Carbon Tax – Adjustment Day

With the Federal carbon tax program being implemented on April 1, 2019 and the rate being increased annually until the year 2022, an adjustment day is required for those that hold fuel in storage as inventory in a federally-regulated province.* This is to reflect the fuel on hand at the beginning of that period did not bear the federal carbon charge at the correct rate. 

From 2020 to 2022, the adjustment date is April 1 for all the federally regulated provinces. The adjustment is the difference between the current rate and the prior year rate and will be remitted. Those affected in Alberta will have two adjustment dates in 2020. The first is January 1, 2020 when they form part of the federal program, and then again on April 1, 2020 when the first rate increase takes effect.

Exclusions

The adjustment day calculation is relevant to groups holding a large quantity of fuel as inventory on hand at that start of adjustment day. The fuel charge is meant to tax the use of fuel, but the legislation generally taxes a person when they purchase the fuel. The adjustment day calculation captures the tax that would have otherwise been payable for the fuel not yet used on hand prior to the adjustment day.

The adjustment day calculation specifically excludes fuel in the supply tank of a vehicle. For example, an interjurisdictional road carrier that has many trucks in their fleet is not required to do an inventory of how much fuel is remaining in the fuel tank of each truck within a federally regulated province on March 31. 

The following categories have an exclusion from the adjustment day fuel charge reporting:

• A registered emitter and the fuel are in the covered facility of the person, or in transit to the covered facility location
• A registered user and the fuel are eligible for an exemption certificate
• A farmer, and the fuel is a qualifying farming fuel
• A fisher, and the fuel is a qualifying fishing fuel

In these situations, the fuel is unconditionally exempt (farmers and fishers) or accounted for differently (registered emitters and users).

The fuel charge is not be payable on the adjustment day if they are one of the following types of persons:

• Registered distributor
• Registered specified air carrier
• Registered specified marine carrier
• Registered specified rail carrier

The fuel is not relieved of the fuel charge in a federally regulated province but will be accounted for within the reporting period by each of these persons according to their remittance obligations.

The fuel charge is not payable on fuel designated as ships’ stores for use on board a conveyance of a prescribed class under the Ships’ Stores Regulations.

The fuel charge is not payable on a type of fuel held by the person in a federally regulated province at the beginning of the adjustment day if the amount of the fuel charge is less than $1,000. As an example, this would be 18,621 litres of diesel fuel and 22,623 litres for gasoline.

Fuel Charge – Adjustment Day

The fuel charge on the adjustment day is to be reported and paid by the end of the following month (e.g.; for April 1, 2020, it is due by May 31, 2020).

The fuel charge quantity is determined as A x B, where:

A = the total fuel quantity of that type in the listed province held on adjustment day

B = the fuel charge rate for that type of fuel for the listed province at the time it becomes payable

This will provide a fuel charge amount.

The amount of fuel charge to remit is adjusted for fuel charge already paid. For April 1, 2020 and July 1, 2020 accordingly, the fuel charge paid for the fuel on hand in the listed province is zero. The adjustment is calculated using the formula A – B, where:

A = the amount of the fuel charge for the quantity of fuel and the listed province (as determined above)

B = (0 if the adjustment day is April 1, 2019 or July 1, 2019 depending on the listed province); otherwise it is the fuel charge amount for the quantity of fuel and the listed province based on the fuel charge rate in effect on the day before the adjustment.

For example, on March 31, 2020 the gasoline held in inventory by ABC Co for their only retail location in Manitoba is 40,000 litres. The fuel rate for gasoline is $0.0442 in 2019 and increases to $0.0663 in 2020.

Calculation part 1: 40,000 litres on hand x 2020 fuel rate of $0.0663 = $2,652 fuel charge required to be remitted on May 31, 2020.

Calculation part 2: Deduction for fuel charge already paid on the same inventory: 40,000 litres on hand x 2019 fuel rate of $0.0442 = $1,768.

The additional fuel charge amount to remit is $884 ($2,652 - $1,768).

*Federally regulated provinces refer to Manitoba, New Brunswick, Ontario, Saskatchewan, Yukon and Nunavut as they are provinces that fall under the federal carbon tax because they do not have a provincial carbon tax. Alberta will fall under this program beginning January 1, 2020.