Published: June 2000
Content last reviewed: September 2009
The purpose of this tax bulletin is to clarify the rules governing the sale of kerosene under Fuel Acquisition Permits (known as FAPs).
The information in this bulletin will be of interest to fuel tax collectors and holders of FAPs.
1-K Kerosene & the Fuel Tax Act
Effective January 1, 1992, kerosene became subject to the Fuel Tax Act (the "Act") and regulations. This means that all kerosene is taxable under the Act, except kerosene sold to the holder of a valid FAP.
1-K kerosene means kerosene, which, according to the American Society for Testing and Material (ASTM) standards, contains 0.04% or less sulphur and has a flashpoint of 130 degrees Fahrenheit or higher. (The flashpoint is the temperature at which vapours will ignite and burn spontaneously). According to the ASTM, 1-K kerosene is suitable for use in flue-less, or unvented, portable kerosene lights, stoves, and heaters.
Clear kerosene which is certified as 1-K may be acquired, untaxed, by a packager holding a valid Fuel Acquisition Permit issued for this purpose.
Coloured kerosene (also called 'dyed' kerosene) may be purchased without paying fuel tax, for non-taxable uses, such as heating, lighting, and cooking. Coloured kerosene means kerosene dyed to the specifications established by the Minister of Finance.
A packager of kerosene is, for the purpose of this bulletin, a person who packages 1-K kerosene, acquired in bulk, into any container that holds 210 litres or less (other than a fuel tank of a motor vehicle). The 1-K kerosene referred to here must be for resale to a consumer for use in cooking, heating, or lighting appliances designed to be used indoors and without venting.
Kerosene (fuel), in bulk, means fuel transported, or transferred, by any means other than in a fuel tank of a motor vehicle (in which fuel for generating power in the motor vehicle is kept).
Designated fuel tax collectors may sell clear 1-K kerosene, without collecting fuel tax, to packagers holding a valid FAP. The sale must respect all of the restrictions and conditions stated on or attaching to the packager's FAP. The collector must certify that the product sold is, in fact, 1-K kerosene.
A packager may apply for a packager's FAP to acquire, without paying fuel tax, clear 1-K kerosene in bulk, as long as certain conditions are met: The packager will package the kerosene in containers of 25 litres or less and/or containers of between 25 and 210 litres (see details below). The kerosene must be packaged for resale to consumers, and be used in certain lighting, heating or cooking appliances designed to be used, indoors, without venting.
Note Packagers may repack 1-K kerosene in any size up to 210 litres. Each packager will hold only one FAP, permitting the packager to repack in one of the following three categories:
exclusively into containers up to 25 litres; or
exclusively into containers between 25 litres and 210 litres; or
into containers of both sizes (up to 25 litres and between 25 litres and 210 litres).
Packagers holding a FAP in category 1 will have no acquisition limit.
All other packagers (categories 2 and 3) will be able to acquire up to a maximum of 200,000 litres of 1-K kerosene each calendar year. Acquisitions by all related or associated companies (i.e., non arm's length) are included in the annual 200,000 litre limitation.
If a packager reaches or exceeds 200,000 litre annual limitation for kerosene, the ministry will suspend the packagers FAP for the remainder of the calendar year and notify all fuel tax collectors. In addition, the ministry will assess the packager an amount equal to the fuel tax, plus penalty and interest on the volume of untaxed fuel acquired which was over the limit.
Industrial manufacturers who have a valid Fuel Acquisition Permit may buy untaxed clear kerosene, as well as other clear fuel, from designated fuel tax collectors. The manufacturer's purchase of clear kerosene must respect the restrictions and conditions outlined in the FAP.
An industrial manufacturer may apply for a manufacturer's FAP to buy clear kerosene (or other middle distillate fuel) exempt of tax. To qualify for this tax exemption, the purchased fuel must be delivered to an authorized location for use by the FAP-holder as a raw material which will either be made into or become part of goods for sale, and provided that the fuel or the manufactured product will not be used to generate power in a motor vehicle.
No acquisition limit is placed on this type of permit.
A designated fuel tax collector may sell untaxed clear kerosene to FAP holders who are entitled to receive the product without paying tax. The collector must ensure that the purchaser presents him with a valid fuel acquisition permit at the time of sale. Collectors are required to report such sales on their monthly return to the ministry. Additional information required on the invoice delivered to the purchaser includes the collector's registration number and the purchaser's fuel acquisition permit number.
The collector and the FAP-holder who buys the untaxed clear kerosene must ensure that the conditions stated in his permit are met.
A dealer who is not an authorized fuel tax collector must pay the tax on clear fuel purchased from his supplier.
If such a dealer sells clear fuel, untaxed, to a Fuel Acquisition Permit holder, the dealer may qualify for a refund of the tax paid by the dealer to his supplier, by application to the ministry under section 13 of Ontario Reg. 464. (Or the dealer may recover the tax from the dealer's supplier, as long as the supplier is a designated fuel tax collector.)
A collector, as agent of the Minister, is required to exercise due diligence in an effort to ensure that untaxed clear fuel sold is not for a taxable use. The collector will not be held responsible for fuel tax on clear fuel delivered to a holder of, and in accordance with, a valid FAP, where the collector maintains:
The Act requires that the holder of a FAP, post security in an amount equal to the tax that, except for the FAP, would have been payable on the FAP-holder's average three months receipts of clear fuel, or $100,000.00, whichever is greater.
A FAP holder must not use kerosene or other fuel acquired under a Fuel Acquisition Permit, for any purposes other than those authorized by the permit.
Each FAP holder must, by the 25th of the month, send the ministry a fuel tax return (Form FT814), which reports all fuel acquired under the FAP. Form FT814 also reports the fuel sold or used in the preceding calendar month.
Failure to abide by a condition, or a limitation, under a Fuel Acquisition Permit can result in a fine of up to $10,000. This fine will be in addition to the ministry's assessment for fuel tax, penalties, and interest.
A Fuel Acquisition Permit is not required for purchases of coloured kerosene for non-taxable uses, such as lighting, heating, and cooking.
To request a Fuel Acquisition Permit application form, contact:
Ministry of Finance
Client Services Branch
33 King Street West
Oshawa ON L1H 8H9