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: 127705
Business Number: [...]
January 26, 2011
Dear [Client]:
Subject:
GST/HST RULING
Application of the GST/HST to Fuel Gas
Thank you for your letter of August 13, 2010, concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to fuel gas.
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.
All legislative references are to the Excise Tax Act (ETA) unless otherwise specified.
Statement of Facts
Our understanding of the facts is as follows:
1. [...] [(the company)] operates a natural gas transportation, storage and distribution system in [Province X].
2. [The Company] enters into fee for service contracts with Shippers to transport the Shipper's natural gas through [the Company's] pipeline to points that interconnect with other pipelines.
3. [The Company] does not take title to the Shipper's natural gas that it is shipping.
4. Natural gas transportation rates in [Province X] are regulated by [...].
5. Natural gas used to operate compressors which propel the gas in pipelines is commonly referred to as fuel gas or compressor gas.
6. [...].
7. The amount of fuel gas consumed is measurable.
8. [The Company] has provided copies of blank contracts referred to as [...] which are used as agreements to ship natural gas. [The Company] also provided copies of invoices pertinent to the contracts.
9. When [the Company] enters into [...] contracts, either some of the Shipper's natural gas may be used as fuel gas or, [the Company] may use its own gas to transmit the Shipper's gas through a pipeline. The particular contract will indicate whether the Shipper's gas is to be used. Whichever method is chosen, it remains as such for the term of the contract.
10. The sample [...] contracts provided, indicate that "the shipper shall provide fuel". No separate charges for "fuel" are indicated in these contracts or on invoices relating to supplies made pursuant to these contracts.
11. The sample [...] contract provided does not indicate that the Shipper shall provide fuel gas.
12. In agreements where the Shipper provides the fuel gas, the Shipper does not charge for the fuel gas that [the Company] consumes.
13. Where [the Company] uses its own gas for fuel gas, it charges an additional amount to the Shipper.
14. In case HQR0000870, the Canada Revenue Agency (the CRA) stated that a supply does not occur where a pipeline company uses some of a Shipper's gas to pump gas through the pipeline unless the Shipper separately charges for the fuel gas.
Rulings Requested
1. You would like to know if the CRA has changed its position regarding the treatment of fuel gas.
2. You would like to know how the GST/HST applies to fuel gas as it relates to [...] agreements between [the Company] and Shippers.
Rulings Given
1. The CRA's position on the treatment of fuel gas has not changed.
2. Based on the facts set out above and the sample contracts with the terms and conditions specified and invoices provided, we rule that a supply of fuel gas is not being made by Shippers to [the Company] under the [...] contracts.
3. Based on the facts set out above and the sample contract with the terms and conditions specified, we rule that a taxable supply is being made by [the Company] to Shippers under the [...] agreement.
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
It is the CRA's position that a supply has not occurred when a pipeline company uses a Shipper's gas to pump the gas through the pipeline. Because there is no supply, there is no tax exigible on the transfer of the gas. However, if the Shipper separately charges for the fuel gas, the Shipper has made a supply to the pipeline company. A supply from the pipeline company to the client would occur if the pipeline company makes a separate charge (either in the contracts or on the invoices) for fuel gas consumed in the process of transporting gas.
Based on the contracts with the terms and conditions specified and invoices provided, a supply of fuel gas is not being made by Shippers to [the Company] under the [...] contracts. However, it should be noted that where contracts or invoices vary from these contracts as provided, there could be a taxable supply of fuel gas. For example, the [...] agreement provided does not indicate that the Shipper shall provide fuel gas. Where [the Company] uses its own gas as fuel gas, it charges an additional amount, which is consideration for a taxable supply.
If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 613-952-9585. 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,
Ben Boboski
Goods Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate
UNCLASSIFIED
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