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: 136938
September 21, 2011
Dear [Client]:
Subject:
EXCISE INTERPRETATION
Application of the Excise Tax Act to refund claims for diesel fuel used to generate electricity
Thank you for your letter of May 3, 2011 concerning the application of the excise tax to the proposed submission by [...] [ABC Companies] of refund claims for diesel fuel used to generate electricity in construction projects.
Statement of Facts
We understand several of [ABC Companies] are active in large construction projects across the country.
These projects are in most instances managed by engineering, procurement, and construction management companies (EPCMs), on behalf of clients.
The subcontractors hired by these EPCMs often use diesel heaters, welders, light towers and generators to complete their jobs. In order for the sub-contractors to pass the detailed charges with their mark-ups, including fuel and equipment rentals, on to their EPCM clients, the contracts may be drawn up as reimbursable, or cost plus.
You stated that it is also possible the EPCM clients themselves may have reimbursable or cost plus contracts with the ultimate customers, who may also receive detailed billings of fuel and equipment rental charges on a cost plus basis, from the former. Those detailed charges may (in the case of cost plus contracts with the EPCMs) or may not be passed on directly (not in the case of lump sum contracts) to the ultimate end customers.
In addition, you question [...] the federal excise tax (FET) rebate [...].
Ruling Requested
You would like to know who the ultimate end-user and purchaser of the fuel is, for purposes of the FET for rebate on fuel purchases, in the scenarios above described.
Interpretation Given
You have requested a ruling; however, we are unable to reach a conclusion from the information you have submitted. Paragraph 20 of the GST/HST Memoranda Series Chapter 1.4, Goods and Services Tax Rulings indicates that a request for a ruling may be refused when a matter on which a determination is requested is primarily one of fact, and the circumstances are such that all the pertinent facts cannot be established at the time of the request.
In addition, all applications for FET rebates on fuel purchases through submission of Form N15 are processed through our Audit Divisions; and rulings are not issued on matters subject to review by our auditors. We are pleased to provide you instead with the following interpretation regarding the relevant provisions of Part III of the ETA.
The matter object of your inquiry was posed to the CRA [...] in [mm/yyyy].
Because the applicable legislation relative to the FET was amended in March 2007, [...] requested our assistance to interpret and apply the provision whereby: "A refund of excise tax will be available to an end-user who has purchased excise tax-paid diesel fuel and uses the diesel fuel to generate electricity, except if the electricity so generated is used primarily in the operation of a vehicle." Our ETSL 65, Notice to all Tax Practitioners, Licensed Manufacturers and Wholesalers, Fuel Distributors and Filers of End-User Refunds under the Excise Tax Act issued in March 2007 can be found at: http://www.cra-arc.gc.ca/E/pub/et/etsl65/etsl65-e.html.
[...]. Tax practitioners were unclear whether the end-user of fuel is eligible to claim a FET refund in situations where, for example, A-co purchases fuel and then re-bills the fuel to B-co, who then consumes it. Does the B-co stand as the entitled refund applicant?
Another description of the above situation would be where tax-paid diesel has been purchased by a drilling company ("Drill-co") and then re-billed to a resource company ("Resource-co"). The fuel is consumed in the drilling of the Resource-co's well and is an actual cost of the Resource-co. The fuel-vendor's invoice that indicates FET treatment, though, is in the name of the Drill-co.
While there may be a risk of duplication of refund by both parties claiming refund on the same fuel, TEI believed that the entitlement to refund correctly ascribes to the end-user, Resource-co.
The CRA addressed the question [...] as follows:
Under section 68.01, a FET end-user refund is available for diesel fuel to a purchaser if:
• the purchaser uses FET tax-paid diesel fuel as heating oil; or
• the purchaser uses FET tax-paid diesel fuel to generate electricity, except where the electricity so generated is used primarily in the operation of a vehicle.
Example #1
For instance, A-co purchases fuel and then re-bills (sells) the fuel to a B-co, who then consumes it. Does B-co stand as the entitled refund applicant?
In this example, B-co would be entitled to file an end-user refund user section 68.01, provided they purchased and used the fuel under an exempt condition. Under such circumstances, A-co is not entitled to a refund.
Example #2
Tax-paid diesel has been purchased by a drilling company ("Drill-co") and then re-billed to a resource company ("Resource-co"). The fuel is consumed in the drilling of the Resource co's well and is an actual cost of the Resource-co, although Drill-co is actually consuming (using) the fuel. The fuel-vendor's invoice that indicates FET treatment, though, is in the name of Drill-co.
In this example, we are assuming that Drill-co is consuming the diesel fuel for either a heating or for a generation of electricity purpose in order to operate a drilling rig. To qualify for a refund under section 68.01, a purchaser must use FET tax-paid diesel fuel as heating oil or to generate electricity. As such, Drill-co would be entitled to file an end-user refund since they purchased and used the diesel fuel. Resource-co would not qualify for an end-user refund. Although Drill-co re-bills the Resource-co for the diesel fuel, Resource-co did not use the diesel fuel as required under section 68.01. Resource-co would need to have an arrangement with Drilling-co in order to receive credit for any FET refund that Drilling-co would be entitled to.
In summary, the "end-user" refund legislation for generation of electricity, section 68.01(1)(b), requires that in order to qualify for a refund, a person must both purchase and use the fuel. If the end-user is not both the purchaser and user of the diesel, the refund would be denied.
If you require clarification with respect to the issues discussed in this letter, please call me directly at 613-957-4136.
Yours truly,
Margaret N. Ashby, LLM
Softwood Lumber and Other Taxes Unit
Excise Duties and Taxes Division
Excise and GST/HST Rulings Directorate
UNCLASSIFIED
Email this Content