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The Carbon Tax and Rail Carriers

The Carbon Tax and Rail Carriers

8 Minute Read

Learn how the federal carbon tax impacts rail carriers.

Partner - Indirect Tax

This information pertains to interjurisdictional rail carriers that travel in more than one province.

The target in this grouping is on both the fuel used in operating the carriers, but also in the case of distributing fuel using the carriers.

Registration Required

Where the rail carrier is operating interprovincially, and one or more of those provinces is a federally regulated province, the person is treated as an interjurisdictional rail carrier where it carries passengers or freight in the form of a commercial service. If all or substantially all the fuel used by the carrier in a calendar year will be used in vehicles and the greatest proportion of the fuel is used in locomotives, it would register as a rail carrier. It would still account for fuel used in other vehicles accordingly in its fuel charge reporting.

There are three rail carriers currently prescribed as a specified rail carrier and requiring mandatory registration. These specified persons are Canadian National Railway Company, Canadian Pacific Railway Company, and VIA Rail Canada Inc.

Registration was first available April 1, 2019.

Voluntary Registration

Voluntary registration does not appear to be an eligible option. The rail carrier would either be exclusive to one province (no registration) or operates across more than one jurisdiction (registration is required). However, the person may have an obligation to register as a distributor, importer, user, etc. It is recommended to review the different types of registration possibilities.

Other Types of Registration

A person applying for registration as a rail carrier may also qualify as:

  • A registered user of fuel in a non-covered activity, or
  • A registered user of combustible waste

Review these registration types to see if they apply to you.

Fuel Charge

The person supplying the fuel to the registered rail carrier would account for the fuel charge on the supply to the carrier. The fuel charge would be embedded in the price the registered rail carrier pays for the qualifying fuel. The registered rail carrier is not eligible to issue an exemption certificate to the supplier. The supplier would be a registered distributor, or possibly a specified rail carrier, that delivers the fuel to the registered carrier into a federally regulated province. 

The registered rail carrier would have an obligation to account for the fuel charge on fuel in its locomotive supply tanks (e.g. fuel tanks) when they import fuel or brings fuel into a federally regulated province where the fuel was not acquired from a registered distributor. For example, filling up in Alberta and having a destination in Saskatchewan. The fuel relating to the use in Saskatchewan needs to reflect the federal fuel charge. 

Exemption Certificate

A registered distributor can accept an exemption certificate from a registered specified rail carrier (CP, CN, or VIA Rail) to relieve the fuel charge from applying at the time of delivery (e.g. embedded in the fuel price). The carrier then accounts for the fuel charge as applicable. This may be to allow better timing of the fuel charge remittance by the registered specified rail carrier and less risk of over-remittance of a fuel charge that would be rebated at a subsequent time.

The registered specified rail carrier can also accept an exemption certificate from another registered specified rail carrier when delivering qualifying rail fuel without the fuel charge applying at that time. 

Fuel Charge Calculation

The fuel charge is straight forward, other than there needs to be a separate fuel charge calculation for each type of fuel.

Note: A separate calculation is needed for each federally regulated province.

The calculation is A + B – C, where:

A = total of all quantities of each of the types of fuel used in a locomotive in the federally regulated province

B= total of all quantities of fuel in respect of which the charge becomes payable during the reporting period

  • For an air or marine carrier, it is the quantity of aviation fuel or marine fuel used by the person in a covered air journey in the federally regulated province
  • If it is road transportation, it is the amount of fuel used by the person in a specified commercial vehicle (e.g.; the transport trucks)
  • This will also include the quantity of fuel that is removed from supply tanks of an aircraft, vessel, locomotive, or specified commercial vehicle of the person in the federally regulated province

C = the total of all quantities of fuel (by fuel type and each calculated separately) of that fuel type that is transferred into a supply tank of the aircraft, vessel, locomotive, or specified commercial vehicle of the person at a location in the federally regulated province during the reporting period.

Example: A registered rail carrier bought 10,000 litres of light oil fuel at the origin of the journey in Alberta. 7,000 litres in total was used to transport goods to a destination in Ontario. 2,000 litres were consumed while in Alberta, and 5,000 litres were used in the federally regulated provinces. Commercial vehicles for the business operate exclusively in Ontario to deposit each good to a nearby destination. 6,000 litres of light oil fuel were purchased for the vehicles in Ontario, and 4,000 litres were used by the vehicles.

A = 5,000 litres is used in federally regulated provinces (in practice, there would be three separate calculations – one for each federal regulated province)

B = 4,000 litres used by vehicles in a federally regulated province

C = 6,000 litres transferred to a supply tank in a federally regulated province

Result: 3,000 litres is subject to the fuel charge [5,000 + 4,000 – 6,000 litres]

The rate for light oil fuel for 2019 is $0.0537 per litre. Therefore, the fuel charge is $161.10.

Other Considerations

  • If another person transports fuel into a federally regulated province on behalf of a registered user, the registered user and not the person transporting the fuel, is considered to have brought the fuel into the federally regulated province. Same concept when fuel is removed from a federally regulated province.
    This is saying the person transporting someone else’s fuel is not considered to be responsible for the user’s fuel charge. The person transporting the fuel may only have to be worried about being a registered carrier themselves (road, rail, air or marine).
  • Fuel in transit through a federally regulated province is not considered to have been brought into the federally regulated province provided it is not being stored in a federally regulated province (other than incidental to the transportation), and the person bringing in the fuel into the federally regulated provinces is a registered emitter or is registered otherwise than only as a road carrier in respect of that type of fuel (e.g. the road carrier has to account for a fuel charge on the fuel they are using their fuel tanks for what is consumed in the federally regulated province in which they are travelling through).
  • The fuel charge is adjusted when we are dealing with biogasoline, biodiesel, and biomethane
  • Fuels in a mixture of two or more fuels is deemed to be the fuel of the type that has the higher proportion in the mixture.
  • Rebates are eligible for fuel being removed from a federally regulated province by a person that is a registered importer and they remove a quantity of fuel from a federally regulated province. The fuel charge on that fuel would have to be accounted for initially, then the rebate can be obtained for what is removed from the federally regulated province. The fuel charge is not to be reduced by the amount of the rebate. An amended return is to be filed in certain cases to affect this reduction (2-year time limit).
*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.


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