OTTAWA — Canadian motorists will continue receiving relief at the gas pump after the federal government extended its temporary fuel excise tax holiday until Jan. 31, 2027, preventing an expected increase in gasoline and diesel prices this month.
The federal excise tax relief had been scheduled to expire Sept. 8. The extension means the federal tax of 10 cents per litre on gasoline and four cents per litre on diesel and aviation fuel will remain suspended for several more months.
Prime Minister Mark Carney’s government originally introduced the temporary measure in April as Canadians faced higher fuel and living costs. The federal excise tax rates have been reduced to zero since April 20.
The government now plans to restore the tax gradually rather than bringing the entire levy back at once. Beginning Feb. 1, 2027, the excise tax will return at half its regular rate until March 31. The full federal tax is scheduled to resume April 1, 2027.
The extension comes as energy markets face significant pressure from international conflicts and supply disruptions. Higher energy prices have been linked to supply shortages arising from the U.S. and Israeli war with Iran, while continuing instability in other parts of the world is adding to concerns about fuel affordability.
Federal Finance Minister François-Philippe Champagne said the extension is part of Ottawa’s effort to provide immediate affordability relief to Canadians. He said keeping the tax suspended means motorists will continue saving 10 cents per litre on gasoline and four cents per litre on diesel and aviation fuel.
The government says the measure is particularly important as Canadians continue facing higher prices for everyday necessities.
Fuel prices have broader implications for the economy because diesel is heavily used in trucking, agriculture, aviation and the transportation of food and consumer products. When diesel costs increase, businesses can face higher transportation expenses that may eventually be passed on to consumers through higher prices.
Fuel-price watchdog Dan McTeague has warned that diesel shortages and rising prices could therefore affect Canadians regardless of whether they personally drive a vehicle. He said businesses may have little choice but to pass higher transportation costs along through prices for groceries, consumer goods and airfare.
Despite the federal tax holiday, Ontario motorists continue to pay several other taxes and regulatory charges that are included in the price of gasoline.
According to figures cited in the report, Ontario drivers currently pay approximately 34.4 cents per litre in total fuel-related taxes and charges. That includes nine cents per litre in provincial fuel tax, approximately seven cents related to fuel regulations, 11.3 cents in provincial sales tax and 7.1 cents in federal sales tax.
Ontario Premier Doug Ford welcomed Ottawa’s decision to extend the federal relief and called on the federal government to eventually make the reduction permanent.
Ontario previously reduced its provincial gasoline tax from 14.7 cents per litre to 5.7 cents in 2022 and later made the reduction permanent. The province effectively harmonized its gasoline and diesel fuel tax rate at nine cents per litre.
The federal government has presented the fuel tax holiday as part of a broader affordability strategy that also includes the cancellation of the consumer carbon tax, tax relief for first-time homebuyers and changes to the GST credit, now known as the Canada Groceries and Essentials Benefit.
The relief could become increasingly important if fuel prices continue climbing. McTeague predicted gasoline prices in the Greater Toronto Area could reach approximately $1.859 per litre, while diesel could rise to about $2.429 per litre, potentially setting a record.
International supply disruptions, restrictions affecting the Strait of Hormuz and Persian Gulf, a weaker Canadian dollar and tight fuel supplies have all been identified as factors contributing to higher gasoline and diesel prices.
The federal government normally directs fuel excise tax revenues into general public revenues. Approximately $2 billion annually is used for municipal infrastructure, while other revenues support broader government programs and public services.
Ottawa previously estimated that temporarily suspending the federal fuel excise tax would save Canadian consumers approximately $2.4 billion.
For Ontario drivers, the immediate impact is straightforward: the 10-cent-per-litre federal gasoline tax will remain off the pump until the end of January 2027, providing several more months of relief at a time when international pressures are threatening to push energy and consumer prices higher.