The Meaning of the Term "Heating Oil" for the Purpose of the Definition of "Diesel Fuel" in Subsection 2(1) of the Excise Tax Act (ETA)

Notice to the reader: This is an HTML version of the printed publication. It is also available in other formats. To view an exact rendition of the printed publication, see the .pdf version.

Please note that the following policy statement is under review as a result of the decision of the Federal Court of Canada in Imperial Oil vs. Canada (2007 FC 464). Following this review, the CRA will be issuing a revised policy statement.

ET/SL Policy Statement EP-001

Date of Issue

April 29, 2002

Subject

THE MEANING OF THE TERM "HEATING OIL" FOR THE PURPOSE OF THE DEFINITION OF "DIESEL FUEL" IN SUBSECTION 2(1) OF THE EXCISE TAX ACT (ETA)

Legislative Reference(s)

Subsection 2(1) of the ETA

National Coding System File Number(s)

52100-10

Issue and Decision

Subsection 2(1) of the ETA defines "diesel fuel" to include,

The meaning of the term "heating oil" is not defined in the ETA. Historically, the Canada Customs and Revenue Agency (CCRA) has interpreted the term in accordance with its "ordinary meaning" to mean,

However, in a recent court decision, it was ruled that the term "heating oil" is to be interpreted in accordance with its "technical meaning".

In this regard, the CCRA's position is that the term "heating oil" means,

Furthermore, the CCRA construes the term "oil-burning equipment" to mean,

Examples of oil-burning equipment include oil-burners, boilers and furnaces.

Determinative Factors

The CCRA's new position concerning the meaning of the term "heating oil" does not change the fact that heating oil is conditionally excluded from the definition of "diesel fuel" in subsection 2(1) of the ETA based on two determining factors: the intended use of the fuel oil and the actual use of the fuel oil.

The CCRA maintains its existing policy of examining how a fuel oil is manufactured and marketed in determining the intended use of the fuel oil. In this regard, a fuel oil will be considered to be intended for use as heating oil where it is manufactured and marketed commercially for use in oil-burning equipment.

The CCRA also maintains its existing policy of examining the end-use of a fuel oil in determining the actual use of the fuel oil. In this regard, a fuel oil will be considered to be actually used as heating oil where it is in fact consumed in oil-burning equipment.

The CCRA recognizes that it may be difficult for licensed manufacturers or producers to ensure that fuel oils are actually consumed in a manner consistent with how they are manufactured and marketed, especially given that manufacturers frequently sell fuel oils to licensed wholesalers or other distributors and not directly to end-users. In this regard, any fuel oil intended by the licensed manufacturer or producer for use as "heating oil" will be conditionally excluded from excise tax and permitted to be sold through the distribution chain on an excise tax-excluded basis. This is, of course, on condition that it is sold to a licensed wholesaler or other distributor of fuel oil who subsequently sells it to an end-user for actual use as "heating oil" and not diverted to a taxable sale or use.

Other Factors

The CCRA acknowledges that some fuel oils are used interchangeably between oil-burning equipment and internal combustion engines of the compression-ignition type regardless of the intended use of the fuel oil. Where the actual use of the fuel oil varies from its intended use, the CCRA has traditionally and will continue to place a greater emphasis on the actual use of the fuel oil in determining whether the fuel oil is subject to excise tax.

1. Persons who purchase commercial diesel fuel for use exclusively as heating oil (i.e., for use in oil-burning equipment) will be permitted to purchase the fuel oil on an excise tax-excluded basis. To substantiate their usage claim, the purchaser should provide a written certificate of exemption to his supplier at the time of purchase in order to receive the fuel oil exempt from excise tax. The certificate of exemption should read,

The supplier may then file a refund application with the CCRA to recover any excise tax paid on the diesel fuel.

2. Pursuant to subsection 23(9.1) of the ETA, any heating oil that is purchased or imported without payment of excise tax is subject to tax when the fuel oil is sold or appropriated for a purpose for which the excise tax on diesel fuel is payable (e.g., for use in internal combustion engines of the compression-ignition type). The tax is payable by the person who sells or appropriates the heating oil for a purpose for which the excise tax on diesel fuel is payable at the following time:

• where the heating oil is sold for a purpose for which the excise tax on diesel fuel is payable, at the time of delivery to the purchaser; and

• where the heating oil is appropriated for a purpose for which the excise tax on diesel fuel is payable, at the time of that appropriation.

As a result of these provisions, a licensed manufacturer or producer, as well as a licensed wholesaler or other distributor of fuel oil is required to account for excise tax on any heating oil that he knowingly sells for use in internal combustion engines of the compression-ignition type. If the heating oil is appropriated for use in internal combustion engines of the compression-ignition type after the time of purchase then the person who appropriates the fuel oil is required to account for excise tax at that time.

Date modified:

2002-06-06