Change For The Better

The term “change management” sounds menacing but in fact we manage change every day. Maybe your regular route to work is blocked by construction. It’s a pain, but you find a new way and, as it happens, there’s less traffic and you get there faster.

When IFTA was introduced more than 30 years ago, it provided an opportunity for fleets to change the way they manage fuel purchases. Potentially IFTA can minimize taxes, decrease the risk of an audit, and help you make better decisions about your fleet and routes of travel.

I still run into fleet managers who, even though they’re required to have an IFTA license, continue to think about fuel the same way they did before IFTA.

I still run into fleet managers who, even though they’re required to have an IFTA license, continue to think about fuel the same way they did before IFTA. They tank up at the same places or go out of their way for the lowest price because that’s how they’ve always done it.

This tells me two things. First, a lot of fleets are missing out on the benefits of IFTA. Second, people like me can do a better job explaining how IFTA really is a change for the better.

Burn, Baby

Fuel tax distribution is based on how much fuel you consume in a jurisdiction less what you purchase there.

For example, let’s say you have a one-way trip from Calgary to Vancouver. It’s about 200 km from Calgary to the Alberta-B.C. border and another 800 km from the border to Vancouver.

If your truck averages 2.5 km/l, you’ll consume 80 liters of fuel in Alberta and 320 in B.C. You can calculate the taxes like this:

•   Alberta: 80 liters x 0.1835 = $14.68

•   B.C.: 320 liters x 0.2267 = $72.54

You paid $73.40 in fuel taxes at the pump in Alberta but based on where you used the fuel during the entirety of your trip the total tax owing is $87.22. So you still owe $13.82 when you file your IFTA return.

Now let’s say you start your trip in Vancouver. You buy 400 litres and pay $90.68 in fuel tax at the point of purchase.

Same distance, same amount of fuel, but you paid $3.46 more in tax than you owe based on where you used the fuel. So you get that back when you file your IFTA return.

Before IFTA, it made sense to buy as much fuel in a state or province to just get you through it. That’s because when you filed returns, you paid in states and provinces where you didn’t buy enough to cover the tax. If you over-purchased, they had your money and most jurisdictions made it really tough to get it back.

IFTA did away with all of that. Now if you buy more fuel (and pay more tax) than you consume in a jurisdiction, that amount is credited to jurisdictions where you consumed more fuel than you purchased. And the jurisdictions do the heavy lifting when it comes to distributing the tax.

Fuel Price Less Tax

A good way to know what you’re actually paying for fuel is to take fuel tax out of the equation. If the tax rate in Alberta is 0.1835 cents per liter and it’s 0.2267 cents per liter in B.C., and the pump price in both provinces is the same, then fuel is cheaper in B.C. by about 4 cents per liter.

A good way to know what you’re actually paying for fuel is to take fuel tax out of the equation.

GST, different units of measure, and the exchange rate can make taxes tricky to calculate but the concept is the same: the amount of fuel tax you owe is based on where you consume the fuel. An IFTA return is simply the place you subtract your fuel purchased from your fuel consumed and net it out. What you see on your IFTA return at the end of the quarter isn’t what you actually paid in fuel tax for that quarter.

Just like that new route to work, IFTA can help change the way you manage fuel. When you look at the price, calculate how much the tax is in that jurisdiction and subtract it. Then you’ll know whether it really is cheaper to keep doing things the same old way.

You can download the tax rates from the IFTA website at www.iftach.org.

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