13 June 2006 Excise Interpretation 79367 - Licensing Requirements

Please note that the following document, although correct at the time of issue, may not represent the current position of the Agency. / Veuillez prendre note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'Agence.

Dear XXXXX:

Thank you for your fax XXXXX concerning the application of the Excise Tax Act to bio-diesel and diesel fuel. You have indicated that your company is about to begin to purchase bio-diesel and diesel fuel and then blend the two products together either at the customer's facility or a third party facility.

All legislative references are to the Excise Tax Act and the regulations therein, unless otherwise specified.

Interpretation Requested

You would like to know the licensing requirements, application procedure, and cost associated with the purchase, blending and subsequent sale of bio-diesel and diesel fuel to your customers. Further, you have asked at what point does the excise tax attach to the sale of the product.

Interpretation Given

Based on the information provided, we will highlight the relevant legislation associated with licensing requirements and the process for acquiring an excise tax license.

You have indicated that your company intends to buy bio-diesel and diesel fuel to be blended for sale to clients. This activity under the ETA is found in paragraph (f) under the definition of a "manufacturer or producer" in subsection 2(1) as follows:

"f) any person who, by himself or through another person acting for him, prepares goods for sale by assembling, blending, mixing, cutting to size, diluting, bottling, packaging or repackaging the goods or by applying coatings or finishes to the goods, other than a person who so prepares goods in a retail store for sale in that store exclusively and directly to consumers,"

The above definition would describe your business activity of "preparing goods for sale by ... blending"

A manufacturer of excisable goods (in this case, diesel fuel subject to tax of $0.04 cents per litre) may, under licence, purchase the diesel fuel from a supplier without paying the excise tax. Section 64 requires every person who is required under Part III to pay taxes shall, from time to time as required under the regulations, apply for a licence in respect of that Part. The blending of fuel oil falls under Part III.

The resulting Manufacturer's or E licence is required when the sales value of the goods is in excess of $50,000 per calendar year. The application for this licence is made by submitting Form L-15 (available on line at the Canada Revenue Agency) and faxing it to Excise Duties and Taxes Division at 613-954-2226. We have attached a copy of the L-15 hereto. There is no cost associated with this application.

Point of Taxation, Section 23(2)

This section states that the tax shall be paid on goods manufactured or produced and sold in Canada at the time of delivery of the goods to the purchaser. Section 23(3) further stipulates that if the fuel is delivered by or on behalf of the manufacturer or producer thereof to a retail outlet, the fuel shall be deemed to have been delivered to a purchaser thereof.

Blended Bio-Diesel

Paragraph 2 of subsection 23.5 states that there is no excise tax imposed on bio-diesel. Further, paragraph 3 of the same subsection states that where diesel fuel has been blended with bio-diesel fuel to produce a diesel-bio-diesel fuel, the excise tax is not payable on the portion of the diesel-bio-diesel fuel that is equal to the percentage by volume of bio-diesel fuel in the fuel.

We are enclosing a copy of "Excise Taxes and Special Levies Memoranda Series" 2.1 (Licences).

The foregoing comments represent our general views with respect to the subject matter of your request. These comments are not rulings and, in accordance with the guidelines set out in GST/HST Memorandum 1.4, Goods and Services Tax Rulings, do not bind the Canada Revenue Agency with respect to a particular situation. Future changes to the Excise Tax Act, regulations, or our interpretative policy could affect this interpretation.

If you require clarification with respect to any of the issues discussed in this letter, please call me directly at (613) 952-5323.

Yours truly,

David F. Turnbull
Excise Taxes Unit
Excise Duties & Taxes Division
Excise and GST/HST Rulings Directorate

2006/06/08 — RITS 79438 — Partial Exemption of Excise Tax for XXXXX