Tax on residential energy should be eliminated in upcoming federal budget

OTTAWA, December 20, 2021 – Canada’s propane industry believes that like other essential goods, fuels such as propane should be subject to a zero-rated tax – meaning taxable but with a zero rate, when used for heating homes and other residential applications.

“At a time when Canadians are trying to get their lives back to normal and COVID-19 continues to cause havoc, high energy bills are difficult for many people to manage,” said Allan Murphy, Interim President and CEO of the Canadian Propane Association (CPA). “Rising energy costs are among the many inflationary pressures facing Canadians. There is an urgent need to remove taxes on the final charges to consumers for residential energy.”

In a letter to Prime Minister Trudeau on November 18, the CPA proposed that the government use the fiscal update to signal its intention to make a legislative change to Part IX of the Excise Tax Act that would categorize heating fuels such as propane, when used in residential applications, as zero-rated for purposes of the GST/HST. While the government did not respond to the CPA’s proposal in its fiscal update, Finance Minister Chrystia Freeland said that housing affordability remains a priority and that the government would take further action in the upcoming budget.

The zero rate could apply to residential houses, condos and other similar dwellings, senior care facilities, hospices, school and university residential accommodation, monasteries, nunneries and similar religious communities, as well as armed forces residential accommodations.

The change would see propane and other heating fuels that are marketed exclusively to domestic consumers for residential purposes be zero-rated. The application would be similar to goods such as most groceries, as well as agricultural and fish products, to name a few. Currently home heating is subject to the full GST/HST.

For the foreseeable future, Canadians will be affected by higher prices on just about everything. Those living in rural areas are particularly exposed, given their increased dependence on fuel for heating their homes, farms, businesses and businesses for transportation, and propane prime power generation for remote locations away from any electrical grid connections.

Low-income Canadians and those on fixed incomes, such as seniors, will also need support. While the government introduced a one-time special payment to low-income Canadians in April 2020 by doubling the maximum annual GST credit amount for the 2019-2020 benefit year, this fell short of the attention needed to curb the rising costs of home heating fuel. According to reports, inflation stayed at an 18-year high of 4.7 per cent in Canada for November. The Bank of Canada has said that it could rise to five per cent by the end of the year.

“The federal government can take proactive measures like updating the Excise Tax Act for zero-rated products to include home and residential energy,” said Murphy. “This would allow Canadians across the country to enjoy a reprieve of the GST and HST.”