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Understanding the International Fuel Tax Agreement

As an accountant, clients depend on you to keep up-to-date with the latest rules and regulations to ensure their taxes are not overpaid or underpaid. If you have any clients, whether individuals or business entities, that operate commercial trucks or buses across more than one Canadian province or U.S. state, you need to be aware of the International Fuel Tax Agreement.

What Is the International Fuel Tax Agreement?

The International Fuel Tax Agreement (IFTA) is an agreement between most Canadian provinces and most U.S. states. IFTA makes it easier for commercial truck or bus drivers who travel between more than one jurisdiction to report the taxes on the fuels they use. As part of this agreement, registered inter-jurisdictional drivers can get one single licence issued by the jurisdiction where their activities are based. This enables drivers to report and pay taxes to only one jurisdiction, simplifying their obligations. Taxes that are payable on fuels used by commercial drivers, such as gasoline, diesel, propane, natural gas, methanol, ethanol, and some others, are tracked and collected by all member jurisdictions. Then, based on the amount of fuel consumed and the distances traveled by the driver in each jurisdiction, members share the revenues accordingly. The distances driven and amount of fuel use in each jurisdiction are recorded and reported by the commercial driver. The IFTA is a voluntary program. Drivers are not required to be a part of it.

What Territories Recognize the IFTA?

Not all Canadian provinces and U.S. states are part of the agreement. IFTA credentials are not valid for travel in the Canadian provinces of the Northwest Territories, Nunavut, and Yukon. In the United States, Alaska, Hawaii, and the District of Columbia do not recognize the IFTA credentials. If drivers pass through any of these territories, separate records should be taken, and any taxes due to these jurisdictions must be paid separately by the driver.

Who Benefits From the IFTA and When Are Taxes Filed for It?

The IFTA mainly benefits drivers who regularly travel to multiple jurisdictions and use fuel in those jurisdictions but purchase the fuel in just one jurisdiction. The IFTA significantly reduces tax paperwork for drivers, saves time, reduces accounting errors, and makes compliance for fuel tax rules simpler. A driver licensed under the IFTA must submit a fuel tax return every quarter to the base jurisdiction where he is registered. Full  details on reporting requirements  list many details, and the quarterly returns are due at the end of the month following the quarter being reported. A late penalty of $50 or 10 percent of the taxes owed, whichever is higher, is assessed if the deadline is not met.

What Type of Vehicle Qualifies for the IFTA?

Not all types of commercial drivers can become licensed under the IFTA. The driver must use a vehicle that’s qualified to be registered under the agreement, which states that a qualified vehicle is one that is used, designed, or maintained for the transportation of persons or property and meets one of the following size and weight requirements:

  1. The vehicle must have two axles and a gross weight exceeding 26,000 pounds or 11,797 kilograms.
  2. Regardless of weight, the vehicle has three or more axles.
  3. If the vehicle is used with a trailer, it must have a combined weight exceeding 26,000 pounds or 11,797 kilograms.

Recreational vehicles are not qualified, and there are special rules for farm-plated vehicles. Registration fees may vary between provinces and states. Once registered, a single licence for all qualified vehicles of the driver or company is issued along with two decals for each vehicle that must be displayed on the vehicle in a clearly visible place. The licences and decals are valid between Jan. 1 and Dec. 31 of each year and must be renewed annually. Applications to obtain licences and decals can be done online or printed out and mailed to the appropriate office. It is best to check with the desired base Canadian province or U.S. state to see precisely where to register since there is no centralized system for applications.

Single-Trip Permits

For drivers who do not have an IFTA licence and only occasionally travel between jurisdictions, single-trip permits exist. These single-trip permits can be purchased on a trip-by-trip basis from authorized agents and allow qualified vehicles to travel to other jurisdictions. The permits are valid for one vehicle and one trip for a predetermined time period and distance. Beyond the fuel tax, other fees are typically included for these types of permits.

Cancellation or Revocation of IFTA Licence

It is possible to get an existing IFTA licence cancelled. Typically, if the driver has filed all quarterly IFTA tax returns and paid all outstanding taxes and penalties, he can get his licence cancelled. The driver must no longer be operating motor vehicles commercially or must prefer to use single-trip permits instead. In the event of a cancellation, the driver must destroy the paper licence and decals, and keep all IFTA tax documents for at least four years. In cases where filing requirements are not met or taxes are not paid, an IFTA licence can be revoked.

Overall, an IFTA licence is a low-cost way for commercial truck and bus drivers to simplify their fuel tax reporting requirements. Help your clients determine if an IFTA licence or single-trip permit makes more financial sense based on current fuel tax rates, associated fees, and the distances and frequencies of trips.

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