Written By: Dan Beauchamp and Trevor Paramchuk are senior directors in RSM Canada’s indirect tax team, specializing in carbon tax. RSM Canada provides world-class audit, tax and consulting services focused on middle market businesses. Learn more.
All greenhouse facilities in Canada are currently subject to some form of carbon price on their chargeable fuel purchases. They may also be eligible for various forms of rebates, depending on the province in which they operate. Canada’s system of carbon pricing and rebates is complex. This brief guide is meant to help growers understand and navigate the rules.
Placing a price on carbon is meant to speed up the adoption of cleaner burning fuels. CO2 is emitted when fossil derived fuels like propane, natural gas and gasoline are burned. CO2 acts like a blanket that retains heat in the earth’s atmosphere and is warming the climate. It is believed that placing a price on CO2 emissions will reduce the amount of CO2 emitted.
The province of British Columbia was the first Canadian jurisdiction to introduce a carbon price in 2008. The Federal Fuel Charge (FFC), introduced on April 1, 2019, is a carbon charge on fossil fuels across Canada. The FCC is increasing over time.
The FCC is levied on overall emissions for large facilities in select industries, not on chargeable fuel purchases. This component of the FCC is called the Output Based Pricing System (OBPS).
For fuel consumers that are too small to qualify for the OBPS, the FCC is a per litre levy on fuels like propane and natural gas. Such consumers pay the carbon charge in the chargeable fuel purchased from their suppliers.
Under the Federal program, Provinces are provided with the opportunity of implementing their own carbon pricing system. A provincial carbon program can replace the FFC on fuels in that province with federal approval. Provinces, where the FFC applies, are referred to as “listed provinces”.
Provinces where a provincial carbon program exists, are referred to as “non-listed provinces”. The non-listed provinces collect their own carbon charge and can provide their own incentives. As a result, there are variations between the federal and the non-listed provincial systems, depending on the incentives each provincial government allows.
Greenhouse growers in the listed provinces of Alberta, Manitoba, Saskatchewan, Ontario, Prince Edward Island, Nunavut and Yukon Territory are charged the FFC. An 80% point-of-sale rebate is available for qualified operators who purchase marketable natural gas or propane and who follow specified procedures in these jurisdictions.
This relieving provision applies to greenhouses where all, or most of the facility is used to grow vegetables, fruits, bedding plants, flowers, ornamental plants, tree seedlings, medicinal plants or other plants. In addition, the marketable natural gas or propane must be used to heat the greenhouse or to supplement carbon dioxide in the greenhouse to grow or to produce the noted plants. Finally, the greenhouse operation must have a reasonable expectation of profit and must provide the vendor with a completed exemption certificate, available on the CRA website. There is no need to register for the FFC to be able to claim the exemption. There are also self-assessment requirements if the fuel is diverted from use in the greenhouse.
The rules vary between non-listed provinces. New Brunswick may allow greenhouses to register as a farmer or silviculturists to obtain purchase exemptions. Newfoundland and Labrador allow exemptions for specific fuel types when used for purposes other than in an internal combustion engine. Greenhouses within those provinces should approach provincial authorities to determine if their operations will qualify for exemptions.
The other non-listed provinces do not have exemptions for the operation of greenhouses. For example, Quebec and Nova Scotia have cap and trade systems. The carbon charge is included in the fuel price in these provinces, and there are no exemptions.
Carbon prices have added complexity and cost to the purchase of fuels for use in greenhouse operations. However, the use of the point-of-sale rebates and exemptions can reduce grower costs. Ultimately greenhouse carbon charges are here to stay for the foreseeable future, so understanding the business implications is an essential first step.