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 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 2015.
The 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 2014 (for publication on January 1st 2015).
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 or 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 2014, January and February 2015). All prices are given in dollars per litre.
This Update also presents up-to-date 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 2014 - February 2015 fuel expenses represent 19% of the total cost of vehicle operation or a Canadian average of 9.3 cents per kilometre. The present update identified substantial decreases in average gasoline prices across Canada, which directly affected the reimbursement rates. As a result, most reimbursement rates have dropped relative to the January 1st 2015 Annual Report, with the greatest change being a decrease of 3 cents in both the Travel and Commuting rates in the Northwest Territories as well as the Commuting Rate in Manitoba and the Yukon.
2 Fuel Prices
2.1 Energy market context
During the past three months crude oil and gasoline prices have varied considerably, due primarily to shifts in global oil production and the energy market's response to these changes. Crude oil prices have decreased substantially during the months of December and January, continuing a global trend that had become apparent since the summer of 2014. However, oil prices have regained part of the loss during the month of February 2015, based again on global trends.
The steep decrease in global oil prices was primarily due to a worldwide oversupply of crude oil. The United States have been increasing their production of crude oil, which at the end of 2014 resulted in being approximately 50% greater than 2006 levels. This was sustained primarily by an increase in the use of hydraulic fracturing technology for shale oil extraction.
Subsequently, the decision in late November 2014 by OPEC countries to maintain their crude production targets sent global oil prices tumbling down. Historically, Saudi Arabia acted as a unilateral global swing supplier to maintain prices of oil. However, during the last months it decided to not adjust its production and in consequence prices went down. Moreover, most of the Libyan production returned to pre-conflict levels while Iraq registered the highest production in the last 35 years, adding to the downward trend.
On the other hand, global demand for crude remained sluggish as European economies continue to stagnate and Chinese economic growth has exhibited a sustained slowdown. This had the effect of exacerbating the decrease in the price of crude.
World economic growth for 2015 is expected to be 3.4% as compared to 3.2% in 2014, according to the OPEC Monthly Oil Market Report from February 2015. This is a revised figure from 3.6% a month earlier. Downward revisions are observed for China (7.0%) and Brazil, while the Russian economy is now expected to shrink by 2.4%. Only India's growth expectation has been revised upward reaching 6.0% while Organisation for Economic Co-operation and Development (OECD) member countries' growth expectation remains at 2.2%. Oil demand is expected to increase globally in 2015 by 1.17 million barrels/day or approximately 1.25%, which is a little higher than the projected growth of 0.96 million barrels/day for 2014.
This decrease in oil prices has exerted downward pressure on the Canadian currency and overall has had a mixed effect on the economy. The oil producing provinces (especially Alberta, Saskatchewan and Newfoundland and Labrador) suffered the most because crude oil prices are mostly driven by the global market. The probable impact on the Canadian economy of decreasing world crude prices is reduced growth and deflation. For example, in Alberta, the forecasted growth dropped from well above the national average to the national average (2.7%) for 2015. This has a direct impact on oil-derived revenues by Federal and Provincial governments, potentially slowing further growth. To counterbalance this, the Bank of Canada has reduced its key lending rate to 0.75% (from 1%) on January 21st of 2015.
Lower oil prices have led to reduced costs for businesses and households in North America, which in turn stimulated both consumer spending and investments in other sectors of the economy, promoting growth. This has been particularly true in the United States where the overall economy benefited from the price drop. Subsequently, this can lead to a growing market for Canadian exports and has the potential to partially offset the negative effects that the low prices have had on the oil production sector.
However, during the last few weeks of February of 2015, crude prices have somehow rebounded globally, due to a number of factors, mostly on the supply side, including the shutdown of numerous drilling rigs in North America, reduced oil production growth in Russia and Columbia as well as a slight decrease in production in OPEC countries. With the exception of the United States, the low prices of crude do not appear to be stimulating the demand yet. Therefore, due to the present climate of high volatility in oil prices and the many factors influencing them, it is very difficult to predict which direction they will take next, even in the short term.
2.2 Gasoline prices across Canada
With cost of oil at approximately 50% less than at the same time last year, North American refineries have been capitalizing on low crude prices, boosting utilization rates above 95% and processing record amounts of crude oil. High production rates have produced a surplus of gasoline, and this has applied additional downward pressure on gasoline prices.
Prices at the pump followed the downward trend of falling crude prices but the decreases were not as steep (on average at 28% lower than at the same time last year, versus crude which has dropped by approximately 50%). However, gasoline prices have rebounded somewhat during the month of February 2015. The main factor influencing this rebound was a reduction in active drilling rigs across North America that exerted some upward pressure on the oil prices.
Just as in the case of crude, the trend of future prices at the pump is extremely difficult to predict with any degree of confidence. The current energy market's volatility compounds the seasonal effects of switching to summer-grade gasoline as well as the impact of record inventories of fuel. These two factors working in opposite directions have a mixed effect and add to the uncertainty of future prices at the pump.
Overall, following the global trend, prices at the pump in Canada fluctuated relative to the trends in crude-oil prices. All across the country prices of gasoline have been dropping significantly towards the end of January, only to rebound slightly during the month of February 2015. Average gasoline prices have decreased across all the Canadian Provinces and Territories, with the greatest decrease being registered in Manitoba (28.2 cents relative to the January 1st 2015 Annual Report).
On the background of the overall negative trend, there were some regional differences in prices at the pump between Provinces and Territories. As compared to the January 1st 2015 Annual Report, average prices have dropped by 16% in British Columbia and 24% in Alberta and Manitoba. The only exception to this otherwise steep downward trend is Nunavut, where average gasoline prices have remained constant due to the fact that gasoline prices are directly regulated by the Territorial government.
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 60 locations across Canada. This data was verified against an additional database made available by MJ Ervin and Associates that similarly tracks fuel prices all across Canada. Additionally, the data was spot-checked by using information available through 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, we have 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 2014 - February 2015:
|
Province/Territory |
Current fuel price ($/litre) |
January 1st 2015 |
Price difference |
|---|---|---|---|
|
Alberta |
$0.841 |
$1.104 |
($0.263) |
|
British Columbia |
$1.094 |
$1.308 |
($0.214) |
|
Manitoba |
$0.872 |
$1.154 |
($0.282) |
|
New Brunswick |
$0.981 |
$1.239 |
($0.258) |
|
Newfoundland and Labrador |
$1.053 |
$1.292 |
($0.239) |
|
Nova Scotia |
$0.998 |
$1.270 |
($0.272) |
|
Ontario |
$0.977 |
$1.224 |
($0.247) |
|
Prince Edward Island |
$0.993 |
$1.267 |
($0.274) |
|
Quebec |
$1.078 |
$1.329 |
($0.251) |
|
Saskatchewan |
$0.913 |
$1.175 |
($0.262) |
|
Northwest Territories |
$1.151 |
$1.385 |
($0.234) |
|
Nunavut |
$1.269 |
$1.269 |
$0.000 |
|
Yukon |
$1.100 |
$1.318 |
($0.218) |
Fuel price data was extracted for a period of three months (December 2nd 2014 to February 24th 2015) 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 $0.841 in Alberta to $1.269 in Nunavut, with a Canadian average of $0.994, a decrease of 25.7 cents from the January 1st 2015 Annual Report. The lowest price was recorded in Edmonton at 69.4 cents per litre and the highest in Yellowknife at 133.9 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. As of the date of this Update, no changes were observed in sales taxes anywhere 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
The following table provides updated evaluations for both the Travel and Commuting rates, as well as rates previously calculated for the January 1st 2015 Annual Report, for comparison:
February 2015 Fuel Update Reimbursement Schedule (in dollars per kilometre)
|
Province/Territory |
Current Fuel Update |
January 1st 2015 |
Current Fuel |
January 1st 2015 |
||
|---|---|---|---|---|---|---|
|
Alberta |
$0.425 |
$0.450 |
$0.160 |
$0.185 |
||
|
British Columbia |
$0.465 |
$0.485 |
$0.195 |
$0.215 |
||
|
Manitoba |
$0.450 |
$0.475 |
$0.170 |
$0.200 |
||
|
New Brunswick |
$0.470 |
$0.495 |
$0.180 |
$0.205 |
||
|
Newfoundland and Labrador |
$0.500 |
$0.525 |
$0.190 |
$0.210 |
||
|
Nova Scotia |
$0.480 |
$0.505 |
$0.185 |
$0.210 |
||
|
Ontario |
$0.535 |
$0.555 |
$0.180 |
$0.205 |
||
|
Prince Edward Island |
$0.470 |
$0.495 |
$0.185 |
$0.210 |
||
|
Quebec |
$0.490 |
$0.510 |
$0.200 |
$0.220 |
||
|
Saskatchewan |
$0.445 |
$0.470 |
$0.175 |
$0.200 |
||
|
Northwest Territories |
$0.595 |
$0.625 |
$0.255 |
$0.285 |
||
|
Nunavut |
$0.610 |
$0.610 |
$0.270 |
$0.270 |
||
|
Yukon |
$0.600 |
$0.625 |
$0.250 |
$0.280 |
Note: All figures were rounded up to the nearest half-cent.
The impact of gasoline prices on the reimbursement rates was significant for the present Fuel Update versus the January 1st 2015 Annual Report. The reimbursement rates saw decreases of as much as 3 cents per kilometre for the Provinces and Territories. Canadian weighted averages have decreased for both the Travel and Commuting rates, and are now at 49.5 cents per kilometre and 18.5 cents per kilometre respectively.
Fuel contributes on average 9.3 cents per kilometre to total operating costs, ranging from 7.8 in Alberta to 16.2 in Nunavut. With the current volatility of the energy market determined by global factors that are difficult to forecast, it is hard 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.