DEALING IN UNMARKED TOBACCO: BIG PROBLEM
AT SAME TIME, ONTARIO ALSO RAMPING UP SEIZURES OF SHISHA PRODUCTS
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In our Indirect Tax Practice, we are seeing a huge increase in Ontario Ministry of Finance (“MOF”) inspections and seizures of unmarked or untaxed tobacco, including fine cut and/or loose tobacco products like Shisha (hookah tobacco), where the quantities suggest resale.
A seizure of unmarked tobacco is only the beginning of one's problems. Under Ontario’s Tobacco Tax Act (the “TTA”), a seizure can lead to ALL of the following: (1) potential loss of product, which can become forfeit to the Crown, (2) civil penalty assessments ranging from 3X to 8X the tax involved, plus other fixed penalties AND (3) prosecution under Ontario’s Provincial Offences Act ("POA"), further fines of up to 5X the tax involved, additional penalties including possible imprisonment – all requiring Counsel with both tax and criminal experience.
In this Tobacco Industry Report, we review the rules and exposure when found dealing in unmarked tobacco products like Shisha.
Basic Rules
Ontario takes the position that Tobacco tax applies to all tobacco products sold in Ontario, including cigarettes, cigars, cut and other tobacco (e.g., loose tobacco, reconstituted tobacco, bidis, snuff, chewing tobacco, leaf tobacco, blunt wraps and water pipe tobacco). This is done through a variety of taxing measures and marking measures. As it relates to most kinds of tobacco, including "fine cut" and "loose tobacco", TTA 29 & 29.1 prohibit possessing, purchasing or receiving most tobacco products for resale unless marked as required, or, in the case of "other tobacco", the dealer can prove that an amount equal to Ontario tax was paid to its supplier. Note that under some of these rules, no minimum quantity thresholds apply and that a dealer found with even base quantities in its possession are required to hold one or more MOF permits if reselling.
Federally, tobacco products being sold must also generally carry an excise stamp under the Excise Act, 2001 (s. 32(1)).
Shisha: A Special Case?
There may be an open question whether Shisha (especially where flavoured) can be legally sold in Ontario, and whether it is "fine cut" or "other" tobacco under the TTA. Either way, where Shisha is found unmarked or untaxed, it might be an easy target for seizure.
Seizure, Civil Penalties & Provincial Prosecutions
Where an MOF inspector has reasonable and probable grounds, unmarked tobacco products – include Shisha – can be seized on the spot: see for example, TTA 29.1(2.1). The seized tobacco is also potentially forfeited to the Crown, and that seizure is typically followed by a penalty assessment equal to 3X the applicable tax, plus fixed penalties, and potentially an additional 5X the tax for larger quantities (e.g., 10 kg or more): TTA 29.1(6)-(8).
More problematically for persons found in possession of unmarked tobacco for resale, this same conduct is also a potential offence under the TTA, and prosecutable under the POA, and carrying fines of $1,000 to $75,000, plus up to 5X the tax, and up to two years of imprisonment for 10 kilograms or more or for repeat offenders: see for example TTA 29.1(4.1)).
Corporate officers and directors can also be prosecuted: see TTA 30.
result in seizure, civil penalties and prosecution.
Experienced Tobacco Tax & Criminal Counsel
are generally required to deal with this fall-out!
For help with Ontario Tobacco Tax Problems, please click here.