Reimbursement for Business Use of Personal Vehicles
Study prepared for
The Treasury Board of Canada Secretariat
By Corporate Fleet Services
1 Fuel Price Update Synopsis
Corporate Fleet Services (CFS) has been mandated by the Treasury Board of Canada Secretariat to perform the Annual evaluation of per-kilometre reimbursement rates for government employees that are required to use their personal vehicles while performing government business. Furthermore, the periodic impact of varying fuel prices was to be evaluated quarterly by producing three additional Fuel Price Updates per year. The present document represents the Update for February 2016.
The latest Annual study established reimbursement rates for each Canadian Province and Territory after performing a comprehensive analysis of all vehicle operating expenses. These rates were presented in the Reimbursement for Business Use of Personal Vehicles Report, dated November 2015 (for publication on January 1st, 2016).
The present Update reflects the impact of current fuel prices on the Travel and Commuting Rates' recommendations made in the Annual Report with a focus on average pump prices of gasoline by Province and Territory. The prices were averaged for each Province or Territory for the three months prior to the release of the current Update (the months of December 2015, January and February 2016). All prices are given in dollars per litre.
This Update also presents the latest recommended rates of reimbursement for consideration by the Treasury Board Secretariat in dollars per kilometre. Federal and provincial sales taxes were also researched to determine if there were any recent changes that could have had an immediate impact on the total costs of vehicle ownership and operation.
For the period December 2015 - February 2016 fuel expenses represent 18.2% of the total cost of vehicle operation (reflected in the Travel Rates) or a Canadian average of 8.9 cents per kilometre. The present Update identified decreases in average gasoline prices across Canada, which had a moderate impact on the reimbursement rates. As a result, reimbursement rates for the ten Provinces decreased between 0.5 and 2.0 cents relative to the previous Annual Report (November 2015 for publication on January 1st, 2016), with the greatest change being a decrease of 2.0 cents for both the Travel and Commuting rates in Alberta, Manitoba and Saskatchewan. For the Territories, the Yukon saw the greatest decrease of 2.5 cents for both rates.
2 Fuel Prices
2.1 Energy market context
During the past three months, crude oil and gasoline prices have shown a certain degree of variation, even though generally both have been on a downward slope. Overall, oil prices were decreasing in December 2015 and January 2016, while somewhat stabilizing in February. The same factors as described in the Annual Report (November 2015 for publication on January 1st, 2016), namely the excessively high inventories and the imbalance between oil production and global demand have had a continued impact on crude prices, driving them down to record low levels. As a result, price volatility remains very high and any new oil market-related information has a direct impact on crude prices. The gasoline prices at the pump followed a similar trend, on average displaying a downward slope during the last three months, although the decrease was significantly less pronounced than that of crude oil.
Global Crude Oil Demand
According to the World Economic Outlook report from January 2016 released by the International Monetary Fund, the global growth projections have been adjusted downwards. The world growth rate is expected to be at 3.4% in 2016, a decrease from the projection of 3.6% in the October 2015 report. The reduction in the growth prognosis is mainly due to more gradual economic growth in emerging markets. The expected growth rate for 2016, however, is higher than that for 2015 (which was estimated at 3.1%).
China is continuing to experience economic difficulties while rebalancing its economy. The projected growth rate for China is at 6.3% for 2016 and 6.0% in 2017 as compared to 6.8% last year and 7.3% the year before. At the same time, growth prognosis for India and the Middle East / North Africa remains strong at 7.5% and 3.5% respectively. On the other hand, a number of Latin American countries as well as Russia are expected to have another year of shrinking economies. Brazil's economy is projected to contract by 3.5% (as compared to 3.8% in 2015), while Russia's by 1% (3.7% in 2015). The USA's economic growth is expected to remain at 2.6% this year.
The data on the Canadian economy indicates that the actual growth rate in 2015 was 1.2%, slightly higher than the November 2015 estimate, which was at 1%. At the same time, the investments in the Canadian oil patch have decreased by 40% in 2015. The global oil crisis has had a significant impact on oil-producing provinces, most importantly Alberta, whose economy shrank by an estimated one percent last year. The economic outlook for Canada in 2016 is positive, even though uncertain. According to the Bank of Canada's projections, the growth rate is expected to increase to 1.4% in 2016 and 2.4% in 2017.
According to the OPEC Monthly Oil Market Report from February 2016, OPEC's reference basket has decreased by a further 41.14% over the course of the last three months, averaging at $26.50 USD per barrel in January as compared to $45.02 USD per barrel in October. The world crude oil demand in 2016 is expected to grow by 1.25 mb/d (million barrels per day) to an average of 94.21 mb/d, an increase of 1.35% over 2015.
Global Crude Oil Supply
The U.S. Energy Information Agency's report from February 9th, 2016 indicates that the global crude oil supply is expected to grow by 0.45 million barrels per day or 0.5% in 2016, as compared to 2.5% in 2015. Although OPEC oil production is projected to grow in 2016, non-OPEC production cuts are expected to mitigate the total supply increase. The majority of cuts are expected to be in the USA, which is the largest oil producer in the world.
Between the beginning of December 2015 and late January/early February 2016, crude oil prices have been on a downward slope, declining from $41.85 to $26.21 USD per barrel in the case of WTI (West Texas Intermediate) and from $44.44 to $27.88 USD per barrel for Brent. This has been the first time since 2003 that the oil price has dropped below $30 USD per barrel. Starting mid-February, the oil prices have seen a slight recovery and have been hovering between $30 and $35 USD per barrel. The continuously high inventories and excessive increase in production are still the main factors affecting the global oil market.
Despite record-low prices and record-high inventories, oil-producing countries have still not reached an agreement to reduce production levels. The brief oil price rebound in February has been mainly influenced by meetings between Saudi Arabia, Qatar, Russia and Venezuela, on the expectation that these countries might take steps to coordinate reduction of production levels. However, on February 23rd, 2016, Saudi Arabia stated that although they are considering freezing production levels along with the above mentioned countries, they would not reduce them unless other countries, including the USA and Canada, would agree to do so as well. Furthermore, it was emphasized that Saudi Arabia would be willing to accept low oil prices for prolonged periods of time if that would encourage less efficient oil producers to leave the market. Notably, according to the International Energy Agency, Canadian oil sands production is one of the most expensive types of crude to produce, with costs of over $70 USD per barrel as compared to Saudi Arabia that comes in at below $25 USD per barrel. For comparison, the USA is at the global average of just below $45 USD per barrel. At the same time, Canadian oil (as measured by the Western Canadian Select) is the cheapest in the world, currently selling at about $20 per barrel. The price difference is largely attributed to the limited export pipeline capacity.
2.2 Gasoline prices across Canada
According to the review released by Statistics Canada on January 22nd, 2016, the yearly average price of gasoline in Canada in 2015 versus 2014 recorded the largest decrease in the past seven years. The Canadian yearly average was 16.5% lower than the previous year. The gasoline price drop has had a significant impact on the annual average inflation rate measured by the Consumer Price Index (CPI) which was 1.1% in 2015, but would have been 2% had gasoline been excluded from the calculation.
However, the price of gasoline in January was approximately at the same level as it was at the same time a year ago, despite the fact that the global oil prices dropped by about 35% over the same time period. This trend has been driven by three main factors:
- Firstly, the majority of gasoline purchased in Canada is produced in the USA. Since in January 2016 the Canadian dollar has lost close to 15% in value over January 2015, this has had a significant effect on gasoline prices, slowing their overall decline.
- Secondly, because of decreasing prices, the demand for gasoline has been strong, eventually exhibiting an opposite effect on prices, keeping them higher both in the USA and Canada.
- Lastly, the provinces of Alberta and New Brunswick have increased taxes charged on gasoline over the past twelve months, while Quebec have adjusted their cap-and-trade greenhouse gas allowance, having a slight upward effect on prices.
All of these factors combined have produced a leveling effect, maintaining gasoline prices relatively close to their levels from a year ago.
Over the course of the past three months, average gasoline prices in Canada have followed crude oil price trends. The prices were relatively constant during December, followed by a significant decline in January and have somewhat stabilized in February.
In contrast to the previous three-month period covered in the Annual Report (November 2015 for publication on January 1st, 2016), gasoline prices at the pump have seen a more moderate decline in Eastern Canada (ranging from 7% to 10%), than in Western Canada (20% to 22%) with the exception of British Columbia that only saw a 6% decline.
The Territories have seen a similar gasoline price decline as the rest of Canada. In the Northwest Territories and the Yukon the average gasoline price dropped by 14% and 17% respectively. Nunavut's gasoline prices are government-regulated and were adjusted starting January 1, 2016, reducing the average gasoline costs by about 7%.
The trend of future prices at the pump is difficult to predict with any degree of confidence. The current energy market still displays signs of volatility that adds to the impact of record inventories of fuel. These factors will probably display a mixed effect and make future prices at the pump hard to project.
In Canada, prices of gasoline at the pump include all applicable taxes. Prices vary significantly across the country, mainly due to the difference in the types and amounts of taxes being charged in different Provinces and Territories. The present Update calculated the average prices of regular gasoline charged at the pump during the past three months. The fuel price data was primarily obtained from Natural Resources Canada, based on weekly published fuel prices for 67 locations across Canada. This data was verified against additional sources that similarly track fuel prices across Canada. Additionally, the data was spot-checked by using information available through Statistics Canada as well as other popular gasoline price reporting websites such as www.GasBuddy.com, www.GlobalPetrolPrices.com and www.TomorrowsGasPriceToday.com.
Consistent with the methodology of the Annual Report, when determining average gasoline prices per Province or Territory, the present Update used weighted averages according to population in order to better conform to reality. In this manner, metropolitan population centers account for a greater portion of the total average price compared to smaller towns.
The following is a table with average regular gasoline prices for all Canadian Provinces and Territories, in dollars per litre, for the period December 2015 - February 2016:
|
Province/Territory |
Current fuel |
Jan 1st 2016 |
Price difference |
|---|---|---|---|
|
Alberta |
$0.785 |
$1.009 |
-$0.224 |
|
British Columbia |
$1.108 |
$1.178 |
-$0.070 |
|
Manitoba |
$0.813 |
$1.012 |
-$0.199 |
|
New Brunswick |
$0.925 |
$0.992 |
-$0.067 |
|
Newfoundland and Labrador |
$0.962 |
$1.065 |
-$0.103 |
|
Nova Scotia |
$0.927 |
$0.999 |
-$0.072 |
|
Ontario |
$0.940 |
$1.015 |
-$0.075 |
|
Prince Edward Island |
$0.929 |
$1.007 |
-$0.078 |
|
Quebec |
$1.015 |
$1.099 |
-$0.084 |
|
Saskatchewan |
$0.811 |
$1.036 |
-$0.225 |
|
Northwest Territories |
$1.052 |
$1.223 |
-$0.171 |
|
Nunavut |
$1.182 |
$1.269 |
-$0.087 |
|
Yukon |
$0.999 |
$1.198 |
-$0.199 |
Fuel price data was extracted for a period of three months (December 1st, 2015 to February 23rd, 2016) in order to reflect current gasoline price trends. Subsequent reports will focus on three-month periods following the period covered in the present study. Average gasoline prices per litre and per Province or Territory were found to vary between $0.785 in Alberta to $1.182 in Nunavut, with a Canadian average of $0.966, a decrease of 10.0 cents from the previous Annual Report (November 2015 for publication on January 1st, 2016). The lowest price was recorded in Edmonton, AB at 57.9 cents per litre and the highest in Vancouver, BC at 126.6 cents per litre.
2.3 Sales taxes
For the current Update, research was performed to see if there were any relevant changes to Federal and Provincial sales taxes that could have an immediate impact on the reimbursement rates. It was noted that the planned increase of the Harmonized Sales Tax in Newfoundland and Labrador was cancelled. The tax hike was planned by the previous provincial government and it was to be increased from 13% to 15%, effective January 1st, 2016. However, subsequent to the results of provincial elections held on November 30th 2015, the new government cancelled the rate hike. In light of this, the calculation of reimbursement rates for the province of Newfoundland and Labrador reverted back to the 13% HST.
As of the date of this Update, no other changes were observed in sales taxes elsewhere in Canada. Moreover, no changes are foreseen at this time in the immediate future.
3 Impact of Fuel Prices on Reimbursement Rates
3.1 Fuel consumption
In calculating the fuel costs contribution to the total vehicle operating costs, the methodology employed in the Annual Report was strictly adhered to. Fuel consumption for every vehicle model in the study was thus combined with average prices per Province or Territory to determine the fuel portion of operating costs, based on an average of 20,000 kilometres per year.
3.2 Updated reimbursement rates
For comparison, the following table provides updated Travel and Commuting rates, as well as rates previously calculated for the November 2015 Annual Report (for publication on January 1st, 2016):
February 2016 Fuel Update Reimbursement Schedule (in dollars per kilometre)
|
Travel Rate |
Commuting Rate |
|||
|---|---|---|---|---|
|
Province/ |
Current Fuel Update |
Jan 1st 2016 Annual Report |
Current Fuel Update |
Jan 1st 2016 Annual Report |
|
Alberta |
$0.420 |
$0.440 |
$0.160 |
$0.180 |
|
British Columbia |
$0.470 |
$0.475 |
$0.195 |
$0.205 |
|
Manitoba |
$0.450 |
$0.470 |
$0.165 |
$0.185 |
|
New Brunswick |
$0.470 |
$0.480 |
$0.180 |
$0.185 |
|
Newfoundland |
$0.495 |
$0.515 |
$0.180 |
$0.190 |
|
Nova Scotia |
$0.480 |
$0.485 |
$0.180 |
$0.185 |
|
Ontario |
$0.530 |
$0.540 |
$0.180 |
$0.185 |
|
Prince Edward |
$0.465 |
$0.470 |
$0.180 |
$0.185 |
|
Quebec |
$0.490 |
$0.500 |
$0.195 |
$0.200 |
|
Saskatchewan |
$0.440 |
$0.460 |
$0.165 |
$0.185 |
|
Northwest |
$0.565 |
$0.585 |
$0.245 |
$0.265 |
|
Nunavut |
$0.580 |
$0.590 |
$0.260 |
$0.270 |
|
Yukon |
$0.570 |
$0.595 |
$0.240 |
$0.265 |
Note: All figures were rounded up to the nearest half-cent.
The impact of gasoline prices on the reimbursement rates was relatively moderate for the present Fuel Update in comparison with the November 2015 Annual Report (for publication on January 1st, 2016). The Travel and Commuting reimbursement rates displayed decreases between 0.5 cents and 2.0 cents per kilometre for the Provinces. For the Territories, both the Travel and Commuting rates have seen decreases between 1.0 cents and 2.5 cents. Canadian weighted averages have decreased by 1.0 cent for the Travel Rate and by 0.5 cents for the Commuting rate and are now at 49.0 cents per kilometre and 18.5 cents per kilometre respectively.
Fuel contributes on average 8.9 cents per kilometre to total operating costs, ranging from 7.3 cents in Alberta to 15.1 cents in the Nunavut. With the continued volatility of the energy markets, determined by global factors that are difficult to forecast, it is difficult to make any prediction regarding gasoline prices for the next three-month period. However, any future changes will be reflected in the next Fuel Update.