Tax Interpretation Manual: Motor Fuel Tax Act - General Rulings
MFT - GR.1/R.1 – R.3: History Of The Act
The Motor Fuel Tax Act is a consolidation of the three previous fuel tax acts, the Gasoline Tax Act, the Gasoline (Coloured) Tax Act and the Motive Fuel Use Tax Act. The current Act came into effect on December 31, 1985 and, on the same date, the previous Acts were repealed.
Gasoline Tax Act
The Gasoline Tax Act was enacted December 21, 1923 and came into effect on January 2, 1924. Under this Act, tax was imposed on gasoline, defined as "liquid derived from petroleum or natural gas commonly known as gasoline, and all other liquids, by whatever name known or sold, containing any derivative of petroleum or natural gas and produced, prepared or compounded for the purpose of generating power by means of internal combustion or which may be used for such purpose, except the product commonly known as kerosene oil". The Act also contained a refund provision for off-highway use of gasoline. For history of gasoline tax rates see MFTA/Sec. 4/R.1.
Gasoline (Coloured) Tax Act
On June 27, 1947, the Coloured Gasoline Tax Act came into effect. Under this Act, gasoline coloured with a special purple dye supplied by the branch was available for certain off-highway uses which paralleled the uses for which rebates could be claimed under the Gasoline Tax Act. As part of the consolidation of statutes in May 1980, the name Coloured Gasoline Tax Act was changed to Gasoline (Coloured) Tax Act.
Effective March 15, 1985 separate tax rate indexing formulae for marked fuels were introduced. With the exception of marine bunker fuel, this new formulae established a single, general tax rate for fuels taxed under the Gasoline (Coloured) Tax Act. A separate rate was established for bunker fuel.
For history of coloured gasoline tax rates see MFTA/Sec. 5/R.1 and R.2. For bunker fuel tax rates see MFTA/Sec. 11/R.1.
Motive Fuel Use Tax Act
Until July 15, 1959 diesel fuel was taxed under the Gasoline Tax Act at the same rate as gasoline. Effective that date, the Motive Fuel Use Tax Act came into force and established a new rate for motive fuel.
The Act was established specifically to impose a separate tax rate on diesel used in commercial vehicles. One of the reasons for this was to obtain a similar tax per mile from commercial motor vehicles using diesel as from gasoline-powered heavier vehicles, which were less efficient. The higher tax rate on diesel was established to equalize tax contribution to road construction and maintenance by all commercial vehicles. A separate tax rate was also imposed to enable the collection of a tax per gallon on heavy commercial motor vehicles operating in British Columbia from other jurisdictions, which were previously not making appropriate road user payments. Because the higher tax rate was targeted at commercial vehicles, a refund for the difference between the gasoline and diesel tax rates was provided for persons using diesel fuels in private passenger vehicles.
From 1959 until June 1st, 1971, the motive fuel use tax was collected on a "use" basis. That is, all persons operating diesel equipment on the public roads obtained permits, purchased their requirements tax free, and then filed monthly returns remitting tax on the number of gallons used on public roads within the province.
Effective June 1st, 1971, the motive fuel use tax became a "purchase/use" tax.
Effective October 1, 1981, the tax is calculated as "equal to the amount of tax for gasoline per litre determined under section 4(2) or (3) of the Gasoline Tax Act, plus 0.44¢/litre..." (Ref: Section 4(3)(b), Motive Fuel Use Tax Act).
Persons who were operating both in and out of the Province were required to register and file monthly returns. If their use in the Province was greater than their purchases, then tax was required to be remitted on the difference. If purchases in the Province exceeded their use, then a refund could be claimed on the total by which purchases exceeded use.
For history of motive fuel tax rates see MFTA/Sec. 10/R.1.
Before being consolidated into the Motor Fuel Tax Act on December 31, 1985, tax on fuels was imposed under three statutes: the Gasoline Tax Act, the Coloured Gasoline Tax Act, and the Motive Fuel Use Tax Act. In July 1976, these statutes were amended to redefine the term purchaser to make the tax a constitutionally direct tax. This was done because the Acts had been ruled ultra vires in a court decision because they defined a purchaser as the person who first purchased fuel subsequent to its manufacture. Since this was usually a wholesaler, this was interpreted as being an indirect tax.
In 1981, the Gasoline Tax Act was challenged in the courts for tax paid between August 1, 1974 and July 8, 1976. To protect provincial revenue, the Act was amended, retroactive for that period. The other two acts were not retroactively amended at that time because they had not been challenged.
In 1989, the Coloured Gasoline Tax Act and the Motive Fuel Use Tax Act were challenged for taxes paid from August 1974 to July 1976 on the basis that the Acts were unconstitutional at that time.
On June 12, 1990, the Fuel Tax Validation Act received Royal Assent thereby validating the collection of tax under the Motive Fuel Use Act and the Coloured Gasoline Tax Act for the period August 1, 1974 to June 30, 1976. This was done by amending the definition of "purchaser" under those Acts, to clarify the original intent of the legislation and to reimpose the taxes that were intended to be imposed during that period.
Money paid as taxes under the Motive Fuel Use Tax Act or the Coloured Gasoline Tax Act during the retroactive period is not refundable. Persons who paid taxes equal to their liability under these Acts during the retroactive period are not required to pay any additional tax.
R.3 History of Gasoline Tax Concessions Available to Farmers (Issued: 2005/12, Revised: 2009/04, 2015/07)
References: MFTA/Sec. 5/R.2 - Coloured Gasoline and Diesel Fuel Tax Rates for Farmers and Fishers with Permits, June 2, 1947 to March 14, 1985
Historically, certain tax concessions have been available to farmers under the Gasoline Tax Act, the Gasoline (Coloured) Tax Act, the Motive Fuel Use Tax Act and upon their amalgamation on December 31, 1985, the Motor Fuel Tax Act.
1923 Gasoline Tax Act was enacted. Farmers and other persons were eligible for a refund of the tax paid on gasoline used to operate the following:
- Motor boats
- Stationary engines
- Portable engines
- Tractors when used off-highway
- Logging trucks
- Railway cars
- Of or any industrial purpose other than the operation of a motor vehicle
1947 Gasoline (Coloured) Tax Act came into effect. Lower taxed coloured fuel allowed for certain authorized off-highway uses. Farmers and others continued to be exempt from tax on coloured gasoline purchased for uses listed above. (Fishermen also exempt).
1955 Gasoline (Coloured) Tax Act regulations were amended to expand the exemption for farmers to include:
- A tractor driven by or on behalf of a farmer from one place on the farm to another, even if on a public highway; and
- A tractor owned by a farmer and used to transport produce to market, farm supplies to the farm from market, or towing any implement of husbandry used by or on behalf of a farmer.
1973 Regulations amended to exempt farmers from tax on coloured fuel purchased for the:
- operation of their farm; and
- the operation of a family farm truck provided that the truck had a valid farm emblem while operating on a public highway
A family farm was defined as:
- land operated as a farm by a bona fide farmer, or
- a limited company (corporation) whose sole objective is the operation of the farm and at least 75% of the issued share capital is beneficially owned by persons actively engaged in operation the farm.
1981 – 1985 Exemption for farmers and fishermen removed in 1981. The general tax rates were increased, but farmers and fishermen paid a lesser rate that maintained the 3.74¢ per litre exemption they had enjoyed under the Gasoline Tax Act, resulting in a slightly lower tax rate than the general coloured fuel tax rate.
1985 Motor Fuel Tax Act established with the consolidation of the three previous fuel tax statutes into a single statute. Farmers became eligible to use lower taxed coloured fuel for the same purposes as under previous legislation; however, they were now taxed at the general coloured fuel tax rate.
1998 Bona fide farmers became exempt from tax on coloured fuel purchased for eligible purposes listed above.
2004 The definition of a family farm corporation under the Motor Fuel Tax Act expanded to include any corporate structure provided that at least 75 percent of the voting shareholders are direct family members actively engaged in operating the land as a farm and each corporation's sole activity is operating the land as a farm.
2005 The Act was amended to clarify that farmers may use exempt coloured fuel in any unlicensed motor vehicle that meets the following criteria:
- it is operated on land classified as a farm under the Assessment Act: and
- it is operated by or on behalf of a farmer for the purposes of that farmer's farm.
This authorization applies to any unlicensed motor vehicles, such as threshers, combines, loaders, all-terrain vehicles and snowmobiles, provided all of the above conditions are met.
Coloured fuel may also be used while qualifying vehicles are traveling on public roads between tracts of land classified as farm land.
2008 All trucks licensed as farm vehicles under the Commercial Transport Act are authorized to use coloured fuel while operating on a highway for a farm purpose. Previously, use of coloured fuel on a highway was restricted to family farm trucks when used for a farm purpose. This change ensures coloured fuel may be used in all farm vehicles regardless of the farm's business structure.
MFT - GR.6/R.1 –R.3: Remission Of Tax
Order-in-Council #1235, dated July 13, 1984, provided for a remission of fuel tax paid by the International Pacific Salmon Fisheries Commission. The authority for this remission is found in section 19 of the Financial Administration Act.
The identity cards issued by the Department of Foreign Affairs, Trade and Development Canada to foreign officials at Expo 86 entitled the cardholder to a point of sale exemption in British Columbia. This exemption expired on December 21, 1986.
Motor fuel tax rates were reviewed on October 1, 1991 under the indexing formulae established in the Motor Fuel Tax Act. This review resulted in a tax increase of 0.57¢ per litre. However, a policy decision was made not to increase the rates from those in effect from July 1, 1991 to September 30, 1991.
To achieve this policy, B.C. Reg. #283/91 was enacted. This regulation provides that a purchaser is entitled to a refund of the difference between the tax payable under the old rate and the tax payable under the new rate, on fuel purchased from October 1, 1991 to December 31, 1991. This refund provision applies to fuel taxed under sections 4, 5, 6, 7 and 10 of the Act.
Under the authority of the Financial Administration Act, section 19, B.C. Reg. #283/91 also provides for a remission of tax equal to the refund that would be payable. This remission is made because administering this refund would involve a burden to the public and administrative inconvenience. Therefore, the tax increase will not be collected, nor will it be refunded.
MFTR - GR.7/Int.: Importation Of Fuel
Act: Section 1 “collector”, “vendor”
Bulletin MFT-CT 001; Bulletin MFT-CT 005; Bulletin MFT-CT 006
Interpretation (Revised: 2015/07)
The procedure for registering accounts which are regularly manufacturing in, or purchasing fuels out of province and importing into British Columbia are as follows:
Manufacturing or Importing for Own Use:
Businesses manufacturing or importing fuel for their own use are required to remit tax based on the taxable use of that fuel. The appropriate tax return(s) (FIN 135 or FIN 451) are due the 15th day of the following month.
When the first tax return is received, the Fuel and Carbon Tax Section in Victoria will contact the business, determine the estimated annual tax remittance and establish a filing frequency (i.e., monthly, quarterly or annual). Businesses on a filing frequency receive return vouchers to remind them when their next tax return is due. The only exception to this if the business indicates they do not intend to manufacture or import for their own use in the future.
When you become aware of any business manufacturing or importing fuel, a determination should be made regarding any historical liabilities and instruct form the business to contact the Fuel and Carbon Tax Section to be set up with a future filing frequency.
Manufacturing or Importing for Resale:
A vendor is prohibited from selling fuel in British Columbia unless they have first been appointed a collector under the Motor Fuel Tax Act.
Businesses planning to import fuel for resale should be asked to write to the Fuel Tax Section in Victoria with a brief description of their business intentions and facilities. The Victoria office will contact the business to complete a collector application in order to:
- confirm that the applicant has potential customers and a legitimate market;
- obtain approximation of volume anticipated and, where possible, details regarding source of supply and method of transporting (own tankers, supplier's tankers, etc.);
- check applicant's present business to be aware of any potential for abuse;
- explain the requirements of the Act and answer any questions; and
- determine if the business presents a significant financial risk requiring a letter of credit.
If the application review is satisfactory, the business will be appointed as a collector and the collector appointment will be for the imported fuels only. Tax must be paid on all fuel purchased in British Columbia at the time of purchase and the collector will be kept advised of quarterly/budget fuel tax changes.
Appointing the correct business as a collector:
In some cases, a business that is importing fuel into BC for resale may have a contract with its supplier stating that the business gains title to the fuel “as it crosses the border” into BC. For the purpose of appointing a collector, a sale “as it crosses the border” is deemed to have occurred outside of BC (except for the exception for fuel imported by ship – section 1.1 of the Act). For example if Company A has a contract to supply 1,000,000 litres of gasoline to Company B, and the contract states that Company B gains title to the fuel as it crosses the border from Washington State to BC, that sale is deemed to have occurred in Washington. Company A does not need to be appointed as a collector, as they are not making a sale “within BC”. Company B must be appointed as a collector in order to resell the fuel in BC.
Collector - Dyeing Privileges:
MFTR section 7 authorizes dyeing at specific locations including at a refinery or bulk storage plant within the province which is owned or leased by the person authorized to dye. Dyeing privileges will only be granted if review of the application shows that the following two requirements have been met: security for dye storage is adequate, and certified metering devices are installed on the premises to facilitate accurate dispensing of the fuel and mixing of the dye. Dyeing privileges will not be granted to vendors without bulk storage facilities who import and resell by the tankerload.
MFT - GR.8/R.1: First Nations
Act: Section 1 “collector”, “fuel”, “purchaser”, “security”, “tax”; Section 20.1
MFTR: Part 3.2 — Exempt Fuel Retailers Program
Bulletin MFT-CT 002
Although the Motor Fuel Tax Act does not contain a specific exemption for purchases of fuel by an eligible First Nation purchaser (a First Nation individual who qualifies as an “Indian” under the Indian Act or a person who makes a purchase on behalf of a band that qualifies as a “band” under the Indian Act), the province recognizes the requirements of the Indian Act which exempts fuel sales from tax when they occur on First Nation land.
From August 1985 to September 30, 1991: A program was established (“Exempt Fuel Retailers Program”) to provide an exemption from tax with respect to purchases of fuel. Under agreements between “exempt fuel retailers” (retailers located on First Nation land) and the government, exempt fuel retailers could purchase a prescribed amount (i.e. their “allocation”) of fuel exempt from security from wholesale dealers and, in turn, sell the fuel to eligible First Nation purchasers exempt of security.
Effective October 1, 1991: All agreements were discontinued as a result of the Tseshaht Band's successful challenge of the allocation system. The allocation system was replaced with a system permitting exempt fuel retailers to purchase unrestricted quantities of fuel exempt of security for resale to eligible First Nation purchasers exempt of tax.
The Tseshaht Indian Band (Port Alberni) had sought a court declaration that imposing a limit (i.e. the allocation system) on exempt fuel purchases was ultra vires (unconstitutional).
The Supreme Court of British Columbia (BC) held that eligible First Nation purchasers have the unrestricted right to buy unlimited amounts of fuel and tobacco on First Nation land. The court ruled that the tobacco tax refund system and the fuel tax allocation system were an infringement on this right and were therefore ultra vires. It was determined that the right to purchase unlimited amounts of fuel and tobacco applies to eligible First Nation purchasers purchasing for their own use or for resale.
On June 26, 1992, the BC Court of Appeal overturned the ruling of the lower court and held that the government’s allocation system was not unconstitutional. This provided the government with the authority to reinstate an allocation system. Under this system, the director authorizes wholesalers to sell exempt fuel retailers a certain percentage of a type or a subcategory of a type of fuel exempt from security. The percentage is based on the exempt fuel retailer's typical sales to eligible First Nation purchasers. When filing their monthly returns, exempt fuel retailers must reconcile their exempt purchases and sales. If exempt sales exceed exempt purchases, they may be entitled to a refund. If exempt purchases exceed exempt sales, they must pay the additional tax owing. For more information on the Exempt Fuel Retailers Program, see:
- MFTR/Sec.51.6/Int [definitions]
- MFTR/Sec.51.7/Int [exempt fuel retailer permit]
- MFTR/Sec.51.71/Int [exempt percentage of fuel purchases]
- MFTR/Sec.51.8/Int [collection and payment of security]
- MFTR/Sec.51.81/Int [returns]
- MFTR/Sec.51.9 [suspension and cancellation of exempt fuel retailer permit]
- MFTR/Sec.51.91 [automatic suspension and cancellation]
- MFTR/Sec.51.92 [appeals]
MFT - GR.10/R.1: The Gst And Motor Fuel Tax
Under the Excise Tax Act (Canada), provincial taxes are included in the amount to which the federal Goods and Services Tax (GST) applies. The Excise Tax Act provides an exception to this general rule for taxes imposed under prescribed provincial legislation. Because such legislation does not include the Motor Fuel Tax Act, motor fuel tax is included in the amount to which GST applies.
MFTR - GR. 11: Gasohol
Interpretation (Revised: 2015/07)
Effective April 1, 1992, the reduced rate for gasohol was repealed because a plant has not been established and an exemption for 85% alcohol based fuels was introduced.
In 1987, the Motor Fuel Tax Amendment Act, 1987 established a reduced tax rate for gasohol of 2¢ lower than the tax rate for gasoline, to be in effect for a 5 year period. Gasohol is a blend of 90% gasoline and 10% ethanol.
This provision was to be enacted if a facility was established in the province to distil ethanol from surplus grain or other vegetable matter.
MFT - GR.12/R.1: Sales To Provincial Governments
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 motor fuel tax.
MFT - GR.13/R.1: Natural Gas
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.