Canada: Changes to excise tax relief for diesel fuel

Canada: Changes to excise tax relief for diesel fuel

Canada’s 2016 federal budget includes provisions to limit the scope of two excise tax relief provisions for diesel fuel used as heating oil or used for generating electricity.

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The measures will apply with respect to:

  • Fuel delivered or imported after June 2016
  • Fuel delivered or imported before July 2016 that is used, or intended to be used, after June 2016

Generating electricity

Currently, the law provides an excise tax exemption for diesel fuel used in or by a vehicle to generate electricity if more than half of the electricity generated is used for purposes other than the operation of the vehicle (e.g., to heat, cool or light the vehicle, or to prepare meals or operate entertainment systems for passengers of the vehicle).  

The budget proposes to restrict the exemption so that it does not apply to fuel used to produce electricity in any vehicle (e.g., trains, ships, airplanes, tractor trailers), regardless of the purpose for which the electricity is used.

Heating oil

The law also provides an excise tax relief for fuel oil—including diesel fuel—that is consumed to produce heat for any purpose, including in industrial processes (e.g., diesel fuel used by a paving contractor in the production of asphalt). 

The budget proposes to limit this relief to fuel oil that is consumed exclusively for providing heat to a home, building or similar structure, and is not consumed for generating heat in an industrial process.

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