Gas prices rose to over $2 per litre in many stations in Montreal on April 2.Christinne Muschi/The Canadian Press
The federal government’s tax break on gasoline and diesel begins today, a relief measure for Canadians who’ve experienced rising prices at the pump since the U.S.-Iran war broke out in February.
The tax break is expected to cut 10 cents off the price of gas per litre and four cents per litre off diesel. The temporary measure will last from April 20 until Sept. 7, 2026.
But it may not be enough to ease the pressure on people’s wallets because of the switch to summer gasoline blends. The average price of gas nationally is $1.69 per litre today, according to CAA.
Crude oil prices have skyrocketed during the conflict with the closing of the Strait of Hormuz, the vital shipping route through which 20 per cent of the world’s oil passes.
Canadians immediately felt the squeeze. In March, gasoline prices increased more than 21 per cent on a monthly basis while overall inflation increased 0.9 per cent on the month, Statistics Canada reported.
Here’s what you need to know about fuel taxes.
What determines the price of gas?
There are a few factors that determine the price of gas: supply and demand; supply-chain dynamics; the price of crude oil and the cost to refine it; and federal and provincial taxes.
There’s also the impact of seasonal blends. In winter, gas formulas contain more butane, which helps cars start in cold weather. In warm weather, though, butane evaporates quicker and creates smog and other environmental harms. By April 15 every year, refineries must switch to a summer blend that contains less butane and more alkylates, a costlier input that can add between five and 10 cents per litre at the pump.
How is gas taxed in Canada?
Fuel for consumers in Canada is taxed multiple times. This includes a 10-cent-per-litre federal excise tax on gasoline (4 cents per litre for diesel).
Provincial pricing varies, from, for example, 6.2 cents per litre in the Yukon to 27 cents per litre in Vancouver (some provinces, such as British Columbia, have region-specific pricing).
Fuel taxes are also subject to 5-per-cent federal GST, plus varying sales tax by province.
All in, taxes can range from about 30 to 50 cents a litre.
Why is gas so expensive right now?
The main reason is a global supply shortage of oil. With the effective closing of the Strait of Hormuz, most delivery of gas and oil from the Middle East has been halted.
The Strait of Hormuz connects the Persian Gulf to the world’s oceans and is a critical path for the transport of oil. Qatar and the United Arab Emirates ship almost all their liquefied natural gas through the strait, accounting for 20 per cent of global supplies.
The war on Iran has shown how important the waterway is, especially for countries reliant on the crude such as China.
There’s currently a fragile ceasefire holding between the U.S. and Iran as Pakistan tries to mediate peace talks for the two countries.
Canada, Japan, European allies willing to use ‘appropriate efforts’ to reopen Strait of Hormuz
Where have fuel taxes been paused because of the war?
The Canadian federal government is pausing gas taxes starting April 20.
On March 20, Georgia became the first U.S. state to suspend their state fuel tax for 60 days. The bill, signed by governor Brian Kemp, temporarily waives the approximately 33-cents-per-gallon gasoline tax and 37-cents-per-gallon diesel tax.
Officials estimate Georgia will forgo US$360-million to US$400-million in fuel taxes, which translates to $5 or $6 per tank for a typical passenger vehicle.
European Union leaders are considering temporary measures to combat the rising gas and energy costs, including electricity tax cuts, lower grid fees and state support as short-term fixes.
The continent is eyeing the replacement of fossil fuels with local low-carbon energy production to avoid volatile oil and gas prices in the long-term.
When has Canada paused the gas taxes in the past?
In the past few years, some provinces have introduced temporary pauses on gas taxes. The Alberta government introduced pauses to the fuel tax starting in April, 2022, because of inflation, and extended the program until Jan. 1, 2024.
The Manitoba government had a similar “gas tax holiday” throughout 2024, suspending their 14-cents-per-litre fuel tax. The government brought back the tax in 2025 at 12.5 cents per litre.
Ontario also temporarily reduced gasoline taxes in 2022 by 5.7 cents a litre and diesel by 5.3 cents a litre to bring both down to 9 cents a litre. The province later made the reductions permanent.
With reports from Paul Waldie, Eric Atkins, Jason Kirby, Mark Rendell, Bianca Bharti, Reuters, the Associated Press and Canadian Press