Tax Interpretation Manual: Carbon Tax Act - General Rulings
The Carbon Tax Act came into effect on July 1, 2008 (Section 16 of the Act came into effect June 1, 2008).
The purpose of the carbon tax is to encourage individuals and businesses to make more environmentally responsible choices, reducing their use of fossil fuels and related emissions.
The carbon tax applies to fuels at different rates depending on their carbon emissions, and the rate for each fuel type is applied consistently throughout British Columbia.
The tax rates, effective July 1, 2008, were based on $10 per tonne of carbon dioxide equivalent (CO2e) emissions from the combustion of each fuel. CO2e is the amount of carbon dioxide, methane and nitrous oxide released into the atmosphere, with the non-carbon dioxide emission levels adjusted to a carbon dioxide equivalent basis.
The carbon tax is a consumption tax and is payable at the time of retail purchase or use of fossil fuels in British Columbia. Generally businesses, individuals and visitors to British Columbia, who purchase or use fossil fuels in the province, pay the carbon tax. Fuel producers and manufacturers of fuel in British Columbia, such as oil and gas companies or coal mines, who use their own fuel in the course of their operations, will also pay the carbon tax on the fuel they use.
The Act post-dates and is modeled on the Motor Fuel Tax Act (MFTA). Both levy an amount of money per unit of volume of fuel. Neither levy tax on the dollar value of the fuel purchased. However, unlike carbon tax, motor fuel tax applies to fuels at different rates depending on where in British Columbia fuel is purchased and how it is used.
Since the Act is modeled on the MFTA, statutory powers of the director, the tax collection scheme, bonding, licensing and enforcement, and other administrative matters are similar under both Acts. The director for the purposes of the Act is the same director as the MFTA and the Motor Fuel and Carbon Section of the Ministry of Finance is the key industry contact for both Acts.
While motor fuel tax is a tax on substances for use in an internal combustion engine, the carbon tax is broader, applying to all fossil fuels. In addition, there are far fewer exemptions from the carbon tax and no coloured fuel scheme.
From July 1, 2009 to July 1, 2012, carbon tax rates increased on July 1st of each year*. The increases in tax rates were based on the dollars per tonne of CO2e emissions, as set out below:
- July 1, 2009 - $15 per tonne of CO2e emissions
- July 1, 2010 - $20 per tonne of CO2e emissions
- July 1, 2011 - $25 per tonne of CO2e emissions
- July 1, 2012 - $30 per tonne of CO2e emissions
*Please note effective January 1, 2010, the carbon tax rates for gasoline and light fuel oil (including diesel fuel, locomotive fuel, heating oil, and industrial oil) were each reduced by five per cent. For a complete table of carbon tax rates by year see CTA/SCHEDULE 1/GENERAL/R. 1.
Under federal law, the federal goods and services tax (GST) of five percent applies on top of the carbon tax.
Generally, under federal legislation, HST applies to the price a person pays for a good or service, and that price includes provincial tax. The rest of this section sets out relevant federal legislation.
The HST is imposed by the Excise Tax Act, R.S.C. 1985, c. E-15 (ETA).
The ETA imposes a 12 percent tax on the “value of consideration” of a supply (section 165 ETA).
The “value of consideration” includes a “provincial levy”, unless the provincial levy is specifically excluded by regulation (section 154 ETA, paragraph 154(2)(b) ETA). Carbon tax is not specifically excluded.
Under Section 125 of the Constitution Act, 1867 (Canada), neither level of government can tax the lands or property of the other. However, the federal government and a province may agree to pay the taxes imposed by the other. The federal government and British Columbia have entered into a Reciprocal Taxation Agreement per section 32 of the Federal-Provincial Fiscal Arrangements Act, R.S.C. 1985, c. F-8 [“FPFAA”]. Under the agreement, among other things, Canada agrees to pay a “provincial tax or fee”, as that term is defined in subsection 31(1) of the FPFAA. The carbon tax falls under the “provincial tax or fee”. Therefore, the Government of Canada pays carbon tax.
See CTA/SEC. 1/PERSON/Int.
The provincial government pays carbon tax. There is no exemption from the carbon tax for the provincial government.
Under section 125 of the Constitution Act, 1867 (Canada), provinces are exempt from paying other provinces' taxes. For example, if another provincial government purchases fuel in British Columbia, it is not required to pay the carbon tax.
The British Columbia carbon tax is based on Greenhouse Gas (GHG) emissions generated from burning fossil fuels. It imposes tax on each tonne of GHG that is emitted into the atmosphere. The intention is to provide an economic incentive to reduce emissions into the atmosphere.
Wood is not taxed because it is not a fossil fuel.
A "carbon credit" or “carbon offset” is a unit a person can purchase as a contract under which one party agrees to take action that offsets a specific amount of carbon gas production (e.g. reforestation). Businesses and individuals can purchase offsets from carbon offset markets to mitigate their own greenhouse gas emissions.
A person cannot reduce the amount of carbon tax they owe under the Act by purchasing or using carbon offsets or carbon credits.
Liquefied Natural Gas (LNG) is natural gas which has been condensed into a liquid form by means of cooling. As natural gas, any calculation of tax on LNG must be based on the standard reference conditions applicable to gasses as defined in the Act. Therefore, any calculations of tax must be made after correcting measurements to reflect the volume of natural gas present in the given volume of LNG at a temperature of 15°C and an atmospheric pressure of 101.325 kPa. Each liquid litre of LNG contains approximately 600 litres of gaseous natural gas under the standard reference conditions specified in the Act.