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Clearing the haze around the carbon tax

(Source: Truck News: Tax Talk, July 2019)

Tax Talk with Scott Taylor
Whether you call it a tax, a levy, a fuel charge, or a pricing system, the result is the same: the cost of fuel is higher and there’s more reporting to be done thanks to carbon taxes.

As of April 1, the federal government has applied its carbon pricing system to Ontario, New Brunswick, Saskatchewan, and Manitoba (all other provinces already had a carbon pricing system in place by that date).

The system takes effect in Nunavut and Yukon on July 1, and with Alberta having scrapped its provincial carbon tax system on May 30, that province may soon be required to join the federal program.

I’m not going to get into the politics of this issue. For now, let’s just focus on how the carbon tax affects owner-operators and specifically, their broker settlements.

Like IFTA, if you pay the carbon tax in the pump price, you may get some back or owe more based on where you travel and consume your fuel.
Similar to IFTA

The Federal Carbon Pricing Backstop is a tax on CO2 emissions that applies to 12 different types of businesses, including trucking. The Canada Revenue Agency (CRA) is responsible for managing the program, which ultimately affects you similar to IFTA.

Provinces that have a carbon pricing program typically adjust their IFTA rate to include the carbon tax. That means any carbon tax refunds or payables get buried in your net IFTA result.

Because the new carbon tax is federal, it cannot be added to IFTA rates since they are provincially controlled.

Therefore, all inter-jurisdictional carriers that travel to Ontario, New Brunswick, Saskatchewan, Manitoba, Nunavut, and Yukon are required to register with the CRA’s federal fuel charge registration system and report their carbon taxes every quarter.

It’s yet another tax filing to CRA based on the methodology of distance traveled in various jurisdictions and calculating the fuel used there.

Like IFTA, if you pay the carbon tax in the pump price, you may get some back or owe more based on where you travel and consume your fuel. If your carrier charges your net IFTA to you on your broker settlements, then you should now start to see a net carbon tax refund or payable also being charged.

Where should you buy fuel?

The carbon tax should not change where you should buy fuel.

Because it is refundable, the fuel charge is removed when you calculate the net fuel price. If you have to drive 100 kilometers in Saskatchewan, you’re going to pay carbon tax on your fuel consumption for those kilometers whether you buy the fuel there or anywhere else.

Buying diesel in the U.S. is not the answer to avoiding the tax because you’ll just have to pay it later based on your travel in Canada. That said, the reverse is also true: any carbon tax paid in Canada is refundable for travel in the U.S.

Short-term pain

There are still details to be worked out. For example, there was confusion at first about how the tax applies to an owner-operator who is using the IFTA licence of someone else, but CRA has confirmed that the holder of the IFTA licence is required to register and report the fuel charges.

And since we are coming up to a federal election in October, this whole program could be changed or scrapped. We’ve spent countless hours updating our systems so that we can calculate this new tax and report on it for our carrier clients. CRA employees have spent countless hours organizing systems and forms and registrations. All for something that may last six or seven months. Now that’s expensive.

Scott Taylor is vice-president of TFS Group, providing accounting, bookkeeping, tax return preparation, and other business services for owner/operators.
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