Fuel Excise Tax on Hold But Inflation is Not

Geoff Currier and Evelyn Jacks

The U.S.-Israel war on Iran has thrown global oil prices into turmoil and there is plenty of fallout for consumers. Travelling to Europe this summer? That’s in jeopardy, as jet fuel may run out.  Looking for relief at the pumps instead? The recently announced suspended federal excise tax on gasoline, unleaded aviation gasoline, diesel fuel and aviation fuel here in Canada will soften the blow, but only temporarily: it will be zero from April 20 to September 7, 2026. Here’s what you need to know:

Fuel Tax Suspension - What’s Included and What’s Not: In real terms for you and your clients this could potentially have a positive impact, if only in the short term. The tax is currently 10 cents a litre on gasoline and unleaded aviation gasoline, and 4 cents a litre on diesel fuel and aviation fuel. Those costs are ultimately absorbed by the consumer at the pump or when purchasing an airline ticket.

Notably heating oil is not included in this tax break, as there is currently no federal excise tax on natural gas or propane. It remains to be seen how many provinces or territories will offer tax breaks on fuel. Given the deficits being run at both the federal and provincial levels, some jurisdictions may find it difficult to lose the revenue from their taxes on fuel. 

How Much will Consumers Save? The federal government expects that this move will save consumers approximately $2.4 billion; which, of course, also means that it will take that same amount out of government coffers. 

But even with these “savings” the cost of fuel has risen much more than this and consumers are still in a “worse off” scenario.  According to the CAA, Canada’s national average for regular gas is sitting just above $1.70 a litre in mid April – just a month ago it was $1.28.

Gas prices vary widely across the country. On average, drivers may be paying anywhere from $1.70-$1.98 per litre but it very much depends on where you live. For example, in British Columbia, Newfoundland and P.E.I. prices are reaching $2.00 per litre in some areas. Quebecers are paying close to $190 per liter and in the Northwest Territories it costs more than $2.10 per litre to gas up. Alberta and Manitoba are paying less, with prices ranging between $1.60 and $1.70 per litre. Again, it’s possible to find some stations offering prices either above or below those figures. 

Potential Broad Impact: A reduction in the price at the pump impacts more than those of us who are commuting. When fuel prices drop, we should rightly expect that the price of everything will go down. As the people in the trucking industry are fond of reminding us, if you bought it, a truck brought it. In theory we should anticipate a reduction in some prices at the grocery store and other places where we shop. Whether or not this happens remains to be seen.

The Prime Minister has great powers but he cannot order shippers, airlines, grocery chains, restaurateurs or retailers to lower their prices. 

Air Fares Are Up in the Air: While a dime per litre reduction at the pump will be noticed by consumers, airline travellers may not see any change in pricing. Both Air Canada and WestJet, the country’s two major carriers, have been non-committal when it comes to any potential reduction in price. Fuel is the biggest item line in their budgets so it’s hoped that we may see a small break in fares but that’s still unknown. But, as we now know, air travel in general may be cancelled, especially to Europe, where they fear they could run out of jet fuel altogether as soon as six weeks from now if the conflict cannot be solved.

Hormuz: While it was announced that the Straight of Hormuz is now open, an announcement does not make it so. Iranian ships fired on tankers the day following the announcement. It’s known that Iran has spread mines in the straight, which means that it is a high-risk area. Insurance companies will be reluctant to approve their ships using the straight. The routes which are deemed safe are within range of Iranian missiles which further complicates the situation. Further, the backlog of empty ships looking to enter and load and the full ships looking to leave, will take months to clear up. If the war ends today there are still major issues to be resolved.

Oil producing nations such as Iraq and Kuwait have shut down some of their fields and re-starting production will also take time. Your client should not expect the oil market to return to normal in the immediate future.

Your Role and the Impact on Taxpayers. When speaking with your clients who are in business, it will be worthwhile to do a reality check with them on whether or not the temporary suspension of the federal excise tax is expected to have a positive impact on them, or a negative one. Are they anticipating sales increases or decreases in 2026 as the uncertainty of economic disruption come to light? That can affect the level of tax instalment payments that need to be made, for example, especially in the cause of self-employed filers, something you will want to keep an eye on to help your clients manage cash flow.  

Most important: temporary fuel tax holidays reduce inflation over the long run. Canadians will not see a permanent reduction in their cost of living. That means budgeting for a more expensive fall and winter is appropriate.

The Bottom Line: Most important, it must be remembered that all good things come to an end and when September 8 rolls around, Canadians can expect to see a ten cent per litre increase in the price of gasoline at the pump. The caveat in all of this is the fact that there remains great uncertainty regarding the war in Iran. The conflict could come to an early conclusion, or it could linger for some time, in which case the Prime Minister may be forced to pivot once again. 

In the meantime, it’ll cost you a little less to get to work, but still a lot more than it did before the war began.