Deep In the Heart of Taxes

Q: Help! We’re going to be audited by IFTA. What do auditors look for?

A: Simply put, they want to make sure you’re adhering to the rules of the plan as laid out in the IFTA (International Fuel Tax Agreement) Articles of Agreement, which you agreed to follow when you applied for your IFTA licence.

Generally, IFTA auditors will check for inconsistencies, sloppiness, or missing data that might signal deeper problems with your ability to report accurate information. However, over the years I’ve noticed some specific red-flags IFTA auditors will look for. Here are six:

1. All distances are not reported on returns. Did you know that any distance you travel for personal trips in your vehicle are reportable? Once you put an IFTA decal on the truck, each and every kilometre you travel becomes reportable.

2. Units that travel out of the province infrequently are being reported for the out-of-province trips only. Say your vehicle travels 150,000 kilometres in one year. A total of 149,000 kilometres are travelled in your home province, and 1000 are logged in a neighboring jurisdiction. All distances and fuel are reportable for the four IFTA quarters even if you left the province only during a single quarter of the year.

3. Not differentiating empty/loaded distance. Although this can be a problem for any carrier, it’s more pronounced if you’re a carrier with many empty kilometres. An auditor may question a high KPL (kilometre per litre) ratio if your source documents don’t show the difference between loaded and empty distance. This also becomes important in some states that charge mileage tax. There can be a difference in the rate charged per mile.

4. Reefer fuel included on the return. Reefer fuel is not taxable under IFTA and should not be included in your total fuel. If you do include it, your KPL ratio is too low-and you’re paying too much tax.

5. Unmetered or unreconciled bulk fuel. Carriers who use bulk fuel must follow the IFTA rules when reporting. All fuel delivered into the tank of an IFTA-licensed unit must be separated from non-IFTA units through a metering system. The records must also show that the fuel has been reconciled (IFTA fills vs. non-IFTA fills) and any discrepancies accounted for.

6. Fuel receipts lack required information. The IFTA agreement lists what is required on a fuel receipt. If any of the information is missing-for instance, lack of a unit number, or erasure or adjustment has altered the receipt information-the auditor can disallow the tax credit. Here’s another example. The tax portion of 1000 litres of fuel purchased in Saskatchewan is $150. If you have a valid receipt, the auditor accepts the fact that the tax was paid at the pump, or prepaid, and the credit offsets the consumption debit reported through IFTA.

However, if you don’t have that receipt-or the receipt you have isn’t considered to be valid-then the auditor cannot allow a credit to offset the consumption debit.

He may assume the credit has been taken on another return, or perhaps that there was no fuel purchased. Therefore, he’ll want you to be charged the tax again. In essence, you’d be paying the $150 at the pump and then paying another $150 for a disallowed receipt. You would have just doubled your fuel tax costs. That’s a very expensive error.

While these six mistakes do happen, the most common complaints from both government and industry are related to problems with getting good trip records handed in on time. The information you report is only as good as the information you’re supplied. The more accurate your trip data is, the more accurate the IFTA reporting will be, which will help to eliminate audit risk and the need to pay additional taxes.

I’ll keep my fingers crossed that you don’t face a surprise assessment at the end of the process this time (next time, you’ll have been through the experience and I hope will feel more confident about your own recordkeeping procedures). IFTA is a terrific program, but don’t forget, the government assumes that you knew what you agreed to when you applied for an IFTA licence.

Knowing the requirements under IFTA will help to eliminate audit risk associated with the reporting process.