Tax & Trade Blog

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EXCISE WAREHOUSE TRANSFER RULES TIGHTEN

NEW CRA GUIDANCE LEADS TO INCREASED AUDIT ACTIVITY & MASSIVE ASSESSMENTS

In the Alcohol Industry, as with its heavily-taxed cousins – the tobacco, vaping, and cannabis industries – taxation is all about levying tax on producers at the time of final packaging, or on importers at the time of importation. There are exceptions, BUT only under heavily regulated and controlled circumstances.

Two of these exceptions are for transfers to Excise Warehouses owned by other Excise Licensees (“Licensees”), or transfers to Exporters. The Canada Revenue Agency (“CRA”) has recently been tightening its “documentation” requirements around these two types of transfers, auditing Licensees for compliance with those new requirements and issuing HUGE assessments (including 200% penalties) where even de minimis non-compliance is found.

In this Beer, Wine & Spirits Industry Report we examine these recent changes and the new landscape for the Canadian Alcohol Industry.

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CANNABIS CHARGES & EXCISE FINES

CONTRAVENING CANNABIS LAWS CAN INVOLVE TWO SEPARATE FIGHTS

The legalization of most cannabis sales in Canada comes with a number of statutes and regulations, and a detailed set of enforcement rules for those trying to operate outside the system.

Everyone knows that breaking the laws governing cannabis can lead to criminal penalties. A less well known, but very serious, consequence of noncompliance is the potential for large fines under the Excise Act(“EA”). One Canadian found this out the hard way in a recent Saskatchewan Court of Appeal (“SKA”) case.

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RIGID RULES GOVERN CANNABIS AT THE BORDER

CBD PRODUCTS WHILE LEGAL, REMAIN TIGHTLY CONTROLLED FOR IMPORT/EXPORT

Since the Trudeau government largely decriminalized CBD and cannabis products in 2018, there has been a proliferation of both distribution and retail in this industry – but not all legal.

The legalization of CBD and cannabis products also comes with highly complex and difficult regulations which can lead to both civil and criminal enforcement where they are not strictly followed.

In a recent case, an unfortunate Ontario resident found this out, and also learned the extent to which CBSA and RCMP work together in these matters.

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ONTARIO FUEL TAXES: A MINEFIELD!

HIDDEN PITFALLS FOR FUEL DISTRIBUTORS IN CANADA

Companies in the business of importing or dealing in fuels in Canada quickly learn that the required registrations can be a maze of red tape.  Each province has its own playbook, and for Ontario in particular, the rules can be uniquely complicated.

What businesses need to know is that going at it alone comes with risks.

Some of the licensing statutes are downright antiquated and taking steps that may seem compliant can still open the door to other major exposures. 

In a previous blog post, we discussed the high tax rates on Wine, Beer & Spirits products and the complex legal framework surrounding them.  In this 101 series, we will cover key topics, including Licensing Requirements, Audits and Assessments, and Enforcement Actions.  This first installment focuses on the Licensing Requirements for producers of Wine, Beer & Spirits products.  Licensing is often seen as the first step in compliance, and failure to meet these requirements can result in severe penalties, including fines, imprisonment, or both.

Wine Licence

Under subsection 62(1) of the Excise Act, 2001 (the “EA 2001”), a person is prohibited from producing or packaging wine without a Wine Licence, except in certain cases such as producing for personal use.  To obtain a licence, applicants must meet specific eligibility criteria, which vary depending on whether they are individuals, partnerships, or corporations.  A common requirement is that the applicant has to demonstrate sufficient financial resources to operate business in a responsible manner.