Ameer Randolph
In Canada, motor vehicles are mostly powered by gasoline or diesel fuel, with diesel fuel subject to various taxes. In Ontario, consumers who buy clear diesel fuel pay fuel tax to a retailer, with the tax included in the price at the pump. The federal government charges a flat rate of 4 cents per litre on diesel, while the provincial fuel tax rate was temporarily reduced from 14.3 cents per litre to 9 cents per litre in 2022. This rate is set to become permanent in 2025. Diesel fuel used in on-road vehicles is subject to three taxes: the Provincial Fuel Tax, the Federal Excise Tax, and the Harmonized Sales Tax (HST).
| Characteristics | Values |
|---|---|
| Type of tax | Provincial Fuel Tax, Federal Excise Tax, Harmonized Sales Tax (HST) |
| Rate | 9 cents per litre (temporarily reduced from 14.3 cents per litre) |
| Period | Effective from July 1, 2022, until June 30, 2025 |
| Tax-exempt fuel | Dyed red with a chemical marker; supplied by the Minister of Finance and added by registered dyers |
| Enforcement | Provincial Fuel Tax Inspectors can examine fuel and detain vehicles; refusal to allow inspection can result in a fine of up to $1,000 |
| Penalties | Improper use of coloured fuel or tampering can result in fines of up to $1,000,000 and/or imprisonment for up to two years |
| Refunds | Farmers can purchase and use coloured diesel, which is exempt from the Provincial Fuel Tax and eligible for an HST rebate |
| Other taxes | The federal government charges an excise tax of 4 cents per litre on diesel |
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What You'll Learn
Diesel fuel tax rates in Ontario
From July 1, 2022, until June 30, 2025, the Provincial Fuel Tax rate will be temporarily reduced from 14.3 cents per litre to 9.0 cents per litre. This temporary tax cut also applies to biodiesel, which was previously exempt from fuel tax until April 1, 2014. The Federal Excise Tax is applied at a rate of 4 cents per litre to all diesel fuel, regardless of whether it is used on-road or off-road.
Some groups are exempt from paying fuel tax in Ontario, such as First Nations individuals registered under the Indian Act who may use coloured fuel in licensed vehicles acquired on a reserve. Coloured fuel is not permitted in vehicles licensed under the Highway Traffic Act. Farmers are also permitted to use coloured diesel in their unplated farm equipment, which is exempt from the Provincial Fuel Tax.
The Government of Canada collects approximately $5 billion per year in excise taxes on diesel fuel, with an additional $1.6 billion from GST revenues on diesel (net of input tax credits).
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Provincial fuel tax
In Canada, motor vehicles are typically powered by gasoline or diesel fuel, but other energy sources include ethanol, biodiesel, propane, compressed natural gas (CNG), electric batteries charged from an external source, and hydrogen. The Government of Canada collects about $5 billion per year in excise taxes on gasoline, diesel, and aviation fuel. Additionally, they collect approximately $1.6 billion per year from GST revenues on gasoline and diesel.
In Ontario, every consumer who buys clear diesel fuel pays fuel tax to a retailer. The retailer recovers the tax amount when the sale is made to the consumer. The fuel tax is included in the price paid at the pump and does not appear as a separate line item on the receipt. The Provincial Fuel Tax and the Federal Excise Tax are fixed-rate taxes that do not vary with the price of diesel, while the Harmonized Sales Tax (HST) is calculated based on the price of the diesel.
The Provincial Fuel Tax rate in Ontario was 14.3 cents per litre until June 30, 2022, when it was temporarily reduced to 9.0 cents per litre until June 30, 2025. Farmers in Ontario are permitted to purchase and use "coloured diesel" in their unplated farm equipment, which is exempt from the Provincial Fuel Tax. The Federal Excise Tax is applied to all diesel fuel, both on-road and off-road, at a rate of 4 cents per litre.
The provincial portion of the HST in Ontario is 8%, while the federal portion is 5%, resulting in a combined HST rate of 13%. The Ontario Retail Sales Tax (RST) was replaced by the HST on July 1, 2010. However, it still applies to certain goods and services, such as insurance premiums on livestock and agricultural property under specific conditions.
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Federal excise tax
In Canada, motor vehicles are mostly powered by gasoline or diesel fuel, but other energy sources include ethanol, biodiesel, propane, compressed natural gas (CNG), electric batteries, and hydrogen. The Government of Canada collects excise taxes on gasoline, diesel, and aviation fuel, and also levies taxes on electricity.
Like other provinces, Ontario imposes a fuel tax on the purchase of clear diesel fuel. This tax is collected at the wholesale level and is included in the invoice to the retailer, who then recovers the tax amount when the sale is made to the consumer. The fuel tax is included in the price at the pump and does not appear as a separate line item on the receipt.
The Provincial Fuel Tax and the Federal Excise Tax are fixed-rate taxes that do not vary with the price of diesel, while the Harmonized Sales Tax (HST) is calculated based on the price of diesel. The Provincial Fuel Tax rate in Ontario was 14.3 cents per litre until June 30, 2022, when it was temporarily reduced to 9.0 cents per litre until June 30, 2025. Farmers in Ontario are exempt from the Provincial Fuel Tax when purchasing "coloured diesel" for use in their unplated farm equipment.
The Federal Excise Tax on diesel fuel in Canada is levied at a flat rate of 4 cents per litre, which has been in effect since 1987. This tax is applied to all diesel fuel, regardless of whether it is used for on-road or off-road purposes. The Federal Excise Tax revenue helps fund various programs, with a portion of it going towards the permanent annual Gas Tax Fund for municipal infrastructure.
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Harmonized sales tax (HST)
In Ontario, diesel fuel used in on-road vehicles is subject to three taxes: the Provincial Fuel Tax, the Federal Excise Tax, and the Harmonized Sales Tax (HST). The Provincial Fuel Tax and the Federal Excise Tax are fixed-rate taxes, while the HST is calculated based on the price of the diesel.
The HST is a combination of the federal and provincial sales taxes. The provincial portion of the HST is 8%, while the federal portion is 5%, resulting in a combined HST rate of 13%. The Canada Revenue Agency administers the HST and is responsible for collecting the tax revenues.
The HST is applied to a range of goods and services, including diesel fuel. However, it is important to note that some items are exempt from HST, while others are zero-rated, meaning they are taxable at a rate of zero. Businesses with HST registration must charge, collect, and remit HST on their sales of taxable goods and services. They are also required to file HST returns regularly.
Farmers in Ontario are permitted to use "coloured diesel," which is exempt from the Provincial Fuel Tax. Coloured diesel is dyed red and is used in unplated farm equipment. Farmers are also eligible for a rebate on the HST paid on fuel used in this equipment. It is important to note that using coloured diesel in licensed motor vehicles is prohibited, and penalties may be imposed for improper use.
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Tax exemptions and refunds
In Ontario, consumers who buy clear diesel fuel pay fuel tax to a retailer, which is included in the price at the pump. However, some groups are exempt from paying this tax and can obtain a refund.
Tax Exemptions
The following groups are exempt from paying fuel tax in Ontario and can apply for a refund:
- Accredited foreign representatives, diplomats, and their families—as per the Ontario Provincial Legislation and the Gasoline Tax Act.
- Farmers who use "coloured diesel" in their unplated farm equipment.
- Wholesalers who dispense fuel on an ambient temperature basis but whose suppliers have collected tax on a volume-corrected basis without providing an ambient temperature allowance can apply for a refund of the tax differential.
- Retailers who dispense fuel on an ambient temperature basis and do not receive an ambient temperature allowance from their suppliers can apply for a refund of the tax differential.
- Businesses that buy gasoline for unlicensed equipment for farming, construction, or manufacturing may be eligible for a refund of the gasoline tax paid, provided the fuel was used in Ontario for business, industrial, or institutional purposes.
Other Exemptions and Ways to Avoid Excise Taxes
- Off-road diesel, also known as dyed diesel or red-dyed diesel, is exempt from federal and state excise taxes. It is meant for equipment used in farming or construction, such as heavy machinery, generators, or refrigerated trailers.
- A new category of registered dyers who can dye biodiesel that has not been blended, mixed, or combined with any other type or grade of fuel is exempt from fuel transportation requirements.
Documentation for Refunds
It is important to review and adhere to the specific guidelines and restrictions for fuel tax refunds in Ontario. Proper documentation supporting the refund claim is crucial. Refund claim forms can be obtained by contacting the Ministry of Finance, Account Management, and Collections Branch.
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Frequently asked questions
The road tax on diesel fuel in Ontario is 14.3 cents per litre, but it was temporarily reduced to 9.0 cents per litre from July 1, 2022, until June 30, 2025.
Farmers in Ontario are exempt from the 9.0 cents per litre Provincial Fuel Tax when they use "coloured diesel" in their unplated farm equipment. They are also eligible for an HST rebate on fuel used to operate such equipment.
Coloured diesel is diesel that has been dyed red and has a chemical marker to aid in the enforcement of the Fuel Tax Act. It is meant for use in equipment and vehicles that are exempt from regular fuel taxes.
The Provincial Fuel Tax and the Federal Excise Tax are fixed-rate taxes that do not vary with the price of diesel. In Ontario, the Provincial Fuel Tax is 9.0 cents per litre (down from 14.3 cents), and the Federal Excise Tax is 4 cents per litre.
The Canadian government collects approximately $6.6 billion per year in taxes on diesel fuel, including $5 billion in excise taxes and $1.6 billion in GST revenues.
