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Vaping Products: A Web of Taxation - But Same Bad Policy Choices?

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As we wrote here, Canada’s rules taxing Vaping Products were first enacted in 2018, with the Tobacco and Vaping Products Act (“TVPA”), continue to involve, with a number of provinces and territories now getting into the taxing game.  While the TVPA sets out a regulatory framework for manufacturers, importers, retailers and any other business involved in the vaping industry, the provincial rules center largely on ensuring their allocation of the taxes from this new found source of tax income!

The Canada Revenue Agency (“CRA”) has recently released some new Guidance on how all of these taxes are supposed to work together, but the policy goal of this (i.e., taxing something that in many eyes is meant to be an alternative to an incredibly-bad-for-your-health smoking habit) remains suspect.

Excise Duty Notice EDN95

CRA published its May 8, 2024 Excise Duty Notice EDN95 (entitled Coordinated Vaping Duty System) a few days ago, with its purpose being to provide information regarding the coordinated vaping duty system provisions established under the Excise Act, 2001 and the new Excise Duties on Vaping Products Regulations, including amendments to the Regulations regarding possession of unstamped products.

The CRA is responsible for administering and enforcing the excise duty framework for vaping products included in the Excise Act, 2001 including the coordinated vaping duty system with specified vaping provinces. The framework includes the imposition of excise duties that generally apply to vaping products manufactured in Canada or imported into Canada and intended for the duty-paid market. The vaping duty and additional vaping duty, as applicable, apply to vaping products whether or not they contain nicotine.

The “coordinated vaping duty system” provides for the payment, collection and remittance of the additional provincial vaping duties, imposed by various Canadian provinces and territories, and might be thought of as a new “HST” for vaping products (extending the GST to participating provinces, and re-labelling it as an “HST”). 

As CRA notes, the new “coordinated” system results in an increase in the total duty collected on vaping products as an additional vaping duty is imposed on vaping products entering the duty-paid market in specified vaping provinces (word salad for “more tax” on vaping product).

To date, the following provinces and territories have signed up for the “coordinated” system:  Ontario, Quebec, Northwest Territory and Nunavut.  It is expected that the “coordinated” system will be fully in place by July 1, 2024, imposing an additional vaping duty on vaping products consumed, used or sold in these jurisdictions, at generally complicated rates.

Takeaways

As with all things new, Canada has found a way to tax Vaping Products.  The CRA has recently issued new guidance on its “coordinated” effort to do so, federally and provincially, with these new rules coming into place on July 1, 2024.

Navigating through this complex taxing system may require legal advice, and compliance is required in order to avoid assessment.

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