Responding to Motor Fuel Tax assessments in the B.C. forestry sector

In British Columbia’s forestry sector, logging and trucking businesses are beginning to take a closer look at how they manage and report fuel use. While the Motor Fuel tax rules themselves haven’t changed, recent enforcement has prompted many operators to reassess long-standing practices — particularly when it comes to using coloured fuel in mixed on- and off-highway operations.

For businesses that rely on marked fuel in remote areas or cross between forest roads and public highways, assessments are surfacing more frequently and creating uncertainty around compliance.

If you’ve received a notice — or aren’t sure whether your operations could be affected — there are steps you can take to reduce the impact and protect your business.

Understanding the Motor Fuel Tax 

The B.C. Motor Fuel Tax applies differently depending on where and how fuel is used. Most forestry businesses are familiar with coloured (or marked) fuel, which is taxed at a lower rate and intended strictly for off-highway use, such as operating on logging roads or remote forest sites. Clear fuel, which includes the full tax, is designed for public roads and highways.

The challenge for many businesses lies in mixed-use scenarios where most operations happen off-highway, but a portion still involves travel on public roads. For example, trucks may operate almost entirely on logging roads but need to drive short distances on highways to reach fuelling stations or job sites. Even minimal highway use can prompt auditors to question the fuel’s eligibility, and in some cases, reassess the full amount.

In one case, a company used marked fuel almost exclusively for off-road work, accounting for 99 percent of its operations. However, because their trucks had to travel on a public highway to reach the fuelling station, auditors deemed the entire purchase ineligible. Although the highway portion was minimal, the full amount was reassessed.

Who’s affected, and why

 Forestry contractors operating mixed-use operations are at the greatest risk, including:

• Logging businesses operating both on- and off-highway trucks
• Mill operators with private transport fleets
• Contractors hauling logs between forest roads and nearby highway connections

Purchasing coloured fuel for mixed-use scenarios, even when most operations are off-highway, can trigger an assessment. If auditors determine that any portion of that fuel was used for an ineligible purpose, they may reassess the entire purchase, rather than just the unauthorized portion.

While these assessments aren’t concentrated in one region, businesses operating in the Interior and northern parts of B.C. have seen increased activity. This trend may continue as enforcement efforts expand.

The impact: More than just a bill

Assessments often span multiple years, typically covering two or four. They’re usually calculated based on a sample period and projected over the full timeframe, which can multiply a slight discrepancy into hundreds of thousands of dollars in tax. Auditors often apply interest and, depending on the circumstances, penalties.

These assessments are significant in any industry, but particularly challenging in forestry, where tight margins and fluctuating market conditions are already common. Several businesses have received initial assessments over $500,000, and in at least one case over $1 million.

What makes this more difficult is that payments are due immediately. Unlike some federal programs where businesses can delay payments during an appeal, the B.C. Motor Fuel Tax rules require that businesses pay upfront, even while waiting for an objection to be reviewed.

What happens during an audit

If selected for audit, a business will be required to provide fuel purchase records, fleet data, and documentation on the use of fuel. Auditors typically request:

• Invoices or slips from fuel transactions
• A list of vehicles and equipment
• Operational details, including where trucks were driven and for what purpose
• Calculations showing distances, usage estimates, and job site locations

Auditors may select a sample period and use it to estimate usage patterns. Each auditor has some discretion in how they approach the case. Some audits have resulted in partial assessments based on the proportion of unauthorized use. Others have taken a more comprehensive approach, reviewing the full fuel purchase and applying penalties where applicable.

In several cases, forestry operators weren’t even aware they were at risk. Many had used coloured fuel the same way for years and assumed they were compliant. Others simply weren’t monitoring what portion of their routes technically crossed public roads.

Responding to an assessment

The most important thing to know is don’t panic. Receiving a letter doesn’t mean your case is closed, or that you’ve done something wrong.

If you respond early, particularly during the audit stage, there may be an opportunity to resolve the issue without the need for a lengthy appeal. Addressing the issue at this stage can reduce or eliminate the need to pay upfront.

Many forestry operators have successfully reduced their assessments by providing detailed documentation showing authorized use. One audit scenario involved an initial assessment of $600,000 that was ultimately educed to just over $10,000 after the business submitted trip-by-trip records, route maps, and usage logs. Auditors accepted that only a small percentage of the fuel was used on public roads, and revised the assessment accordingly.

The best thing you can do is to keep your records organized and be ready to explain how and where your fuel was used.

What if you miss a deadline?

If you’ve already missed the first deadline, don’t assume it’s too late. Auditors often issue proposal letters before finalizing an assessment. If you respond before the file is closed, they may grant an extension or allow additional time for documentation to be submitted.

However, if too much time passes or there’s no response at all, the assessment may proceed automatically. And once finalized, it becomes significantly harder to challenge. If you operate in a remote area, it’s worth checking your mail regularly in case a notice has been sent to you.

Planning ahead: How to reduce risk

If your operations involve any amount of mixed-use fuel, now is the time to review your processes. The simplest way to reduce risk is to switch to clear fuel if able. While clear fuel is more expensive, you may be eligible for a rebate on any portion used for authorized off-highway activity.

The rebate process enables you to recover the tax difference, provided you maintain proper records and can demonstrate eligible use. Making the switch not only keeps you compliant but also eliminates the risk of full reassessments and penalties.

In addition to switching fuels, some businesses are now conducting voluntary disclosure or self-assessments. It allows them to proactively remit tax on past unauthorized use, demonstrating good faith, and reduces the likelihood of future penalties.

Documentation that makes a difference

Whether you’ve received a notice or are just preparing ahead, documentation matters. Strong records can mean the difference between a manageable adjustment and a full audit with interest and penalties. Start by organizing:

• Fuel purchase records (including invoices and supplier details)
• GPS logs or telemetry data, if available
• Route maps or summaries of daily operations
• Truck and equipment usage by job site
• Calculated estimates of authorized vs. unauthorized fuel use

Even if the information isn’t perfect, presenting a clear, organized breakdown helps support your case and can influence how auditors respond. Many forestry operators know their operations well — it’s just a matter of getting that knowledge onto paper in a way that aligns with what auditors are looking for.

Final thoughts: Preparing with confidence

Increased enforcement of the B.C. Motor Fuel Tax rules has created a layer of complexity that many forestry businesses weren’t prepared for. While the legislation hasn’t changed, the consequences of misunderstanding the rules, especially around fuel eligibility, have become more serious.

If you’re unsure whether your current fuel use qualifies, or if you’ve already received a notice, the best thing you can do is act early. Being proactive can reduce your exposure, avoid costly surprises, and give you more control over how the issue is resolved.

The proper documentation, a clear understanding of your operations, and early engagement can make all the difference in turning a potential risk into a manageable outcome.