Budget 2021 proposes to update Canada’s current excise tax and duty regime by amending Excise Tax Act (the “ETA”) and Excise Act 2001 (the “EA”), 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, planes 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 on products purchased by provinces
By virtue of art. 125 of Constitution Act, 1867, provinces are exempt from paying federal excise taxes imposed on fuels, motor vehicle air conditioners and fuel-efficient vehicles under Part III of the ETA. However, some provinces have specific agreements with the federal government under which they accept mutual payment of taxes from the other.
For provinces that have not entered into such agreements, the ETA provides a rebate for provincial use for excise taxes. Under current legislation, refunds of excise taxes paid can be claimed either by the province or by the vendor of the products, in which case the province should not have paid the built-in 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 have the right to obtain the reimbursement. The proposed changes to the ETA to change the discount mechanism would apply to goods purchased or imported from January 1, 2022.
Excise duty on tobacco
In Canada, tobacco products are subject to an excise duty imposed under the EA. As of April 19, 2021, Budget 2021 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 for five cigarettes), tobacco sticks ($ 0.012545 to $ 0.14545 per stick), manufactured tobacco ($ 7.84062 to $ 9.09062 per 50 grams), and cigars.
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). The return and payment of the cigarette inventory tax will be due no later than June 30, 2021.
According to the federal government, these increases in excise duties on tobacco products are intended to discourage tobacco consumption in Canada in order to meet the government’s goal of less than 5% of the Canadian population who use tobacco. here 2035.
Excise duty on vaping products
According to Budget 2021, the federal government proposes to impose excise duties on vaping products as part of the EA. This new duty would apply to vaping liquids 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 rate duty on 10 milliliters (ml) of vaping liquid. The 2021 budget does not specify the exact duty rate, but proposes a duty rate “which could be in the order of $ 1.00 per 10ml or a 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 liable 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.
License and compliance
Manufacturers and importers of dutiable vaping products would be required to obtain a license from the Canada Revenue Agency (the “BOW”). This licensing requirement would include all vaping stores that purchase unpaid vaping products to mix or manufacture dutiable vaping products on-site for retail sale to consumers. Applicants for a license will need to meet certain criteria, such as not having acted to defraud the government in the past five years. Licensees will also be required to report entitlement information to the CRA on a monthly basis. However, licenses will not be required for people preparing vaping liquids for their own personal consumption.
As 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 authorized 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 all provinces and territories that may be interested in a coordinated approach by the federal government to impose duties on these products. Such a regime already exists for cannabis products.
The government is seeking comments from industry and stakeholders on the excise duty proposals for the purposes of the final design and details of the excise duty regime in order to introduce the necessary changes to the EA. The deadline for submitting written comments is June 30, 2021.
Sales tax on certain luxury passenger vehicles, personal planes and boats
Budget 2021 proposes to impose a special sales tax on the retail sale of new “luxury” motor vehicles and personal aircraft over $ 100,000 and personal-use boats over $ 250,000, to as of January 1, 2022. The amount of the tax would be the lesser of:
- 10 percent of the total value of the vehicle, aircraft 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. Otherwise, in the case of an importation of a luxury vehicle, personal aircraft or vessel 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 vans equipped to accommodate less than 10 passengers and passenger vans. All-terrain vehicles, such as all-terrain vehicles, motorcycles, snowmobiles, racing cars held solely for racing and not authorized for public roads and motor homes, would be excluded from the application of the luxury vehicle tax. The same would apply to commercial vehicles and public sector vehicles, such as police cars and ambulances.
Personal planes 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, such as water scooters, would be excluded from the tax (although generally they do not exceed the $ 250,000 threshold). 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.
There is no bill yet. The federal government will announce further details in the coming months.