The Alberta Fuel Tax Act is a direct tax on consumers for the purchase of all unmarked fuel in Alberta. This includes gasoline, diesel and propane, except where the fuel is delivered and consumed outside Alberta. Natural gas and ethanol are tax free, as well as fuel used for eligible agricultural operations or commercial off road purposes.

The current tax rates are 9 cents/litre for gasoline and diesel and 6.5 cents/litre for propane. The rates for railway and aviation fuel are 3 cents/litre and 1.5 cents/litre respectively.

Alberta provides tax exemptions and rebates on fuel used off-road for commercial purposes. TEFU currently provides benefits of about $120 million per year, including approximately $45 million in the form of rebates.

The International Fuel Tax Agreement (IFTA) is an agreement among 10 Canadian provinces and 48 U.S. states (58 jurisdictions in all) to simplify the reporting of fuel use taxes by interprovincial motor carriers. IFTA reporting significantly reduces the paperwork and standardizes the reporting procedure of fuel use in the various jurisdictions.

Before the adoption of IFTA, each member province and state had its own fuel tax return, licensing, decals, rules and forms and performed its own separate audits. A motor carrier operating in multiple jurisdictions had to comply with the reporting requirements of each province or state, which made filing returns difficult and time consuming.

The prescribed rebate off-road percentages (PROP) method is another way to calculate the percentage of off road fuel use. It was created by Alberta Finance to be more simplistic than the TEFU program. In this method, the government has set specific off road percentages for certain industries. The specific industries no longer need to do surveys but must track their fuel consumption on a per unit basis an activity basis as well as categorize their fleet as per the new government guidelines.

The PROP program only applies to certain industry categories. The following industry categories must use the PROP method beginning on January 1, 2005:

OIL AND GAS DRILLING, OIL AND GAS GEOPHYSICAL OR SEISMIC EXPLORATION

OIL AND GAS PRODUCTION:

The following industry categories must use the PROP method beginning on January 1, 2006:

OIL AND GAS SERVICING including Pumping Services, Oilfield Hauling, Wireline Operations, Swabbing, Fracturing & Downhole Services, Fire & Safety, Rat Hole Drilling, Well Testing and Pipeline Construction.

Other industry categories may be added in the future.