Budget 2021 proposes to update Canada’s current excise tax and duty regime by amending both the Excise Tax Act (the “ETA“)1 and Excise Act 2001 (the “EA“),2 and also impose a special sales tax on certain luxury items. These changes will designate new categories of “taxable products,” imposing excise duties on vaping products, and sales tax on new luxury vehicles, aircraft and boats for personal use. In addition, excise duties on tobacco products are increased. Finally, the excise tax refund mechanism for the provinces is changed.
The following bulletin provides an overview of these proposed changes.
Refund of excise tax for products purchased by provinces
By virtue of art. 125 of Constitution Act, 1867,3provinces are exempt from paying federal excise taxes imposed on fuels, motor vehicle air conditioners and gas guzzlers under Part III of the ETA. However, some provinces have entered into special agreements with the federal government under which they agree to pay each other’s taxes.
For provinces that have not entered into such agreements, the ETA offers a provincial usage rebate for excise taxes. Under current legislation, a refund of excise taxes paid can be claimed by the province or the vendor of the goods, in which case the province should not have paid the incorporated tax.
The 2021 budget aims to clarify which party should request the rebate by specifying that only the seller is eligible for this rebate if they jointly choose with the province to be eligible. Without this joint election, only the province would be eligible for the rebate. The proposed changes to the ETA to change the reimbursement mechanism would apply to goods purchased or imported on or after January 1, 2022.4
Excise duty on tobacco
In Canada, tobacco products are subject to an excise tax imposed under the EEA.5 As of April 19, 2021, the 2021 budget proposes to increase the excise duty by $ 4.00 per carton of 200 cigarettes and to increase the excise duty for individual cigarettes (from $ 0.62725 to 0 , $ 72,725 per five cigarettes), tobacco sticks ($ 0.012545 to $ 0.14545 per stick), manufactured tobacco ($ 7.84062 to $ 9.09062 per 50 grams) and cigars.6
Cigarette inventories held by certain manufacturers, importers, wholesalers and retailers at the beginning of April 20, 2021 will be subject to an inventory tax of $ 0.02 per cigarette (subject to certain exemptions). Cigarette Inventory Tax declaration and payment will be due no later than June 30, 2021.
According to the federal government, these increases in excise duties on tobacco products are designed to discourage tobacco consumption in Canada in order to meet the government’s goal of less than 5% of the Canadian population using tobacco. here 2035.7
Excise duties on vaping products
According to Budget 2021, the federal government proposes to impose excise duties on vaping products under the EA.8 This new duty would apply to vaping liquids that are produced or imported into Canada for use in a vaping device, whether or not they contain nicotine. Cannabis vaping products would be exempt from this duty, as they are already dutiable under the EA as cannabis products. There would be certain other exemptions, such as for vaping products (i) taken for analysis or (ii) destroyed in accordance with government regulations.
Proposed duty rate
The proposed framework would impose a one-time flat fee on every 10 milliliters (ml) of vaping liquid. The 2021 budget does not specify the exact rate of duty, but proposes a rate of duty “which could be in the order of $ 1.00 per 10 ml or fraction thereof, in an immediate container (that is, ie the container containing the liquid itself) ”. This duty would be imposed and payable at the time of packaging for final retail sale, with the last federal licensee in the supply chain responsible for the duty, or upon importation into Canada by a licensee required to pay the duty at the border. Imports would not be subject to duty if they were not in a state ready for final retail sale to consumers. Exports of vaping products for consumption abroad would not be subject to excise duties.
Licensing and compliance
Manufacturers and importers of dutiable vaping products would be required to obtain a license from the Canada Revenue Agency (the “BOWThis licensing requirement would include all vaping stores that purchase unpaid vaping products to blend or manufacture dutiable vaping products on-site for retail sale to consumers. certain criteria, such as not having acted to defraud the government in the past five years. Licensees will also be required to report monthly entitlement information to the CRA. However, licenses will not be required for individuals who prepare vaping liquids for personal consumption.
As is the case with tobacco and cannabis products, vaping products will need to bear an excise stamp indicating that the duty has been paid. The stamp must appear on the container intended to be used for the retail sale of the products. The CRA will issue the stamps to licensees, and possession or sale of any unstamped vaping product will be prohibited, unless permitted under the EA.
The CRA will administer, collect and enforce duties on vaping products. The federal government has indicated its intention to work collaboratively with provinces and territories that may be interested in a coordinated approach at the federal level to impose duties on these products. Such a regime already exists for cannabis products.
The government is seeking advice from industry and stakeholders on the excise duty proposals for the final design and details of the excise duty regime in order to make the necessary changes to the EA. The deadline for submitting written comments is June 30, 2021.
Sales tax on certain luxury passenger vehicles, personal aircraft and boats
Budget 2021 proposes to impose a special sales tax on the retail sale of new “luxury” motor vehicles and personal aircraft priced over $ 100,000, and personal-use boats priced over $ 250. $ 000, effective January 1, 2022. The amount of tax would be the lesser of:
- 10 percent of the total value of the vehicle, plane or boat, and
- 20 percent of the above value (a) $ 100,000 for a vehicle or aircraft, or (b) $ 250,000 for a boat.
GST / HST would be calculated on the final retail selling price,
including of the proposed sales tax. Alternatively, in the case of an importation of a luxury vehicle, personal aircraft or boat by the consumer, the proposed sales tax would apply at the border at the time of importation and would be collected. in the same way as any customs duty, GST / HST or provincial sales tax. Customs duties, GST / HST and possibly PST would be included in the value on which the luxury sales tax is calculated. Exports for personal use abroad would not be taxed.
The luxury tax applies to a new passenger vehicle generally suitable for personal use on public roads, including vans and minivans equipped to accommodate less than 10 passengers, and passenger vans. All-terrain vehicles, such as all-terrain vehicles, motorcycles, snowmobiles, racing cars owned only for racing and not legal for public roads, and motor homes, would be excluded from the application of the tax on luxury vehicles. The same would apply to commercial vehicles and public sector vehicles, such as police cars and ambulances.
Personal aircraft subject to luxury sales tax include airplanes, helicopters and gliders. Large aircraft typically used in commercial activities, such as those equipped to carry passengers and having a maximum carrying capacity of more than 39 passengers, would also be exempt. Small aircraft used in certain commercial and public sector activities would also be exempt.
The luxury sales tax on new boats would cover pleasure craft such as yachts, pleasure motor boats, and sailboats, usually suitable for personal use. Small personal watercraft, like jet skis, would be excluded from the tax (although they generally don’t exceed the $ 250,000 threshold anyway). Houseboats, commercial fishing boats, ferries and cruise ships would be exempt from the tax.
If the luxury personal-use conveyance is leased to a consumer, the full amount of proposed sales tax would be payable in advance of the retail selling price of the conveyance, and not over time over time. lease payments. The lessor or seller would be responsible for billing, collecting, reporting and remitting sales tax.9
There is no bill yet. The federal government will announce more details in the coming months.
6 From $ 27.30379 per 1,000 cigars, plus the greater of $ 0.09814 per cigar and 88% of selling price or customs value, to $ 31.65673 per 1,000 cigars, the greater the greater of $ 0.11379 per cigar and 88% of the sale price or customs value. See the table on page 655 of Budget 2021.
Originally posted April 30, 2021
The foregoing is only an overview and does not constitute legal advice. Readers are cautioned not to make decisions based solely on this material. Rather, specific legal advice should be obtained.
© McMillan LLP 2021