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.
[Addressee]
Excise and GST/HST Rulings Directorate
Place de Ville, Tower A, 15th floor
320 Queen Street
Ottawa ON K1A 0L5
Case Number: 133714
April 11, 2011
Dear [Client]:
Subject:
Excise Interpretation
Sale of Kerosene for use in the Well Fracturing Process
Thank you for your fax of March 11, 2011 and subsequent telephone conversation of April 6, 2011 concerning the application of the Excise Tax Act (ETA) to the operations of [...] [(the Company)]. You have asked the Canada Revenue Agency (CRA) to clarify the federal excise tax (FET) implications on the rebranding of jet fuel to kerosene that will be sold for use in the oil/gas well fracturing process.
Our understanding of the facts are as follows:
1. [The Company] is a fuel distributor located in [...] [Province X] and does not hold an excise tax licence.
2. Due to the lack of kerosene available from [...] [City 1] area refineries, [the Company] would like to rebrand Jet A aviation fuel into kerosene.
3. The rebranded kerosene will not be sold for heating purposes. Rather, the fuel will be sold to the oil and gas drilling industry for use in the well fracturing process.
Subsection 23(1) of the 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 the rate of tax of $0.04 cents per litre for diesel and aviation fuel.
Subsection 2(1) of the ETA defines diesel fuel to include 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 and actually used as heating oil. As such, when diesel fuel in intended and actually used as heating oil, it will not be subject to the FET. The CRA considers Jet A aviation/kerosene fuel to be a fuel oil suitable for use in internal combustion engines of the compression-ignition type.
The CRA will allow kerosene to be entered, from the refinery into the distribution system, exempt of FET provided the fuel is intended to be sold as heating oil. The kerosene will remain exempt of tax when sold by a distributor to an end-user as long as the fuel will actually be used as heating oil. For this reason, kerosene must be sold on a FET tax-paid basis, by a distributor to an end-user, when the fuel is not being used for heating purposes.
[The Company] intends to rebrand Jet A aviation fuel into kerosene for the use in the oil/gas well fracturing process. In this case, the kerosene will not be used as heating oil. For this reason, [the Company] must sell the rebranded kerosene on a FET tax-paid basis. No refund of the FET will be available on the rebrand.
If you require clarification with respect to any of the issues discussed in this letter, please call me directly at (613) 954-5899.
Yours truly,
Darren Weiner
Softwood Lumber and Other Taxes Unit
Excise Duties and Taxes Division
Excise and GST/HST Rulings Directorate
UNCLASSIFIED
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