Due to the broad scientific consensus that greenhouse gas ("GHG") emissions contribute to the amplification of global climate change, the Canadian government adopted in June, 2018 its own GHG emissions pricing scheme ("Carbon Tax") in an attempt to reduce the country's ecological footprint and encourage Canadians and companies doing business in Canada to invest in clean technologies.
The Greenhouse Gas Pollution Pricing Act ("Act") will apply to all Canadian provinces and territories in which no provincial or territorial carbon pricing mechanism has been adopted, or in which such a provincial or territorial mechanism does exist, but does not meet the criteria established by the federal government.
As of April 1, 2019, the Act requires that the provinces of Manitoba, New Brunswick, Saskatchewan and Ontario ("Listed Provinces") impose a minimum price of C$20 per tonne of pollutant emissions for any subject fuel used or imported into their territory. The territories of Nunavut and Yukon will be subject to this requirement as of July 1, 2019.
A legal challenge brought by the government of Saskatchewan, which considers the Act to be ultra vires the powers of the federal government, is currently before the Saskatchewan Court of Appeal. Despite this pending litigation, the federal government has opted to move forward with its program.
As of April 1, residents of the Listed Provinces will see an increase in the price of fuel at the pump as a result of the Carbon Tax, bringing about an approximate increase of 4.4 cents per litre for the year 2019.
In order to reduce the tax burden on these residents, the Department of Finance Canada has announced that the pump supplement will be subject to a tax credit called “incentive payments” that may be claimed as of the 2018 tax period. The amount allocated will vary according to three main variables: (i) the taxpayer's geographic region; (ii) the average fuel consumption established for that region; and (iii) the number of individuals living under the same roof. For example, an average family in Saskatchewan may be entitled to an assistance of about C$609, compared to C$256 for an average family in New Brunswick.
2. Road Carriers
(a) Scope of the Carbon Tax
The Act provides for more than twelve types of companies that are covered by the application of the Carbon Tax. This list includes, among others, road carriers. However, in order to be governed by the Act, the carrier must conduct at least part of its business operations in a Listed Province through a specified commercial vehicle using gasoline, diesel, natural gas or propane. A carrier that meets all these criteria is required to register as a road carrier with the Canada Revenue Agency ("CRA") no later than March 31, 2019.
More specifically, this registration will allow the carrier to pay charges or receive discounts based on its fuel use. For commercial activities in Nunavut and Yukon, registrations must be made by June 30, 2019.
(b) Information that must be provided to the CRA
Once registered with the CRA, road carriers whose commercial activities extend into one of the Listed Provinces must report the type of fuel used in the ordinary course of their business. This statement can be made using form L400-2 E available on the CRA website.
In a manner similar to the requirements imposed upon carriers by the tax authorities of their home province under the International Fuel Tax Agreement ("IFTA"), carriers will be required to complete and file a quarterly report with the CRA. This quarterly report must indicate the amount of fuel used and the number of kilometres travelled in each Listed Province. We note that the Carbon Tax applies to all "specified vehicles" as described above and thus applies more broadly than does IFTA.
The information provided to the CRA will allow a ratio to be established based on the amount of fuel purchased in a Listed Province and the number of kilometres travelled in that province. Once this ratio is established, it will be possible to determine whether a motor carrier is entitled to a refund or, on the contrary, whether it must pay additional tax.
Finally, we note that any carrier who fails to register with the CRA or fails to make the required payments in a timely manner may be subject to a penalty of up to $2,000.