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 Duties and Taxes Division
Place de Ville, Tower A, 20th floor,
320 Queen Street
Ottawa, ON K1A 0L5
July 27, 2011
Dear: [Client]:
Subject:
EXCISE INTERPRETATION
Excise Tax Status - Kerosene and Jet B Aviation Turbine Fuel
Thank you for your letter of May 2, 2011 concerning the application of the Excise Tax Act (ETA) to operations of [...] [the Company].
All legislative references are to the ETA the regulations therein, unless otherwise specified.
Statement of Facts
We understand [the Company] blends two fluids, Kerosene and Jet B Aviation Turbine Fuel to create a "frac" fluid and that this blend is sold to various oil and gas exploration and production companies to assist in downhole stimulation.
You have stated that when blended, these fuels are non combustible and therefore not used as a fuel source, then clarifying this statement by phone conversation, that the mixture is not suitable for engine use, as the blend would ruin any engine in the same way gasoline used in a diesel engine or diesel used in a gasoline engine would ruin it.
Interpretation Requested
You have asked the Canada Revenue Agency (CRA) for an exemption from the Federal Excise Tax (FET) as well as a refund for prior period purchases of Kerosene and Jet B fuel.
GENERAL INFORMATION
Prior to addressing the specific issues raised in your letter, we 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.
Diesel fuel is defined in subsection 2(1) of the Act 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 for use and is actually used as heating oil.
Interpretation Given
Based on the information provided;
The definition of diesel fuel found in the ETA includes any fuel oil as diesel fuel other than those intended for and actually used as heating oils. The definition does not make any distinction between types of fuel oil or for how long a particular fuel oil may be suitable for use or can power an engine without causing damage. Any fuel oil 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. The fact that it may not actually be used for fuel does not disqualify it as a fuel oil.
The CRA considers Kerosene and Jet B to be a fuel oil suitable for use in internal combustion engines of the compression-ignition type. When Kerosene or Jet B fuel is taken for use to produce "frac" fluid, it does not meet the exclusion from tax provided by the definition of diesel fuel, as it is not intended for use and actually used as a heating fuel, and would be considered a fuel oil and fall within the charging provision of subsection 23(1), and be subject to 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 Excise Tax Act, 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 613 952 0048.
Yours sincerely,
Michael Ryder
Softwood and Other Taxes Unit
Excise Duties and Taxes Division
Excise and GST/HST Rulings Directorate
UNCLASSIFIED
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