Tobacco and Cannabis Taxation
On February 27, 2018, Finance Minister Bill Morneau tabled in the House of Commons the Liberal Government’s third budget, Equality + Growth = A Strong Middle Class (“Budget 2018”). Budget 2018 contains tax measures in respect of tobacco and cannabis.
Budget 2018 proposes to advance the existing inflation adjustments on tobacco excise duty rates on an annual basis to take effect on 1 April of each year starting in 2019, rather than every five years, with an adjustment effective February 28, 2018 to account for inflation since 2014.
Budget 2018 also proposes to increase the excise duty rates by an additional $1 per carton (200 cigarettes), along with corresponding increases to the excise duty rates on other tobacco products. In addition, inventories of cigarettes held by manufactures, importers, wholesalers and retailers at the end of February 27, 2018 will be subject to an inventory tax of $0.011468 per cigarette (subject to certain exemptions). Taxpayers will have until April 30, 2018 to file returns and pay the inventory tax.
Budget 2018 proposes a new federal excise duty framework for cannabis products. The duty will generally apply to all products available for legal purchase, which at the outset of legalization will include fresh and dried cannabis, cannabis oils, and seeds and seedlings for home cultivation. Cannabis cultivators and manufacturers will be required to obtain a cannabis licence from the CRA. Excise duties will be imposed on federally-licensed producers at the higher of a flat rate applied on the quantity of cannabis contained in a final product and a percentage of the dutiable amount of the product sold by the producer.
Certain exemptions will apply to federally regulated prescription drugs with Drug Identification Numbers and for products containing less than 0.3% Tetrahydrocannabinol concentration. In addition, the GST/HST basic groceries rules will be amended to ensure that any sale of cannabis products that would otherwise be considered as basic groceries are subject to the GST/HST in the same way as sales of other types of cannabis products.
For a discussion of these tax measures as well as others in Budget 2018, please see McCarthy Tétrault’s Budget 2018 Commentary.