ETSL78 Information for Vendors, Purchasers and End-Users Regarding the Application of the Excise Tax on Fuel for Use as Ships' Stores

June 2019

The information in this notice is for reference purposes only and does not replace the Excise Tax Act or its regulations. Should there be any discrepancy between the information in this notice and that contained in the Act or its regulations, the legislative provisions apply. If the information in this publication does not completely address your particular situation, you may wish to refer to the Act or appropriate regulation, or call 1-866-330-3304 for additional information.

In this publication, all legislative references to the Act are to the Excise Tax Act, unless otherwise specified.

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General

Under section 23 of the Act, an excise tax is imposed on certain petroleum products and renewable fuels (collectively referred to as fuel in this notice), whether they are imported or are manufactured or produced in Canada.

Under section 64 of the Act, persons who manufacture or produce goods subject to the excise tax must apply to the Canada Revenue Agency (CRA) for a manufacturer's excise tax licence. Also, persons who are wholesalers of goods that are subject to the excise tax may apply to operate under a wholesaler's excise tax licence.

Licensed manufacturers and licensed wholesalers (licensees) must report, and pay, the excise tax on the taxable sales of fuel. The tax is payable at the time the fuel is delivered to the purchaser. Sales made between a licensee and an unlicensed person are taxable, and no further excise tax applies when the fuel is resold by the unlicensed person.

Refund in respect of fuel sold for use as ships' stores

Under the Ships' Stores Regulations, certain classes of goods are designated as ships' stores when they are for use on board eligible conveyances. These goods include fuel, but not lubricants. The sale of fuel for use as ships' stores is always taxable. There is no provision in the Act allowing licensees to sell fuel for use as ships' stores exempt of the excise tax. However, the Act provides for a refund of the excise tax in specific circumstances if the fuel is for use as ships' stores.

Sale and delivery by a licensee

When a licensee sells and delivers fuel directly to a purchaser that is the end‑user (purchaser/end-user) for use on board an eligible conveyance, the sale of that fuel is subject to the excise tax. The licensee must report the sale on their tax return and pay the excise tax.

However, where the purchaser/end-user certifies that the fuel will be used as ships' stores, the licensee who paid the excise tax may apply for a refund of that tax under section 68.17 of the Act. The refund would essentially reduce the cost of the fuel to the licensee, by an amount equal to the refunded excise tax. This would allow the licensee to pass these savings on to the purchaser/end-user by way of a reduced sales price. The purchaser/end-user would therefore effectively have acquired the fuel relieved of excise tax.

Sale by an unlicensed vendor

When a licensee sells fuel to an unlicensed vendor who subsequently resells the fuel for use as ships' stores, the original sale of the fuel by the licensee is taxable under the Act even if that licensee delivers the fuel directly to an eligible conveyance. The licensee must report the sale on their tax return and pay the excise tax. In this circumstance, the licensee would not be eligible for a refund.

However, where the purchaser/end-user certifies to the unlicensed vendor that the fuel will be used as ships' stores, the unlicensed vendor may apply for a refund, under section 68.17 of the Act, of an amount equal to the amount of tax paid by the licensee. The refund would essentially reduce the cost of the fuel to the unlicensed vendor, by an amount equal to the refunded excise tax. This would allow the unlicensed vendor to pass these savings on to the purchaser/end-user by way of a reduced sales price. The purchaser/end-user would therefore effectively have acquired the fuel relieved of excise tax. The application of excise tax is the same if the unlicensed vendor imports the fuel to be sold as ships' stores.

Purchaser/end-user

In both situations above, the purchaser/end-user may apply for the refund of excise tax on tax‑paid fuel under subsection 68.01(2) of the Act if the licensee or unlicensed vendor has not applied for the refund in respect of the fuel.

How and when to apply for a refund

To apply for a refund, Form N15, Excise Tax Act Application for Refund, must be submitted to the CRA within 2 years after the date the fuel was sold if the applicant is a licensee or unlicensed vendor. If the applicant is a purchaser/end-user, Form N15 must be submitted to the CRA within 2 years after the date the fuel was purchased provided no other person has applied for the refund. All applicants must maintain appropriate documentation to support the sale and use of the fuel as ships' stores.

Documentary evidence

Documentation supporting the refund application must be reliable and verifiable. It must indicate the date of the transaction, the excise tax paid and a description and the quantity of the fuel delivered onboard the eligible conveyance. To support the fact that the conveyance qualifies for ships' stores, the documentation must also identify the eligible conveyance, the departure location of the conveyance and the destination.

Further information