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.
Excise and GST/HST Rulings Directorate
Place de Ville, Tower A, 11th floor
320 Queen Street
Ottawa ON K1A 0L5
[Addressee]
Case Number: 235373
Dear [Client]:
Subject: EXCISE INTERPRETATION
Application of the Greenhouse Gas Pollution Pricing Act to agency arrangements
Thank you for your letter dated [mm/dd/yyyy], concerning the application of the Greenhouse Gas Pollution Pricing Act (GGPPA) to agency arrangements. We apologize for the delay in our response.
All legislative references are to the GGPPA and the regulations therein, unless otherwise specified.
We understand the following information pertaining to your request:
In some instances an agent will act on behalf of a principal for sales of a type of fuel. This can include both bona fide agency situations as well as situations where the agent acts only in respect of billing (collectively referred to as agency arrangements). You have stated that in these agency arrangements it is not possible for a principal to report the fuel charge on deliveries of a type of fuel made in a listed province. Agents have access to the transactional data needed to accurately report these transactions.
You have stated that agency arrangements are not contemplated in the GGPPA, thus a compliance issue would exist for a principal. A principal would be required to pay any charges and/or obtain fuel charge exemption certificates on transactions that they do not have the necessary details on as the agent undertook the activities in question.
Agency agreements are contemplated for purposes of the GST/HST. More specifically, a principal and agent may jointly elect to enter into such an agreement pursuant to subsection 177(1.1) of the Excise Tax Act (ETA) by completing Form GST506, Election and Revocation of an Election Between Agent and Principal (GST506). This election permits an agent to report any applicable GST/HST on behalf of the principal. The agent and principal are jointly and severally, or solidarily, liable for all obligations under this election. You have stated that when an election under subsection 177(1.1) of the ETA is in place, administratively the Canada Revenue Agency (CRA) should deem it valid for purposes of the fuel charge.
Two scenarios in the oil and gas sector involving agency arrangements were provided, details of which are as follows:
1. Producers will send raw materials to a processing plant for further processing into a type of fuel, In this context, the agreement between producers and processers provides that the processor does not take legal title to any of the incoming raw materials or processed fuels. The incoming raw materials are processed by the processor on behalf of the producer and the processed fuels are taken by the producer to market. This is understood to be where a processor receives finished product in lieu of payment for their services. In situations where the processed fuel volumes are immaterial, the processor will deem the producer to not take these fuel volumes. This is understood to be where a processor receives payment for their services in lieu of finished product. The processor will then market the processed fuels on behalf of the producer. The processor does not have legal title to the fuel that it is selling. The processor will then provide the producer with their share of the revenue net of applicable taxes or levies that are exigible and will report and remit these amounts. The producer is not provided with the details of each of these transactions undertaken by the processor. This process is undertaken as it provides a number of benefits to the producer and processor.
2. Producers will send raw materials to a processing plant for further processing into a type of fuel. The incoming raw materials are processed by the processor on behalf of the producer. The producer, and possibly other participants, take title to the processed fuels in order to market it in their own right. In some circumstances, the produced fuel originated from a source that is subject to a joint venture agreement. Producers and processors often have multiple joint ventures in progress. The operator of the joint venture (the Operator) will market both their share as well as the other participants share of the fuel pursuant to a marketing agreement that is separate from the joint venture agreement in which the Operator is generally acting in an agency capacity for all other participants. Any applicable taxes or levies that are exigible will be reported and remitted by the Operator. The participants are not provided with the details of each of these transactions undertaken by the Operator. The subsequent distribution of revenue, in many circumstances, occurs well after the fact. Thus, the necessary data would not be available to a participant in the timeframe that a fuel charge return would be required to be filed under section 69. Furthermore, some participants are not in a position to act as the Operator for various reasons. Thus, there are concerns that if a participant is responsible to report the fuel charge it creates room for error and may result in potential non-compliance with the GGPPA.
Interpretation Requested
You would like to know if a valid election that is in place for purposes of the GST/HST under subsection 177(1.1) of the ETA constitutes a valid agency agreement election for purposes of the fuel charge.
Interpretation Given
A registered distributor in respect of a type of fuel is required to pay a charge pursuant to subsection 17(1) when fuel of that type is delivered to another person in a listed province. “Fuel” is defined in section 3, in part, as a substance, material or thing set out in column 2 of any table in Schedule 2. “Delivery” is defined in section 3 as in respect of fuel or in respect of a substance, material or thing includes, except in the definition confirmed delivery service and in Division 6, making the fuel, substance, material or thing available.
In certain circumstances the person delivering a type of fuel in a listed province to another person is not the same person who holds legal title to the fuel, such as in the scenarios provided above involving agency arrangements.
Agency arrangements - general
“Agency” is not defined in the GGPPA. In general terms, “agency” is a type of relationship where one person (the principal) uses another person (the agent) to perform certain tasks on its behalf. Under common law, an agent is considered to represent the principal such that it can affect the principal’s legal position, such as through the disposition of property. Under civil law in Quebec, the principal confers upon another person, the agent, the power to represent them in the performance of an act with a third person which the agent is bound to exercise by their acceptance of this arrangement.
Agency arrangements – fuel charge
Where a processing plant processes raw materials into various component fuels for a producer, and the processor (agent) is acting in the capacity as an agent of the producer (principal) and the agent makes a delivery of a type of fuel in a listed province on behalf of the principal, the agent may account for and pay the charge under subsection 17(1) or accept a valid exemption certificate under section 36. Where a type of fuel is being produced, the agent and principal must register as a distributor for that fuel type as per subsection 55(1).
In the above noted context, the paying of a charge or acceptance of a valid exemption certificate by an agent may relieve the liability of the principal to report and pay a charge on that same volume of a type of fuel, such as a charge arising under subsection 17(1). This is provided that all provisions of the GGPPA are adhered to, including but not limited to, the accounting of all volumes of a type of fuel, along with the required reporting and payment of all charges.
Agents and principals under this arrangement are liable for all obligations that apply to registered distributors under the GGPPA. It is a question of fact as to whether or not an agency relationship exists in any particular situation. For GST/HST purposes, the existence of a completed GST506 serves to document the intent of all parties to be engaged in an agency arrangement. As no such election exists for purposes of the fuel charge, the arrangement should be supported by documentation, such as a written agreement, and subsequently supported by the books and records of the agent and principal.
In accordance with the qualifications and guidelines set out in GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service, the interpretation given in this letter, including any additional information, is not a ruling and does not bind the CRA with respect to a particular situation. Future changes to the GGPPA, regulations, or the CRA’s interpretative policy could affect the interpretation or the additional information provided herein.
If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 365-323-2614.
Yours truly,
Cameron Peebles
Cameron Peebles
Rulings Officer, Fuel Charge Unit
Excise Duties and Taxes Division
Excise and GST/HST Rulings Directorate
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