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 Tax and Fuel Charge Division
Place de Ville, Tower A, 11th floor
320 Queen Street
Ottawa, ON K1A 0L5
[Addressee]
Case Number: XXXXXXX
Date: November 23, 2023
Dear [Client]:
Subject: Interpretation of the federal excise tax for fuel used as ships’ stores
Thank you for your letter of July 14, 2021, concerning the application of the Excise Tax Act (the Act) involving fuel used as ships’ stores between Company A and Company B. We apologized for the delayed written response.
All legislative reference are to the Act.
STATEMENT OF FACTS
We understand the following:
1. Company A holds an excise tax manufacturer’s licence under the Act.
2. Company B, is a non-resident and is unlicensed under the Act.
3. Company B has a vessel, the […information about Company B] and is engaged in international trade. Diesel fuel is consumed in the operation and maintenance of the conveyance.
4. On [mm/dd/yyyy], Company B travelled from Sandusky, Ohio to Windsor, Ontario and purchased [...] litres of diesel fuel from Company A. An amount equal to the federal excise tax (FET) of $0.04 per litre was embedded in the purchase price. Company B then travelled to Sault Ste. Marie, Ontario.
INTERPRETATION REQUESTED
Company A would like to know if the FET was applied correctly on the sale of diesel fuel to Company B.
INTERPRETATION GIVEN
Based on the facts set out above, Company A correctly applied the FET in the sale of diesel fuel to Company B.
Legislation
Excise tax imposing provisions:
Subsection 23(1) of the Act states: “subject to subsections (6) to (8), whenever goods mentioned in Schedule I are imported or are manufactured or produced in Canada and delivered to a purchaser of those goods, there shall be imposed, levied and collected, in addition to any other duty or tax that may be payable under this or any other law, an excise tax in respect of the goods at the applicable rate set out in the applicable section of that Schedule, computed, if that rate is specified as a percentage, on the duty paid value or the sale price, as the case may be.”
Subsection 23(2) of the Act states: “where goods are imported, the excise tax imposed by subsection (1) shall be paid in accordance with the provisions of the Customs Act by the importer, owner or other person liable to pay duties under that Act, and where goods are manufactured or produced and sold in Canada, the excise tax shall be payable by the manufacturer or producer at the time of delivery of the goods to the purchaser thereof.”
Refunding provisions:
Section 68.17 of the Act states: “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.”
Subsection 68.01(2) of the Act states: “if tax under this Act has been paid in respect of fuel and no application is made in respect of the fuel by any person under section 68.17 or 70, the Minister may pay an amount equal to the amount of that tax to a purchaser who applies for the payment and who uses the fuel as ships’ stores.”
Eligibility provisions:
Subsection 3(1) of the Ships’ Stores Regulations state: “the classes of goods described in column II of an item of the schedule are hereby designated as ships’ stores for use on board a conveyance within any class of conveyance described in column I of that item, subject to any applicable limitation set out in a note at the end of the schedule.”
Subsection 3(2) of the Ships’ Stores Regulations state: “for the purpose of subsection (1), goods are considered to be used on board a conveyance if they are:
(a) goods that are consumed in the operation and maintenance of the conveyance;
(b) goods that are consumed by a person on board the conveyance;
(c) souvenirs, gifts, edible supplies, wines, spirits, ales, beers, domestic or imported cigars or domestic stamped manufactured tobacco or imported manufactured tobacco that are sold on board the conveyance, unless it is a Canadian warship that is described in column I of subitem 3(1) of the schedule, for consumption outside Canada; or
(d) goods described in column II of subitem 3(1) of the schedule that are sold on board a Canadian warship that is described in column I of that subitem 3(1)
(i) within 30 days after the date on which the conveyance arrived in a Canadian port, or
(ii) for consumption outside Canada.”
Subsection 2(1) of the Ships’ Stores Regulations defines inland waters ship as “means a ship, other than an eligible ship as defined in subsection 68.5(1) of the Excise Tax Act, engaged in trade on an inland voyage, as defined in that subsection.”
Definitions
Subsection 68.5(1) of the Act defines:
Eligible ship means “a ship that is a tug, ferry or passenger ship engaged in trade on an inland voyage and that:
(a) is not proceeding outside Canada other than to
(i) a part that lies within the United States of any lake or river a part of which is include in the inland waters of Canada, or
(ii) Lake Michigan; and
(b) is not engaged in international trade.”
Inland voyage means “a voyage (other than a minor waters voyage)
(a) on the inland waters of Canada, together with those parts that lie within the United States of any lake or river included in the inland waters of Canada; or
(b) on Lake Michigan.”
EXPLANATION
The sale of fuel for use as ships’ stores is always taxable under the Act. There is no provision that allows fuel for use as ships’ stores to be sold exempt of the FET. However, the Act provides for a refund of the FET in specific circumstances, if the fuel is used on board a conveyance found in the schedule of the Ships’ Stores Regulations.
In the case at hand, the diesel fuel sold from Company A to Company B is considered fuel sold for use as ships’ stores as Company B’s vessel, the […information about Company B] is engaged in international trade and meets the definition of an inland waters ship, a listed conveyance under subsection 7(3) of the Ships’ Stores Regulations. The voyage from Windsor Ontario to Sault Ste. Maire, Ontario is an inland waters voyage. Therefore, the diesel fuel used on board the […information about Company B] is eligible for a refund.
There are two refunding provisions in the Act for ships ‘stores, however only one refund can be claimed.
Under Section 68.17, a vendor who has paid excise tax on fuel for use as ships’ stores and has sold this fuel, may apply for a refund in the amount equal to the excise tax that was paid when the fuel was purchased as long as the purchaser certifies that the fuel will be used as ships’ stores. The vendor has two years after the sale of the fuel to apply for the refund.
Under subsection 68.01(2), if an end-user purchased fuel from a vendor for use as ships’ stores, paid the excise tax and no application for a refund was made under Section 68.17 or 70, the end-user may apply for a refund in the amount equal to the excise tax that was paid to the vendor. The end-user must apply within two years after the purchase.
For additional information, refer to ETSL 78-Information for Vendors, Purchasers and End-Users Regarding the Application of the Excise Tax on Fuel for Use as Ships’ Stores.
Documentation supporting the refund application must be reliable and verifiable. It must indicate the date of the transaction, the FET paid and a description and the quantity of the fuel delivered onboard the listed conveyance. To support the fact that the fuel used on board the conveyance qualifies for ships’ stores, the documentation must also identify the listed conveyance, the departure location of the conveyance and the destination.
A refund application can be made using form N15 Excise Tax-Application for Refund/Rebate.
Should you have any questions or require clarification, please call me at 343-572-8331. For account-related enquires, please call the Prince Edward Island Tax Centre at 1-877-432-5472.
Sincerely,
Martha Persaud
Martha Persaud, CPA, CMA
Senior Rulings Officer
Excise Taxes and Other Levies Unit
Excise Tax and Fuel Charge Division
Legislative Policy and Regulatory Affairs Branch
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