New: Federal – Reporting product losses causes taxation at an unfair rate for the propane industry

Fuel tax charges are levied against distributors regarding unaccountable product losses. While it may be expected in industries where product loss could be equated to theft or spills, this would be next to impossible with a gaseous product like propane that has unique properties and regulatory requirements.

Because propane is stored in compressed form, a certain amount of product is lost or gained due to seasonal temperature fluctuations, making it difficult to report an exact amount. For example, a distributor may load 10,000 litres in the morning but if the temperature drops throughout the day, a portion of that amount will be reduced because of temperature changes. However, distributors are taxed on the full amount; seasonal temperature fluctuations are not considered in the taxation rate.

Canada’s taxation rate for propane also does not consider that a certain amount of propane must be vented during transferring procedures. A certain amount of loss during refuelling is required to allow verification of product levels in a tank. This verification requires propane to escape from the liquid level valve during each refuel. This mandated product loss may seem small, but after thousands of deliveries, it can add up to a sizable amount of product loss. 

Additional taxation problems exist – propane that is used for heating and power generation is tax exempt – but propane distributors are being taxed at 100 per cent on propane being used for these purposes when reporting the product loss amounts. Considering that approximately 90 per cent of the distributions are being used for heating and power generation, requiring this 100 per cent taxation rate is unfair to the propane industry for a product more frequently tax exempt.

As a result of the unique properties and regulatory requirements of propane, the CPA believes a more equitable rate of tax would be to identify the product losses, and either exempt it completely due to the processes involved, or at least only tax the product losses at 10 per cent due to the product being mostly used for exempted processes.

The CPA is planning to meet with provincial regulators to discuss changes to the allowable product loss amounts and to instill set standards for propane that account for its unique nature and the mandated filling requirements. Discussions will also include identifying and suggesting a fair solution for equitable taxation of product losses if any reported amount is over established allowances and needs to be documented.