18 January 2006 Excise Interpretation 65231 - Refund of Federal Excise Tax on Fuel Sold for Use as Ships' Stores

Please note that the following document, although correct at the time of issue, may not represent the current position of the Agency. / Veuillez prendre note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'Agence.

Dear XXXXX:

Thank you for your letter XXXXX concerning the application of the Excise Tax Act (ETA) to the operations of XXXXX. We apologize for the delay in responding.

In your letter, you have asked several questions with regards to the refund of Federal Excise Tax (FET) on aviation fuel sold for use as Ships' Stores, by XXXXX, to various domestic and international air carriers.

Prior to responding to the specific questions posed in your letter, I would like to outline the relevant legislative provisions and the applicable Canada Revenue Agency (CRA) administrative policy.

Imposition of FET

Subsection 23(1) of the Excise Tax Act (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 a tax rate of $0.04 per litre on aviation fuel.

As a licensed manufacturer under the ETA, XXXXX is required to remit, to the CRA, FET on sales of motive fuel products including aviation fuel.

Refund for Fuel Sold for Use as Ships' Stores

Paragraph 59(3.2)(a) of the ETA provides that the Governor in Council may make regulations designating certain classes of goods as ships' stores for use on board a conveyance of a prescribed class.

Subsection 3(1) and Item 4 of the Schedule to the Ships' Stores Regulations designate petroleum products, which includes aviation fuel, as ships' stores for use on board an international aircraft. Subsection 2(1) of the Ships' Stores Regulations defines an international aircraft to mean "... an aircraft operating internationally in the transportation of passengers or goods, or both, for reward". Aviation fuel purchased by your clients for use on international flights would qualify to be taken on as ships' stores.

Section 68.17 of the ETA provides that "... If tax under Part III has been paid in respect of any goods and a manufacturer, producer, wholesaler, jobber or other dealer has sold the goods for use as ships' stores, an amount equal to the amount of that tax shall, subject to this Part, be paid to that dealer if that dealer applies for it within two years after that sale of the goods." Therefore, XXXXX would be entitled to a refund of FET on fuel sold to domestic and international air carriers for use as Ship's Stores.

In general, the CRA would consider form K36A Ships' Stores Declaration and Clearance Certificate, that has been authorized by the Canada Border Services Agency, as evidence that fuel sold is for use on board an international aircraft. However, when a K36A form cannot be obtained, the CRA will accept other alternate documentation.

Deduction of Tax in Lieu of Refund

Subsection 73(1) of the ETA allows for a licensed manufacturer, upon authorization from the CRA, in lieu of applying for a refund under section 68.17 of the ETA (goods sold for use as Ships' Stores) to take a deduction on their FET return for an amount equal to the refund application. In other words, a licensed manufacturer when submitting their FET return would account for excise tax on sales of aviation fuel and take a corresponding deduction on their return for any such aviation fuel sold for use as Ships' Stores.

XXXXX can apply for authorization to take internal deductions by submitting a written request to the Assistant Director of Verification and Enforcement of the XXXXX Tax Services Office at the following address:

XXXXX

XXXXX

XXXXX

End-User Refund Policy

The following is the CRA policy on end-user refunds with regards to fuel sold for use as Ships' Stores:

•   If at the time of purchase, the use of the fuel is known to be for Ships' Stores, it must be purchased exempt of excise tax by furnishing form K36A or other acceptable documentation. The licensed fuel supplier should account for excise tax for any fuel sold for use as Ships' Stores on their FET return and either file an N15 refund or, if authorized, take a corresponding deduction on their return.

•   If at the time of purchase, the use of the fuel is not known or has multiple uses, it must be purchased on an excise tax-paid basis and the purchaser can file for an N15 refund directly with the CRA for FET on the fuel that was actually used for Ships' Stores.

I will now address the specific questions posed in your letter.

Question 1 - Would a letter from the airline, indicating that all fuel purchased from XXXXX or that all fuel purchased at a specific airport is for use as Ships' Stores for foreign destination flights, be sufficient to allow for the exemption?

I cannot specifically comment as to whether a letter would be sufficient documentation, as you have not provided an example. However, where form K36A cannot be obtained by XXXXX, other documentation that confirms that aviation fuel sold was for an international flight would be acceptable to substantiate an exemption of FET for aviation fuel sold for use as Ships' Stores.

Question 2 - Do we need to have the K36A's as evidence to support the exemption of each delivery/sale? Would some other form of detailed documentation be sufficient?

XXXXX would be required to obtain a K36A or other acceptable documentation to support each FET exempt sale or delivery.

Question 3 - If the K36A's are required to support the exemption, do they have to be received at the time of sale/delivery, or can they be received after the fact?

A K36A can be received after the time of sale/delivery. However, XXXXX would be liable for the FET if they do not eventually obtain the K36A or other acceptable documentation.

Question 4 - If the K36A's are required to support the exemption, who is responsible for maintaining these records, the supplier or end-user?

XXXXX, as the supplier, would be responsible for maintaining the K36A records in order to substantiate any exempt sales.

Question 5 - If the K36A's must be obtained, would they have to be submitted to the CRA as support of an N15 claim or could they be maintained on file as support of the FET exempt sales and be made available to the CRA at the time of audit?

XXXXX should maintain the K36A's on file to support FET exempt sales and should be made available on request by CRA officials at the time of audit.

Question 6 - If an N15 claim must be processed, who would be responsible for filing, the supplier or end-user?

The person responsible for filing the N15 would depend on whether fuel was sold FET tax-paid or exempt based on the CRA end-user policy. If fuel has been sold FET exempt, XXXXX as the supplier would file the N15. If fuel has been sold FET tax-paid, the end-user would file the N15 directly with the CRA.

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
Excise Tax Unit
Excise Duties and Taxes Division
Excise and GST/HST Rulings Directorate

2006/01/30 — RITS 65429 — Application of Excise Tax to Items Containing Precious Metals