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 Specialty Tax Directorate
Place de Ville, Tower A, 11th floor
320 Queen Street
Ottawa ON K1A 0L5
[Addressee]
Case Number: 239274
Dear [Client]:
Subject: Excise Interpretations
[…][Supply of hydrogen products under the GGPPA and the Excise Tax Act other than Part IX]
Thank you for your letter dated January 14, 2022 regarding the application of the Excise Tax Act (ETA) and the Greenhouse Gas Pollution Pricing Act (GGPPA) to hydrogen and mixed blends of hydrogen and natural gas.
You would like the CRA to confirm your current interpretation of the ETA and GGPPA with regard to hydrogen or hydrogen/natural gas blends, as follows:
* No tax or similar charge is exigible on hydrogen or hydrogen/natural gas blends under the ETA (excluding Part IX of that Act) because such products are not listed in Schedule 1 of the ETA.
* Hydrogen and hydrogen/natural gas blends are not subject to the fuel charge under the GGPPA because such products are not listed in Schedule 2 of the GGPPA.
* A person dealing with hydrogen or hydrogen/natural gas blends has no reporting or other compliance requirement under the GGPPA or the ETA.
Interpretation requested:
You are asking a number of questions, separated into 3 overarching questions, related to activities under two distinct Acts. We will address each of the main overarching questions, which will generally address the related sub-questions you have asked. Where necessary we will expand on individual sub-questions. We will also separate the interpretation in two parts to address your questions under each legislation. The first interpretation will address your questions under the GGPPA, the second, under the ETA.
You would like to know the following:
1. Dealing with pure hydrogen:
a. Is hydrogen considered a “fuel” or any other product subject to a tax or charge
under the GGPPA?
2. Dealing with hydrogen mixes:
Is hydrogen considered “fuel” or any other product subject to a charge under the GGPPA when mixed with other chemicals subject to such a tax or charge?
3. Future compliance:
a. Is Canada or the CRA currently considering how hydrogen and hydrogen mixes are to be dealt with under the GGPPA?
b. Does the CRA have any written guidance or is it considering publishing any written guidance on how hydrogen and hydrogen mixes are dealt with under the GGPPA?
c. Is any legislative or regulatory changes being considered that would change how hydrogen and hydrogen mixes are dealt with under the GGPPA?
Interpretation given – GGPPA
Unless otherwise stated, references are to Part 1 of the GGPPA:
1) Dealing with pure hydrogen
Under the GGPPA, fuel is defined in section 3 as “a substance, material or thing set out in column 2 of any table in Schedule 2 other than combustible waste or a substance, material or thing that is prepackaged in a factory sealed container of 10 L or less.
Hydrogen is not a substance, material or thing set out in column 2 of any table in Schedule 2. Therefore, hydrogen is not considered a fuel under the GGPPA and is not subject to the fuel charge. The manner in which hydrogen is used or intended to be used does not alter the fact that it does not meet the definition of a fuel under the GGPPA. As a result, no charge is payable with respect to hydrogen and the GGPPA does not impose any reporting requirements associated with hydrogen.
2) Dealing with hydrogen mixes
The Department of Finance released draft regulations entitled “Draft Regulations Amending the Fuel Charge Regulations” on August 9, 2022. The document outlines the government’s intentions to address the combinations of natural gas that contain hydrogen and natural gas that contains both hydrogen and biomethane.
The draft regulations allow the quantity of natural gas that contains hydrogen to be calculated using the formula:
A × (100% – B)
Where A is the number of cubic metres that the fuel would occupy at 15°C and 101.325 kPa, and B is the proportion of hydrogen in the product.
The draft regulations also allow the quantity of natural gas that contains hydrogen and biomethane to be calculated using the formula:
A × (100% – B)
Where A is the number of cubic metres that the fuel would occupy at 15°C and 101.325 kPa, and B is the proportion of combined hydrogen and biomethane in the product.
3) Future compliance
The Department of Finance is the lead policy organization for the Government of Canada on Part 1 of the GGPPA. The Government has recently published draft regulations that recognizes hydrogen, when combined with natural gas (marketable or non-marketable), as a component that may reduce the amount of natural gas subject to the fuel charge.
Interpretation Given – ETA
Unless otherwise stated, references are to the ETA, except Part IX.
1) Dealing with pure hydrogen
Hydrogen and natural gas are not fuels subject to an excise tax under the ETA, except Part IX. For fuel or other goods to be subject to excise tax under the ETA, except Part IX, they must be listed in Schedule I of the ETA. The taxable fuels under the ETA, except Part IX, are restricted to gasoline, diesel and aviation fuels.
The manner in which the hydrogen is used does not alter the fact that no excise tax shall be imposed, levied and collected with respect to hydrogen under the ETA, except Part IX. As a result, there are no compliance or reporting obligations under the ETA when dealing with natural gas, hydrogen or hydrogen/natural gas mixtures.
2) Dealing with hydrogen mixes
When hydrogen is mixed with either gasoline, diesel or aviation fuel, excise tax applies to the full quantity of the fuel. There are no provision that allow for the reduction in volume subject to excise tax when hydrogen is mixed with fuels covered by excise tax.
3) Future compliance
The Department of Finance is the lead policy organization for the Government of Canada on ETA. The CRA has no indications that legislative or regulatory changes are being considered under the ETA that would provide treatment of hydrogen or hydrogen mixtures different than what is currently provided for under the legislation.
Disclaimer
Please note that 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, ETA or any related regulations could affect the interpretation or the additional information provided herein.
Contact
If you require clarification with respect to any of the issues discussed in this letter pertaining to the GGPPA, please call William Ferguson, Senior Rulings Officer, Excise Duties and Taxes Division, Excise and Specialty Tax Directorate at 343-551-2259.
If you require clarification with respect to any of the issues discussed in this letter pertaining to the ETA, please call Giovanna Fusco, Senior Rulings Officer, Excise Duties and Taxes Division, Excise and Specialty Tax Directorate at 514-594-0816.
Sincerely,
Tim Hord,
Manager,
Fuel Charge Unit
Excise Duties and Taxes Division
Excise and Specialty Tax Directorate
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