On November 10, 2017, Canada’s Department of Finance made an announcement of a one month consultation process concerning the imposition of excise taxes/duties and goods and services tax (“GST”) and harmonized sales tax (“HST”) on cannabis products. Canadian stakeholders, businesses and the public have until December 7, 2017 to submit feedback as part of the Government of Canada’s consultation on the cannabis duty framework and proposed changes to the Excise Tax Act and the Excise Act, 2001 and related regulations. This consultation follows the tabling in the House of Commons of Bill C-45 “Cannabis Act” earlier this year and is an important step in the legalization process — the Government of Canada making money on the legalization of cannabis.
The Department of Finance posted a Proposed Excise Duty Framework, which forms the basis for the consultations. Some of the topics for consultation are:
- Excise Tax/Duty Base: What is subject to excise tax/duty and GST/HST (e.g., includes any cannabis products sold under the proposed Cannabis Act for medical purposes)?
- Exemptions from Base: What exemptions from the excise tax/duty base will be legislated (e.g., Any exportation of cannabis for medical or scientific purposes through an authorized permit or licence will not be subject to excise tax/duty)?
- Excise Tax/Duty Methodology: How will excise taxes/duties will calculated (e.g., ad valorem, flat rate)?
- Excise Tax/Duty Rates: What amount/rate of excise tax/duty to be charged (e.g., the Department of Finance has proposed excise duty of $1 a gram or 10 per cent of the producer’s sale price of that product, whichever is higher)? – See Cannabis Taxation at a Glance
- Registration/Licensing: What will be the federal registration/licensing requirements?
- Conditions: What conditions will be imposed on cultivation, manufacturing and distribution/sale of cannabis?
- Packaging/Stamping: What will be the packaging/stamping requirements?
- Coordination: How will the Federal Government and provincial governments coordinate;
- Reporting: What will be the reporting/filing requirements?
- GST/HST: The application of GST/HST to excise tax/duty included prices for cannabis?
The Framework also sets out that the import and export of cannabis and cannabis products will be prohibited. There will be exceptions to this general prohibition. For example:
- The import and export of cannabis or cannabis products for medical and scientific purposes will continue to be allowed with the proper permits issued by the Government; and
- The import and export of industrial hemp will continue to be permitted with proper licenses.
It will be important to provide comments before the December 7th deadline. The Government of Canada has announced that cannabis will be legalized by July 1, 2018. This means that the excise tax/duty and GST/HST regime for cannabis will need to be finalized within 6 months.
Some issues that might be raised in the consultation process are:
- Whether medical cannabis should be excluded from the excise tax/duty base?
- Whether additional exclusions should be granted, such as for medical cannabis prescribed by a medical practitioner or to encourage Canadian research and development of cannabis products and cannabis-related medical devices?
- What should be the filing and payment requirements?
- Are there inconsistencies between the proposed legislation and the existing and long-standing GST/HST exemptions in the Excise Tax Act for medical devices and prescription medicines?
For more information, please contact Cyndee Todgham Cherniak at 416-307-4168 or at email@example.com.