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: 125981
January 5, 2011
Dear [Client]:
Subject:
GST/HST RULING
Application of HST to Fees for International Fuel Tax Agreement (IFTA) Decals and The Reimbursement of Costs of Coloured Dye
Thank you for your email of [mm/dd/yyyy], concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to IFTA decal fees and to the reimbursement of the costs of coloured dye authorized under the Fuel Tax Act.
HST applies at the rate of 15% in Nova Scotia, 13% in Ontario, New Brunswick, and Newfoundland and Labrador, and 12% in British Columbia. GST applies at the rate of 5% in the remaining provinces and territories.
Statement of Facts
We understand the following to be the facts of this case:
1. The International Fuel Tax Agreement (IFTA) is an agreement that sets forth a single system for administering, collecting and distributing fuel taxes from inter-jurisdictional carriers (carriers), based on where fuel is consumed. The 10 Canadian provinces are signatories to and members of the IFTA and all jurisdictions in the United States are signatories except for Alaska, Hawaii and the District of Columbia.
2. IFTA applies to Ontario based carriers (i.e. eligible commercial motor carriers operating between Ontario and any other province or member state).
3. Under the IFTA, the carrier registers with its base jurisdiction and receives a licence which allows it to travel in its base jurisdiction and all other IFTA jurisdictions. Carriers file a single quarterly motive fuel tax return and payment to their base jurisdiction for travel in other member jurisdictions. Each base jurisdiction processes the tax returns and distributes taxes to other jurisdictions based on where the fuel was consumed. Each base jurisdiction also audits its carriers on its own behalf and on behalf of other members.
IFTA Articles of Agreement
4. The IFTA governing documents include: the Articles of Agreement; the Procedures Manual and Audit Manual. All members of the IFTA sign the Articles of Agreement (IFTA) that sets out a single system of administering, collecting and distributing fuel taxes from carriers, based on where fuel is consumed.
5. Article R305 of the IFTA provides "Any person based in a member jurisdiction operating a qualified motor vehicle(s) in two or more member jurisdictions is required to licence under [the IFTA]" except where they choose to purchase a single trip permit on a trip-by-trip basis (i.e. an Ontario trip registration certificate) as a means of accounting for the fuel tax.
6. Article R315 of the IFTA requires that each carrier file an application for licencing with the base jurisdiction.
7. Article R605 of the IFTA states: "The base jurisdiction shall issue a licence and two decals per vehicle. The licence and decals shall qualify the licencee to operate in all member jurisdictions without further licencing or identification requirements in regard to motor fuel use taxes."
8. Article 355 of the IFTA provides that "the base jurisdiction may collect its statutorily authorized fees for issuance of the licence and decals to licencees based on its jurisdiction." Article 345 of the IFTA provides that "A renewal licence and decals for the following calendar year will be issued upon application if the licence is not revoked or cancelled, all tax returns have been filed, and all motor fuels use taxes, penalties and interest due have been paid and the applicant is in compliance with the base jurisdiction's laws."
9. Article R420 of the IFTA provides that "Failure to comply with all applicable provisions of the [IFTA] shall be grounds for suspension or revocation of the licence issued under the [IFTA]."
The Fuel Tax Act
10. The Fuel Tax Act, R.S.O. 1990, Ch. F.35 (FTA) provides for the regulation of Ontario fuel taxes, including the regulation of inter-jurisdictional carriers (carrier) and the regulation of coloured fuel destined for export from Canada.
11. Section 1 of the FTA defines a number of terms for purposes of the FTA, including the following:
"clear fuel" means fuel that contains no dye or less dye that the minimum quantity established by the Minister;
"collector" means a person designated as a collector by the Minister under section 3;
"coloured fuel" means fuel which contains dye in a quantity greater than or equal to the amount established by the Minister;
"colouring" or "colour" mean, in respect of fuel, the addition to the fuel of dye in the proportion established by the Minister by a person authorized to do so by the Minister;
"distributor" means a person who sells special products only and who is designated as a distributor by the Minister;
"dye" means chemical substances that are approved by the Minister for the purpose of blending with fuel to make coloured fuel;
"dye-point" means a terminal designated by the Minister for the purpose of colouring fuel or a facility that meets the requirements established by the [Minister] for colouring fuel at the facility;
"exporter" means a person who takes or causes to be taken out of Ontario fuel in bulk and who is accountable for the tax on the fuel to the jurisdiction into which the fuel is taken;
"inter-jurisdictional carrier" means a person who,
(a) operates one or more inter-jurisdictional vehicles inside and outside Ontario to which number plates are attached as required by the Highway Traffic Act, or
(b) engages in the commercial transportation of goods or passengers inside and outside Ontario and operates for that purpose railway equipment on rails in connection with and as part of a public transportation system;"
"Minister" means the Minister of Finance**; and
"registered dyer" means a collector or distributor who holds a certificate of registration under the Act as a dyer;
"special products" means products prescribed by the Minister as special products."
**[...] [The] Minister of Revenue now has the authority to administer the FTA. All references to the Minister in this outline refer to the Minister of Revenue.
12. Section 2 of the FTA provides for every purchaser of clear fuel to pay fuel tax to the Minister at the rate set out in that section. By contrast, under the FTA, coloured fuel can be purchased exempt from fuel tax to be used for non-taxable purposes only.
13. Subsections 2(6) and (7) of the FTA provide that "Coloured fuel may be used for any purpose prescribed by the Minister for the use of coloured fuel and for all purposes other than generating power in a motor vehicle or" in the fuel tank of: 1) a motor vehicle to which a number plate is attached as required under the Highway Traffic Act or 2) a motor vehicle or vessel operated principally for the pleasure or recreation of its owner or operator.
14. Section 3 of the FTA states: "The Minister may designate in writing as a collector a person whose sales of clear fuel at wholesale during the twelve-month period before the designation are not less than 51 per cent by volume of the person's total sales of clear fuel." Subsection 3(6) of the FTA states: "Every collector is an agent of the Minister for the purpose of collecting and remitting the tax imposed by this Act."
15. Under section 3.0.1 of the FTA, "The Minister may designate in writing as a distributor a person who sells only special products." Subsection 3.0.1(5) of the FTA provides that "Every distributor is an agent of the Minister for the purpose of collecting and remitting the tax imposed by [the FTA]."
16. Subsection 3.1 of the FTA states: "Every collector or distributor shall collect the tax imposed by [the FTA] from every person to whom he, she or it sells [clear] fuel."
17. Under subsection 3.2(1) of the FTA, "Every collector or distributor shall remit to the Minister ... the tax collectable by him, her or it." Subsection 3.2(2) states: "Every collector or distributor shall remit to the Minister ... the tax imposed by [the FTA] on fuel in respect of which he, she or it is the purchaser."
18. Subsection 4.13(1) of the FTA states: "No person shall act as a [carrier] unless the person is registered with the Minister."
19. Under ss. 4.13(2) of the FTA, a carrier shall apply for an annual registration certificate or an Ontario trip registration certificate as prescribed by the [Minister].
20. Under ss. 4.13(3) of the FTA, a carrier that applies using the proper form under subsection 4.13(2) is entitled to a registration certificate upon payment of the fees established by the Minister.
21. Under ss. 4.13(4) of the FTA, every registered carrier is entitled to be issued registration decals upon application in the proper form and payment of the fees established by the Minister.
22. Under subsection 4.16(1) of the FTA, any person who contravenes subsections 4.13(1) or 4.13(2) is guilty of an offence. Under subsection 4.16(3) every operator of a motor vehicle that fails to affix a valid registration decal to the vehicle is guilty of an offence.
23. Subsection 4.17(1) of the FTA provides that "No person shall colour fuel unless the person is registered by the Minister as a dyer." Subsections 4.17(2) and 4.17(2.1) of the FTA provides that any collector or distributor who proposes to colour fuel is entitled to apply to be registered as a dyer and be issued a certificate of registration if certain conditions are met.
24. Under subsection 4.18(2) of the FTA, "Every registered dyer who possesses dye is deemed to hold the dye in trust for Her Majesty in right of Ontario for use in accordance with [the FTA] and the regulations and is accountable for all dye at the time and in the manner provided for by [the FTA] and the regulations."
25. Subsection 4.18(4) of the FTA states: "Every registered dyer shall use only dye provided by the Minister and shall do so in the manner, with the equipment and using the methods and procedures required under [the FTA] to colour fuel."
26. Subsection 4.18(4.1) of the FTA states: "Despite subsection (4), a registered dyer may do the following things to fuel destined for export from Canada, if the registered dyer obtains the prior written consent of the Minister to do so:
1. Manually blend dye with the fuel.
2. Blend dye with the fuel using a different quantity of dye from the quantity established by the Minister for the purposes of the definition of "colouring."
27. Pursuant to subsection 4.18(4.2) of the FTA, the Minister may give consent for purposes of subsection 4.18(4.1) and may impose conditions on the registered dyer including "requiring the dyer to reimburse the Minister for the cost of the dye used to colour the fuel destined for export from Canada."
28. Subsection 4.18(4.3) of the FTA states: "If the registered dyer is required to reimburse the Minister for the cost of dye as described in subsection (4.2), the amount the dyer is required to pay shall be deemed to be tax payable under this Act by the dyer and shall be paid to the Minister on or before the 25th day of the month following the month in which the dyer uses the dye."
29. Subsection 4.19(3) of the FTA provides that every registered dyer that contravenes a condition or limitation on its certificate of registration is guilty of an offence and on conviction is liable to a fine.
30. Subsection 10(4.1) of the FTA states: "Every person who fails to remit with their [monthly fuel tax] return ... the tax collectable or the tax payable, ... by the person shall pay to the Minister, when assessed therefore, a penalty equal to 10 per cent of the tax collectable or 5 per cent of the tax payable, ...by the person for the period covered by the return ..."
31. Pursuant to subsection 13(4) of the FTA, "The Minister may at any time the Minister considers reasonable, assess against a collector or distributor the cost of any dye provided in accordance with [the FTA] or the regulations for which the collector or distributor cannot account when required to do so and for any dye which is misused by reason of its mixture with fuel in quantities other than the quantities established by the Minister."
32. Subsection 25(1) of the FTA states: "Every person is guilty of an offence who,
...
(a) wilfully, in any manner, evades or attempts to evade compliance with [the FTA] or payment of taxes imposed by [the FTA]; ..."
33. Subsection 28.2 of the FTA states: "The Minister may enter into a reciprocal agreement with any other jurisdictions, under which the Minister may exempt from some or all of the provisions of [the FTA] persons who use in Ontario clear fuel which a tax has been paid to the other jurisdiction, on condition that the other jurisdiction grants equivalent privileges with respect to motor fuel that is used there and on which a tax has been paid to Ontario." Subsection 28.2(2) provides that the Minister may join the IFTA. Subsection 28.2(5) provides that "The Lieutenant Governor in Council may make regulations that are necessary or advisable to implement an agreement entered into under this section."
34. Subsection 29(1) of the FTA provides authority for the Lieutenant Governor in Council to make regulations, in part, "respecting any matter necessary or advisable to carry out effectively the intent and purpose of this Act."
35. Subsection 29(2) of the FTA provides that "The Minister may make regulations ... (g) prescribing conditions and restrictions that shall apply in respect of inter-jurisdictional carriers, ... registered dyers,... and the method of paying the tax imposed by this Act to be followed by all inter-jurisdictional carriers; [and] (h) governing the issuance and use of registration decals..."
36. Subsection 30(2) of the FTA states: "The Minister may establish and charge fees for anything that the Minister or the Ministry is required or authorized to do under [the FTA]."
Ontario Regulation 22/97 - IFTA (IFTA Reg)
37. The IFTA Reg was made pursuant to subsection 29(2) of the FTA. Section 1 of the IFTA Reg defines:
"foreign licencee" as a person described in clause (a) of the definition of "inter-jurisdictional carrier" in section 1 of the Act who holds an IFTA licence issued by a base jurisdiction other than Ontario;
"Ontario licencee" means a person described in clause (a) of the definition of "inter-jurisdictional carrier" in section 1 of the Act who holds an IFTA licence issued by Ontario; and
"registration decal" means an IFTA identification decal.
38. Subsection 3(1) of the IFTA Reg. states: "for the purposes of subsection 4.13(1) of the Act, a licencee, when operating an inter-jurisdictional vehicle, is considered to be registered with the Minister, but only if the licencee,
(i) affixes the registration decals or carries a 30-day IFTA temporary permit issued by a base jurisdiction other than Ontario as required under Part VI of the Articles of Agreement under the IFTA; and
(ii) places in the motor vehicle the IFTA licence issued to the licencee, or a legible copy of the licence, as required under Part VI of the Articles of Agreement of the IFTA."
39. Under subsection 3(2) of the IFTA Reg. "a licencee who fails to comply with ss. 3(1) shall apply for an Ontario trip registration certificate."
40. Subsection 3(7) of the IFTA Reg. states: "For the purposes of ss. 4.13(3) and (4) of the [FTA], the Minister may establish fees to be paid by an Ontario licencee."
The International Carrier's Manual - IFTA
41. The Ministry of Revenue (MOR) issued the International Carrier's Manual - IFTA (IFTA Manual), dated September 2007 to provide information about the IFTA program in Ontario and outline the requirements and responsibilities of a carrier licencee under the IFTA, the FTA and the IFTA Reg.
42. Page 4 of the IFTA Manual states that a carrier must meet all the following criteria to register for IFTA in Ontario: its qualified motor vehicle(s) are registered in Ontario; it has an established place of business in Ontario in which it maintains operational control of and records of those qualified motor vehicles and the vehicles travel in Ontario and at least one other IFTA jurisdiction. A qualified motor vehicle is one that is used, designed or maintained to transport persons or property and meet specific size requirements, excluding recreational vehicles and most light trucks and vans.
43. Page 5 of the IFTA Manual includes the following: "to apply for your IFTA licence and decals, submit a completed Application for IFTA Registration - IFTA 401 form and the required decal fee payment of $10 per set to our office."
44. Page 6 of the IFTA Manual states that, under the IFTA, carriers must apply for registration and an IFTA licence, indicating the number of decals needed for the registration year. It states that when a carrier registers in Ontario under IFTA, the carrier will "receive two decals for each qualified motor vehicle, and a single IFTA licence, which will allow [the carrier] to travel in all IFTA member jurisdictions." At page 7, it states that carriers that elect not to licence under the IFTA "must obtain single trip permits for each trip and for each jurisdiction" in which the carrier intends to travel, including Ontario.
45. Page 7 of the IFTA Manual includes advice to licenced carriers that: "The [MOR] will issue a single IFTA licence for your fleet of vehicles, valid for one calendar year... copies of your licence should be kept with your business records... If you are found operating a qualified motor vehicle without an IFTA licence or without a valid trip permit, you will receive a fine and will be required to purchase a trip permit." It also advises that "You will receive two decals for each qualified motor vehicle in your fleet. IFTA decals are valid for one calendar year" and "A decal fee of $10 per set is charged for each pair of IFTA decals that you order... The required decal fees must be paid before the [MOR] can issue your decals and should be made payable to the Minister of Finance."
46. Page 8 of the IFTA Manual states: an "IFTA licence must be renewed each year" and a "renewal licence and decals will be issued after [a carrier's] account has been screened for compliance with all Ontario IFTA requirements."
47. At page 26, the IFTA Manual states that a carrier may cancel an IFTA licence when it is not longer operating qualified motor vehicles inter-jurisdictionally. If it is cancelled, the licence, any copies of it and all decals must be destroyed. To reactivate a cancelled account, a carrier must "submit a new application form, pay the required decal fees, and provide [its] cancelled account number and a letter requesting reactivation."
Ontario Tax Bulletin FT 1-2001 - Coloured Fuel (Bulletin FT 1-2001)
48. Page 1 of Bulletin FT 1-2001 states that coloured fuel is "fuel to which a specific type and quantity of red dye has been added in accordance with the FTA and regulations" and "coloured fuel is exempt from Ontario fuel tax and may be used for non-taxable purposes only" which are purposes other than "to generate power in a licenced motor vehicle; operate a recreational vehicle, personal watercraft, boat or any other machine used or intended to be used principally for the pleasure or recreation of its owner or operator; or propel railway equipment on rails in connection with and as part of a public transportation system." Examples of permitted coloured fuel use are: heating, lighting or cooking; generating electricity; and operating unlicenced construction, forestry, mining, farm and other business equipment.
49. Page 2 of Bulletin FT 1-2001 states: "In order to colour fuel in Ontario, a person must be registered with the [Minister] as a dyer. Only a fuel distributor designated by the Minister as a fuel tax collector or as a distributor of special products is entitled to be registered as a dyer." It also states that registered dyers are required under the FTA to colour fuel using only the dye provided by the Minister and to store, label and handle dye and coloured fuel in accordance with the Minister's requirements and it is an offence under the FTA to contravene these requirements.
Ontario Tax Bulletin FT-2-99 - Colouring of Fuel (Bulletin FT-2-99)
50. Bulletin FT-2-99 sets out the cost of dye to registered dyers in respect of coloured fuel exported from Canada in accordance with the FTA. It states: "With respect to the colouring of fuel destined for export from Canada as referred to in subsections 4.18(4.1) and (4.2) of the [FTA], this bulletin constitutes the prior written consent, and the conditions and restrictions of consent, of the Minister for all registered dyers until withdrawn or replaced by a subsequent Ontario Tax Bulletin or notice to registered dyers."
51. According to Bulletin FT-2-99, the Consent and Restrictions of Consent authorized by section 4.18 of the FTA include:
"...
c) Registered dyers are permitted to mix dye with clear fuel in concentrations greater than the 170 to 190 parts per million, as estimated by the Minister for fuel for use in Ontario, if the fuel is coloured for the purposes of export from Canada.
d) ...
e) Registered dyers shall report with their monthly return the quantity of fuel that has been coloured during the prior month for export from Canada and the quantity of dye used to colour such fuel.
f) Registered dyers shall pay to the Minister the cost of the dye referred to in clause (e) in accordance with subsection 4.18(4.3) of the Act. Payment shall be accounted for in the monthly collector return.
g) The cost of the dye, effective October 1, 2010, under existing supply agreements is $1.540 per litre. The payment for the dye for each month shall be determined by a registered dyer by multiplying the quantity of dye used in that month in litres by $1.540 (or the price per litre then in effect) and shall be entered in line 14 of the Generic Fuel Collector Summary Form - Diesel Related Products. Registered dyers should attach details regarding the adjustment to the return.
h) ...
52. [...].
Ruling Requested
You have requested a ruling on the application of the GST/HST to the following:
1. the IFTA decal fee imposed [...] on inter-jurisdictional motor carriers pursuant to subsection 4.13(3) of the Fuel Tax Act; and
2. the reimbursement, by a registered dyer, of the cost of dye used to colour fuel destined for export from Canada pursuant to subsection 4.18(4.3) of the Fuel Tax Act?
Ruling Given
Based on the facts set out above, we rule that:
1. The $10 fee per set of decals imposed under subsections 4.13(3) and (4) of the FTA is consideration for a licence which is an exempt supply under paragraph 20(c) of Part VI of Schedule V to the ETA. As a result, no GST/HST applies to the fee.
2. The reimbursement of the cost of dye by a registered dyer under subsection 4.18(4.3) is consideration for a taxable supply of the dye and therefore, is subject to the GST/HST.
This ruling is subject to the qualifications in GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service. We are bound by this ruling provided that none of the above issues are currently under audit, objection, or appeal, that no future changes to the ETA, regulations or our interpretative policy affect its validity, and all relevant facts and transactions have been fully disclosed.
Explanation
The IFTA Decals
Under section 165 of the ETA, every recipient of a taxable supply made in Canada shall pay GST/HST at the applicable rate (13% HST in Ontario) on the value of the consideration for the supply. "Taxable supply" is defined in subsection 123(1) of the ETA and it excludes exempt supplies.
Under the regulatory framework set out in the FTA and its regulations, an inter-jurisdictional carrier's vehicles can enter other IFTA jurisdictions and the carrier will be entitled to be subject to the fuel tax reporting system set out in the IFTA. Pursuant to section 4.13 of the FTA, no person can act as an inter-jurisdictional carrier unless it is registered with the Minister for purposes of the IFTA (or unless it chooses to purchase a single trip registration certificate each time it enters Ontario). Therefore, to take advantage of the IFTA and the regulatory framework, an Ontario carrier must apply to the Minister to be registered as an inter-jurisdictional carrier and along with the application, it must include a payment of $10 per set of decals for each inter-jurisdictional vehicle owned or operated by the carrier. The Minister will then issue the carrier a registration certificate and 2 IFTA decals per qualifying vehicle. Neither document will be issued without the payment of the decal fee.
Under section 3 of O. Reg. 22/97, a carrier is considered registered with the Minister for purposes of the regulatory framework and the IFTA, only if it displays a registration certificate and a set of decals in each qualifying vehicle. Both documents must be renewed each year along with the payment of the decal fee. The registration certificate and the decals are interdependent since a carrier must be issued both documents to be entitled to be subject to the IFTA. Together they serve as evidence that the Minister has issued a carrier with a single supply of a licence or permit which entitles the carrier to be subject to the IFTA rules and provides permission for the carrier's inter-jurisdictional vehicles to enter other IFTA jurisdictions. Under the regulatory framework set forth in the FTA and O. Reg 22/97, the $10 per set of decals is consideration for a single supply of a licence/permit provided by the Minister.
The Reimbursement of Dye Costs
Registered dyers may contract with clients outside Canada who want to purchase dyed fuel pursuant to programs (similar to the one in Ontario set forth in the FTA) under which they are permitted to sell dyed fuel exempt of fuel tax. Under the general structure of the FTA, registered dyers hold the dye in trust for the Minister for use in making dyed fuel in accordance with the FTA. An exception to the general use of dye under the FTA has been provided in section 4.18 which permits registered dyers to, with the written consent of the Minister, use different concentrations of dye in the making of supplies of dyed fuel for export purposes only. Where a registered dyer uses dye for such purposes, it is required to pay, to the Minister, a reimbursement for the cost of dye used to colour fuel for export under subsection 4.18(4.3) of the FTA.
It is our view that under section 4.18 of the FTA, the Minister makes a supply of the dye to the registered dyer in exchange for the reimbursement of the costs of the dye that is payable by the registered dyer pursuant to subsection 4.18(4.2) of the FTA. The reimbursement is consideration for the supply of the dye by the Minister to the registered dyer and it is subject to GST/HST.
If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 613-952-4157. Should you have additional questions on the interpretation and application of GST/HST, please contact a GST/HST Rulings officer at 1-800-959-8287.
Yours truly,
Glenda MacInnes
Industry Sector Specialist
Government Sectors Unit
Public Service Bodies and Governments Division
Excise and GST/HST Rulings Directorate
UNCLASSIFIED
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