How can a Canadian Carrier save money on fuel and IFTA fuel taxes?
Since fuel costs are one of the largest expenses a carrier has it is always something they are very concerned about. As oil prices have skyrocketed carriers are frantically looking to save every where they can. Most interstate carriers have the option to pick where they want to purchase fuel as they drive through a state or province. All to often a bargain seeking driver looks over at the side of the road and drools a bit over a fuel price that seems so much cheaper then at home. Beware, that drool can turn to a jaw dropping gasp when all the bills finally come in, especially IFTA Fuel Taxes. Why?
Fuel prices got you confused?
Well fuel taxes are one of those nasty things carriers have to deal with. The way these taxes are designed is you have to pay it whether you buy fuel in that given jurisdiction or not. Also each jurisdiction has their own rates. Traditionally speaking Canada has always had a higher tax rate then US states. This contributes to the assumption fuel is cheaper in the United States, an assumption that can be misleading. There are a few factors to consider, the first, exchange rates. Yes, exchange rates can quickly eat up any possible saving you may have. Though at the moment Canadians are receiving a break on exchanging the Canadian dollar to US, we are getting better then par! This certainly makes US fuel very attractive.
OK so the Canadian dollar is worth more, we should be buying fuel in the US where it’s cheaper right? Yes and no. If you tend to do a lot of mileage in Canada buying fuel in the expensive jurisdictions helps reduce IFTA fuel taxes owed at the end of the quarter. Remember, even if you don’t buy fuel in a state/province, you still have to pay fuel taxes! Here is an example of how this can work.
5000 ltr Michigan fuel at $0.08/ltr fuel tax earns $400 possible credit
5000 ltr Ontario fuel at $0.14/ltr fuel tax earns $700 possible credit
As you can see you can acquire $300 more possible credits towards fuel taxes buying your fuel in Ontario vs Michigan. That is $300 in your “pocket” that you won’t have to pay out extra at the end of the quarter. How this works is if you don’t use all those credits in Ontario (lets say) it starts to apply to other states/provinces. The more credits you build up the less you pay at the end of the quarter.
Now here is another rarely considered piece of information, if your business is in Canada you also pay GST and or PST or HST at the pump. Yes those very taxes certainly do drive up the price you see at the pump. Though wait a minute, in most provinces you get a tax credit! Yes an input tax credit! While you don’t see it on IFTA it goes against your GST and or PST or HST. That adds up to a huge savings.
So here is a real world example of what all this looks like using time of writing fuel prices found on gasbuddy.com:
Diesel at the pump is $3.81/gallon or $1.01/ltr
Less fuel tax rate of $0.0861 gives a final price of $0.9239/ltr
Diesel is at the pump $1.20/ltr
Less fuel tax rate of $0.14 is $1.06/ltr
Less HST credit of $0.156 is $0.904/ltr
I have not figured in exchange. With exchange there will be some difference of course.
As you can see, after all is said and done fuel bought in Ontario may actually be cheaper in the long run.
Please note, the answer to the question where do I buy fuel is not black and white, it’s can be a little bit more complicated depending on your actual operation and history. Certainly being a more informed consumer will help. This does mean watching pump prices and buying fuel where and when it’s cheaper. Knowing fuel tax rates and deducting it off of pump price certainly helps compare apples to apples as fuel tax rates vary greatly across jurisdictions. Service providers specializing in fuel taxes can certainly help you draw up an action plan to save money on fuel purchases and on fuel taxes so look them up and take advantage of their experience and knowledge.
One word of caution regarding Duty Free Fuel found at some border cities and Native Reserve Fuel found in places like Northern New York. No IFTA fuel taxes are included in the price at the pump therefore you MUST pay all fuel taxes at the end of the quarter on your IFTA return. Depending on the quantity of fuel it may add up to a huge chunk of money owed.
Though the best piece of advise I can offer any carrier or person who buys fuel for a motor vehicle is the less fuel you use means the less you have to buy fuel, so practice fuel saving driving habits and look for my upcoming article on fuel economy.
About the author:
Tatjana has 11 years experience as a senior consultant for Peter Suess Transportation Consultant Inc, a service provider and consultant for the truck transportation industry serving United States and Canada. One of her specialities is IFTA Fuel Tax compliance.