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: 134677
June 6, 2011
Dear [Client]:
Subject:
Excise Interpretation
Excise Tax Status of Kerosene for Use in Well Fracturing Process
Thank you for your fax of April 19, 2011 concerning the application of the Excise Tax Act (ETA) to operations of [...] [the Company]. You have asked the Canada Revenue Agency (CRA) to clarify the federal excise tax (FET) implication for kerosene that will be sold for use in the well fracturing process.
Prior to addressing the specific issues raised in your letter, I would like to outline the relevant legislation.
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 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 kerosene 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.
Since the sale of kerosene by [the Company] is for the well fracturing process and not for heating purposes, the kerosene must be sold on an FET tax-paid basis. No refund of the FET is available to either [the Company] or an end-user for using kerosene in the well fracturing process.
Any fuel oil, including kerosene, that is suitable for use in an internal combustion of the compression-ignition type would be subject to FET regardless if the fuel oil is subsequently blended with additives rendering the product non-motive. FET must be paid by the manufacturer or the person who rebranded the fuel oil once the fuel is sold for purposes other than heating.
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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