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GOVERNMENT TO SUSPEND FEDERAL EXCISE TAX ON CERTAIN FUELS
The Department of Finance Canada and Office of the Prime Minister both announced today that the Government of Canada will be temporarily suspending the Federal Fuel Excise Tax on gasoline, diesel and certain aviation fuels (the “Fuel Tax Holiday”).
In this report, we provide some legislative and socio-economic/political background on the Fuel Tax Holiday and explain its parameters.
Legislative Background – Federal Fuel Excise Tax
Under s. 23(1) of the Excise Tax Act (“ETA”), a tax is applied to certain fuels mentioned in Schedule I of the ETA at the rate specified in the Schedule where those fuels imported or manufactured and delivered to the purchaser of the fuels.
It is the responsibility of the importer or manufacturer (depending on if the fuels are imported or manufactured) to that tax per s. 23(2) of the ETA, but those costs are generally passed on to Canadian consumers through an increase in prices at the pumps.
Under Schedule I of the ETA, the specified rates of tax on fuels are:
- Unleaded Gasoline - $0.10/L
- Unleaded Aviation Gasoline - $0.10/L
- Leaded Gasoline - $0.11/L
- Leaded Aviation Gasoline - $0.11/L
- Diesel Fuel - $0.04/L
- Other Aviation Fuel - $0.04/L
Socioeconomic/Political Background
A conflict in the Middle East between the US/Israel and Iran began on February 28, 2026. Since then, passage through the Straight of Hormuz – one of the world’s busiest oil shipping channels – has been significantly disrupted by the military conflict. This in turn has caused oil supply disruptions across the globe and attendant increases in oil prices globally and at the pumps domestically in Canada.
At the same time, Prime Minister Carney is fresh off of securing a majority government amid recent floor crossings and the federal by-elections. Accordingly, the Fuel Tax Holiday – an initiative that will undoubtedly increase the federal deficit – appears to be an attempt to curry favour with the large section of the Canadian electorate upset with how the Liberals secured their majority government.
Fuel Tax Holiday
Beginning April 20, 2026, the Federal Government will suspend the Federal Fuel Excise Tax on gasoline, unleaded aviation gasoline, diesel fuel, and other aviation fuel (i.e., the federal fuel excise tax rates will be reduced to 0 cents/L). The suspension will remain in effect until and including September 7, 2026, after which Federal Fuel Excise Tax will return to their full rates.
This initiative by Prime Minister Carney’s Liberal Government follows in the footsteps of Prime Minister Trudeau’s previous GST/HST Holiday, and it is expected to provide Canadians $2.4 billion in tax relief at the pumps.
Takeaways
Amid the ongoing Middle East Conflict and oil supply shortages causing skyrocketing prices at the pumps for Canadians, the Federal Government of Canada is providing some financial relief through its Fuel Tax Holiday.
While the initiative is temporary in nature, many Canadians will likely welcome reduced prices at the pumps at a time when prices remain high elsewhere due to the persistent inflation and Canada’s ongoing trade dispute with the US.
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The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
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