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Carbon tax: Is your business compliant?

December 21, 2021

Carbon tax: Is your business compliant?

Synopsis
5 Minute Read

As a small business or organization, you might be required to register and report on Canada’s carbon tax – or face substantial penalties. Find out more.

Any business that owns a large commercial vehicle which crosses into multiple provincial jurisdictions might have carbon tax registration and filing obligations (see our insight What is a carbon tax). This includes construction companies hauling equipment across a territorial border, and sports teams bussing their members from one province to another.

Smaller businesses or other organizations which travel across provincial or territorial borders might not be aware of their obligations – and could face substantial penalties for non-compliance.

Background

Canada’s carbon tax was federally implemented in April 2019. There is a registration, filing, and remittance obligation for carbon tax for many businesses across different industries.

The provinces below (‘listed provinces’) follow the federal carbon pricing system:

  • Alberta (January 1, 2020 onward)
  • Saskatchewan
  • Manitoba
  • Ontario
  • New Brunswick (April 19, 2019 to December 31, 2020)
  • Yukon (July 1, 2019 onward)
  • Nunavut (July 1, 2019 onward)

The other provinces and territories have their own provincial equivalent carbon tax program.

Carbon tax is not like GST / HST. The supplier does not charge and collect carbon tax when fuel is sold. Rather, the supplier self-remits on what was sold. The carbon tax becomes embedded in the fuel price. There are few exemptions and very limited ability to recover carbon tax paid or remitted in error.

In addition, certain businesses, such as the transportation road carrier group (generally, businesses that use fuel in a vehicle to provide commercial transportation of individuals or goods by road), further account for carbon tax on the fuel consumption within the different jurisdictions they operate. They will owe carbon tax if they consume fuel on which they have not paid federal carbon tax (e.g., travelling from B.C. to Alberta), and recover federal carbon tax paid on federal carbon tax-paid fuel consumed in a non-federal carbon tax province (e.g., travelling from Alberta to B.C.). The carrier group files quarterly returns unless they are also registered as a different type of person for carbon tax (e.g., emitter, user, distributor, etc.).

These are not simple returns as much information needs to be gathered and analyzed to fulfil compliance. In some cases, the business only travels within federal carbon tax jurisdictions (e.g., Saskatchewan, Manitoba, and Ontario) and does not owe any additional carbon tax; however, they must still complete and file the returns, which require a breakdown of fuel consumption by jurisdiction.

There are penalties for non-compliance:

  • $2,000 for not registering,
  • Up to four percent of net amount owing for late filing,
  • Late filing interest,
  • Other penalties as applicable.

Who is affected

It is important to establish who must be registered to address reporting and filing obligations.

Most purchasers of fuel will pay the carbon tax at source. The reporting obligations affect those persons that have exceptions and / or exemptions to be able to account for carbon tax differently. These can be large emitters, users of fuel in manufacturing products, fuel distributors, and a few within the carrier group (air, road, rail, and marine). They self-report carbon tax on fuel used and consumed in the listed provinces, and some can issue or accept exemption certificates.

The registration and reporting obligations also apply to certain businesses with vehicles used in “commercial transportation.” Commercial transportation is defined as:

  • Hauling goods or individuals from one jurisdiction to another, and
  • Has two axles and gross vehicle weight more than 11, 797 kilograms (26,007 pounds), or
  • Has three or more axles (regardless of weight), or
  • When combined vehicle and trailer weight, has gross weight of 11, 797 kg (26,007 pounds)

This definition is quite broad. Larger road, rail, air, and marine transportation businesses with activities that clearly fall into this definition are likely compliant with carbon tax reporting and filing requirements, but smaller businesses may not be aware their activities are considered to be commercial transportation and could be offside.

As we are starting to see some Canada Revenue Agency (CRA) audit activity on carbon tax for road carriers, it is important for affected businesses to make sure they are up to date on the required filings.

Next Steps

Consider if your business carries on activities that could fall into the road carrier group. Examples can include:

  • A business hauling grain from one province to another
  • A retail business shipping lumber 10 miles to a job site in a different province or in the U.S.
  • A sports team bussing their team from one province to another
  • Hauling equipment and materials to a job site in another province

If your business or organization does carry on such activities, it is important to ensure you are compliant with carbon tax reporting. Note some businesses will be lower risk than others as the carbon tax is based on fuel volume and where it is consumed.

The CRA introduced complex legislation and requires registrants to report information for more than just a carbon tax liability. We recommend seeking professional advice on preparing and filing these returns.

If you have any questions or concerns with requests for information or proposed reassessments by the CRA, please contact your MNP Advisor.

Resources

For more detailed information about Canada’s carbon tax and how it applies to road carriers, read our insights:

What is a Carbon Tax?

The Carbon Tax and Road Carriers

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