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, 9th floor
320 Queen Street
Ottawa ON K1A 0L5
[addressee]
November 9, 2021
Case Number: 201874
Dear [client]:
Subject: EXCISE INTERPRETATION
Fuel Charge Exemption Certificate
Thank you for your letter of March 7, 2019, concerning the application of the Greenhouse Gas Pollution Pricing Act (the Act) to Form L401, Fuel Charge Exemption Certificate (Form L401). My apologies for the long delay in responding to you.
All legislative references are to the Greenhouse Gas Pollution Pricing Act (the Act) and the regulations therein, unless otherwise specified.
STATEMENT OF FACTS
In your letter, you have outlined the following:
1. Subdivision A of Division 4 of Part 1 allows for registration of persons under the Act.
2. All registration types, other than emitters, are required to register for particular fuel types.
3. For air, marine and rail carriers, Subdivision A restricts a person’s ability to register to qualified fuels for its particular registration type, defined in section 3.
4. A person can register for a subset or all of the allowable fuels for their particular registration type.
5. Section 107 of the Act only allows the Canada Revenue Agency (CRA) to confirm the business number and the registration status of any person to the public.
6. The fuel types a person has registered for is only known by the person and the CRA.
7. There is no public registry of the information due to Federal Government privacy provisions.
8. Section 17 relieves a registered distributor of the requirement to pay the fuel charge upon delivery of fuel to a registered person if the person’s registration type is mentioned in the section (qualified registrants) and an exemption certificate applies in respect of the delivery in accordance with section 36.
9. For the registrant types mentioned in Form L401, other than registered emitters, section 36 requires that the person declares that they are registered in respect of a particular type of fuel.
10. Unlike exemption certificates for other types of persons, Form L401 for registered distributors does not require a person to note the particular types of fuels that they are registered for.
11. For registered emitters and users of fuel, section 36 requires them to declare that they will be using the fuel, for which an exemption certificate applied in respect of the delivery, in a covered facility or in a non-covered activity respectively. Form L401 does not allow for this declaration to be made.
12. Paragraph 37(1)(c) makes a registered distributor and the person purchasing the fuel jointly and severally, or solidarily, liable for the fuel charge on an exempted sale, and a penalty if the registered distributor knows or ought to have known that the provided exemption certificate was false.
INTERPRETATION REQUESTED
In your letter, you ask for the CRA:
1. to confirm that the receipt of a Form L401, Fuel Charge Exemption Certificate, will relieve registered distributors of:
a) the requirement to pay the fuel charge on deliveries of all qualified listed fuel types found in Schedule 2 for the declared registration type provided the registered distributor:
o does not know or cannot reasonably know that the exemption certificate is false; and
o was not told by the registrant/fuel acquirer, at the fuel acquirer’s initiative, that they were not registered for all possible qualified fuel types.
b) the requirement to receive a declaration from registered emitters and fuel users, that they will be using fuel in a covered facility or in non-covered activities, as applicable.
2. to provide clarification on the meaning of the term “knows, or ought to have known” as it pertains to paragraph 37(1)(c).
CONSIDERATIONS
Since your letter was received, the CRA has worked extensively with industry, including the […], to address some of the concerns raised in your letter. The CRA has since introduced changes to the exemption certificate to provide additional certainty for the registered distributor regarding the status of its clients. We have included a section whereby persons completing the exemption can indicate the type of fuel for which they are registered. For those that hold a registration as an emitter or as a user of fuel, the CRA has included language on the exemption certificate for that highlights that person’s fuel charge obligations under the Act.
The CRA did not require that registered distributors’ clients provide the revised exemption certificate form to extend relief. However, distributors could require that their clients provide the new exemption certificate form to maintain its eligibility for relief. The CRA has also introduced a registry for registered distributors to confirm, at a minimum, the registration status of the person that is registered and that provides an exemption certificate. This registry is now available on the Canada.ca website at Fuel charge - Canada.ca.
As part of the general registration requirements under Division 5, a person will complete a L400 registration form and indicate, on the related schedule, the type of registration for which it is registering, the type of fuel, and complete one schedule for each listed province. As part of the condition for registration as an emitter, a person must first be registered under Part 2 of the Act with Environment and Climate Change Canada, and receive a covered facility certificate or statement to indicate they are responsible for specific facilities under this Part. A person that applies for registration as a user of fuel must be involved in a non-covered activity, as defined under section 3 of Division 1. Unlike other registration types, like air or marine carriers, registration as an emitter or as a user of fuel does not limit the number of fuel types for which the person may apply.
Subdivision A of Division 2 provides the general application for the fuel charge. A registered distributor is required to report and pay a charge, in accordance subsection 17(1), when fuel of a type is delivered in a listed province to another person, as determined under section 40. Subsection 17(2) states that the charge is not payable however if the registered distributor delivers fuel of that type in a listed province to another person, and an exemption certificate applies in respect of that delivery in accordance with section 36.
Subdivision C of Division 2 provides the conditions under which relief from the fuel charge can be provided using an exemption certificate in respect of a delivery. Generally, an exemption certificate can apply when fuel is delivered to those persons listed under paragraph 36(1)(b) or sections 8 and 15 of the Fuel Charge Regulations. The exemption certificate is a document that is made available on the CRA website through a downloadable form that a person completes, signs, and provides to their supplier(s). Two general conditions on the person receiving the fuel must be met for a delivery to be subject to an exemption certificate: the exemption certificate is complete and provided to the registered distributor; and provides a declaration, though a signature, on the type of person seeking relief through the exemption certificate. Two separate conditions must also be met, which fall on the registered distributor: the distributor retains a copy of the certificate and confirms to the person, through a reasonable means, which could include “0” on the person’s invoice for the fuel charge, that the delivery is subject to the exemption certificate. A registered distributor cannot confirm that latter if an exemption certificate was not provided at or prior to the delivery of the fuel.
Section 37 explains the consequences applicable if a certificate that contains a false declaration is provided to a registered distributor. A person who provided an exemption certificate which contains a false declaration is liable to pay the charge and is also liable to pay a penalty. A registered distributor who knew, or ought to have known, that the declaration under section 36 is false at the time of the delivery is jointly and severally, or solidarily, liable with the particular person for the charge and penalty under section 37 and to any related interest and penalties .
A declaration on an exemption certificate made by the person that is registered as an emitter, or as a user of fuel, in accordance with the prescribed conditions under paragraph 36(1)(a), must be true and accurate. The person making a false declaration on the form will be held liable for a charge in respect of the fuel that is diverted from activities for which the person is registered, either under section 22 for a registered emitter or section 23 for a registered user of fuel. Although there is a joint and several, or solidarily liability under section 37, it does not intend to impose the burden on the registered distributor of validating the information on the exemption certificate, mainly, confirming the person’s activities as a user of fuel or as an emitter. The burden of ensuring compliance once the fuel is delivered by the registered distributor generally remains with the person receiving the fuel, regardless of status, unless the registered distributor knows, or ought to have known, that the declaration made in association with paragraph 36(1)(b) is false.
Section 107(8) of Division 6 provides authorities for the Minister to make available certain information related to a program, limited to the business number of, and the name of (including any trade name or other name used by), the holder of a business number registered under the program. Specifically, this allows the CRA to make available information on those persons that are registered under the fuel charge program directly or through the Canada.ca website as previously mentioned.
INTERPRETATION GIVEN
Where an exemption certificate was provided to the registered distributor by its client, who properly completed the CRA exemption certificate form, the registered distributor is not required to report and pay the fuel charge. The distributor’s responsibilities include ensuring the document is complete, signed and maintained. The registered distributor can rely on this document for non-registered persons. For registered persons, the registered distributor can rely on this document in addition to confirming the status of the client’s registration through the fuel charge registry.
Addressing specifically transactions that involve registered users of fuel and registered emitters, the revised exemption certificate form includes language that instructs the registered user or emitter using the exemption certificate to self-assess on volumes of fuel that is diverted away from activities for which the fuel was delivered using the exemption certificate. As such, the registered distributor may rely on the exemption certificate provided by its client, in addition to verifying the person’s registration status using the portal under MyBA. Under the legislation, the onus is largely on the registered person, in this instance, the registered distributor’s client, to use the fuel in accordance with the requirements imposed under the legislation and its regulations for that registered person and registration type.
For example, a registered emitter must be a responsible person that has either received a statement or a certificate from the Minister of the Environment confirming that the person is responsible for that facility on which the fuel will be used. Fuel that is received under an exemption certificate by the registered emitter, which is diverted from the facility, must be reported and paid to the CRA by the registered emitter. The CRA will not impose a burden on the registered distributor that would require the registered distributor to identify when, how, and under which circumstance the client, a registered emitter, diverts fuel from a facility, and impose an additional obligation on the registered distributor.
Similarly, fuel that is received under an exemption certificate by a person that a registered user of fuel, for use in a non-covered activity, that diverted away from that activity will generally fall to the registered user of fuel to report and pay a charge on the fuel that is diverted. The CRA will not impose a burden on the registered distributor that would require the registered distributor to identify when, how, and under which circumstance the client, a registered user of fuel, diverts fuel from the activity provided for under the legislation and its regulation.
The term “knows or ought to have known” under paragraph 37(1)(c) provides the authority for the CRA to consider the registered distributor’s diligence when evaluating the responsibility of a registered person (the registered distributor’s client) who made a false declaration.
The Oxford dictionary defines “know” as “to be aware of through observation, inquiry or information” and “ought to” as “used to say what has probably happened or is probably true”, implying some level of scrutiny on the part of the registered distributor. A number of CRA publications, Notices and decisions discuss the meaning of “knows or ought to have known” under various other programs in the context of determining a joint responsibility for failing to comply with an Act of Parliament or regulation. It generally provides that a registered distributor may be aware of its client’s business, without having full knowledge if its client’s detailed activities.
For purposes of the GGPPA, a registered distributor may observe for example, from the exemption certificate, that the document is properly completed and signed, the client is a farmer and the type of fuel for which the farmer is eligible. However, the registered distributor would not be expected to be aware that the farmer is using the fuel, delivered under an exemption certificate, for purposes other than for farming activities, a main condition for a farmer to receive relief from the fuel charge when providing an exemption certificate. Similarly, a registered distributor can observe, not only from an exemption certificate, but through years of dealings with its client, its client’s activities and have a sound understanding of its client’s business.
Where it is found that a client of a registered distributor purposely circumvents its obligations under the legislation and its regulations, the CRA would expect the registered distributor to have completed its due diligence prior to delivery of the fuel, including ensuring that a duly completed and signed exemption certificate, using the CRA form, was provided by the client, and in the case of a registered client, that the registered distributor verified, at least on a periodic basis, the registration status of the client.
The criteria for establishing a joint and several, or solidarily, liability between the registered distributor and its clients could consider a number of factors. In support of a joint responsibility under section 37, the CRA would generally need to establish, for each instance, a set of facts that demonstrate that the registered distributor knew or ought to have known of the false declaration.
In accordance with the qualifications and guidelines set out in GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service, the CRA is bound by the interpretation(s) given in this letter provided that no future changes to the Act, regulations or the CRA’s interpretative policy affect its validity.
If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 343-549-5873.
Yours truly,
Tim Hord
Industry Sector Specialist
Excise Program Integration – Fuel Charge Unit
Excise Duty and Taxes Division
Excise and GST/HST Rulings Directorate
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