Tax & Trade Blog
Ministry of Finance Auditing Tobacco Farmers!
The Canadian tobacco industry is among the most highly and intensely regulated industries in the country – albeit largely policed by Provincial Governments.
In Ontario, regulation crosses all levels of the production, manufacturing and distribution process, starting with the actual farming of tobacco and ending with the final sales to the ultimate consumers of the products (i.e., smoking for their own consumption).
While many in the tobacco industry will be aware of the Ontario Ministry of Finance’s (“MOF”) involvement in assessing and auditing for tax at the wholesale distribution stage or monitoring tax compliance among Ontario retailers and convenience stores, the MOF’s audit activities actually start much sooner, and include audits and verification of tobacco farming activities.
Raw Leaf Tobacco Regime
Ontario’s regulation of farmers includes its “raw leaf tobacco” (“RLT”) regime (“Ontario's Raw Leaf Tobacco Program”), which regulates who needs to register and report production and distribution of raw leaf tobacco. The details of the RLT regime vary depending on what is being provided and supplied, and the types of tobacco products manufactured, but in general include stamping and registration requirements, as well as reporting and remittance obligations for persons required to register to collect and remit tobacco taxes.
Application to Farmers & Producers
When it comes to farmers and producers, the MOF is authorized to inspect any land used to grow tobacco and any inventory of raw leaf tobacco. This includes inspecting barns and cutting locations and warehouses where tobacco is stored – both onsite and offsite – and even extends to measuring the land used to grow tobacco (and comparing it to the acreage that the registrant is permitted to use for tobacco growth, resulting in so-called over acres assessments (“Over-Acre Assessments”) where there are even minor discrepancies). Note that MOF officials are authorized to survey, photograph and make any kinds of records, in person or remotely – with “remote drones” now common.
What Happens when there is Non-Compliance?
– Tobacco Tax Assessments
Unfortunately, where even minor non-compliance is found, the MOF is empowered to assess significant penalties, which often far-exceed the possible revenue losses to the MOF.
Tobacco farmers or producers in receipt of Notices of Assessment issued by the MOF are able to file Notices of Objection (usually within 180 days of receiving the Notice of Assessment) but there are tricky rules involved with doing that, especially if a subsequent court appeal is required. One of these rules actually requires the person filing the court appeal to raise ONLY those issues previously raised by the person in the Notice of Objection and in respect of which the person has “fully set out the facts and reasons relied on by the person” for that issue.
What this means is that a person being assessed by the MOF for Ontario Tobacco taxes has ONE chance to get his or her issues, facts and reasons right, and that is BEFORE filing the Notice of Objection.
Getting legal advice early on, and on time, is usually critical to long term success!
– Tobacco Seizures
MOF officials may also seize RLT from anyone found not in compliance with these often difficult-to-understand rules.
Tobacco producers receiving written notice from the MOF that it intends to seize RLT need to act quickly, and seek assistance, as while a written request can be made for a hearing to explain why the MOF should not seize the tobacco, that is usually required to be filed within (five) 5 days of receiving the notice of impending seizure – a completely draconian timeframe for responding, in our view.
Do you require assistance in this area? If so, please click here.