Do you have clients in the farming, construction, or manufacturing sectors in Ontario? If so, they probably use a lot of equipment, and by extension, a lot of fuel. To help these businesses and individuals save money, make sure they know about Ontario’s gasoline tax refund.
To qualify, your clients need to purchase gas for business purposes, and they must use it in equipment that’s not required to be licenced. For instance, tractors and combines fall into this category, as do backhoes, excavators, and similar construction equipment. As a result, when your clients purchase gasoline for these vehicles, they can claim a refund.
The refund only applies to the tax portion of the purchase. To explain, if a client buys $100 worth of gas and $20 is for tax, it can claim a refund for the $20. Of course, it can also claim a business deduction for the $80. To reduce your client’s tax liability as much as possible, it’s important to claim both the deduction and the refunds.
Unfortunately, your clients can’t claim a refund for gas purchased for recreational use. Say you do the books for ranchers who have an ATV for riding around the ranch to check on the cattle. As those journeys are business-related, ranchers can claim a refund on the gasoline tax. However, if ranchers use the ATV for hunting or just to have fun in general, they can’t claim a refund for the gasoline used for those activities.
To apply for the refund, you need to fill out the Application for Refund Tax Exempt Usage and send it to the Ontario Ministry of Finance. You only need to include receipts if the refund exceeds $500 for the year, but even if your clients claim a smaller refund, they should still keep the receipts for their records.
This gasoline tax refund is very similar to the input tax credits your business clients can claim. Basically, the Canada Revenue Agency and the provincial departments of finance believe that businesses should not have to pay sales tax on the products they use for their business. Ideally, you should explain this to your clients and help them claim all possible credits.