaser under exempt circumstances. Again, as diesel fuel for use in fracturing fluid does not qualify for an exemption a refund under this provision would not qualify.
Your correspondence suggests that perhaps Schedule III, Part XIII, Subsection 2(a) should apply. However, Schedule III applies only to Sections 15, 23, and 51 of the Act. Section 15 concerns employees of other countries. For Section 23, paragraph 23(8)(b), provides the applicable reference to the Schedule, in this case section 12 or 13 of Part III of Schedule III which deals with "Educational, Technical, Cultural, Religious and Literary," or Section 1 of Part VII of Schedule III "Goods Enumerated in Customs Tariff Items". As neither refers to goods under discussion for this case, relief from consumption or sales tax would not apply.
Subsection 51(1) provides for an exemption from the tax imposed by section 50 on goods mentioned in Schedule III. However, the exemption applies only to those goods "other than" those mentioned in Part XIII of that Schedule that are sold to or imported by persons exempt from consumption or sales tax under subsection 54(2). Subsection 54(2) provides the exemption for small manufacturers or producers from payment of consumption or sales tax.
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 subsection 23(1) 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 Unit
Excise Duties and Taxes Division Division
Excise and GST/HST Rulings Directorate
UNCLASSIFIED
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