Vaping Duties
VAPING DUTIES
MILLAR KREKLEWETZ LLP is a boutique Canadian law firm with lawyers who have significant expertise in vaping product duty and tax matters, including federal excise duty issues arising under the Excise Act, 2001, and provincial-level vaping taxes implemented through the coordinated vaping duty system under the Excise Duties on Vaping Products Regulations.
The following is a short introduction to vaping duties in Canada.
Vaping Duties
Vaping Duties Legislative Framework
Canada’s vaping duty framework applies to vaping products and vaping substances that are manufactured in or imported into Canada, and operates at both the federal and provincial levels.
A dedicated federal excise duty regime for vaping products was introduced through Part 4.2 (Vaping Products) of the Excise Act, 2001, which came into force on October 1, 2022. This regime establishes the core charging, licensing, stamping, reporting, and enforcement rules applicable to regulated vaping activities.
At the provincial level, effective July 1, 2024, vaping products are subject to additional provincial-level taxation through a coordinated federal–provincial vaping duty framework, under which participating provinces impose vaping duties on the basis of the Excise Duties on Vaping Products Regulations and related intergovernmental agreements.
Federally: Vaping Excise Duties
Overview – Under the Excise Act, 2001, vaping excise duty is imposed at the point of (1) manufacture in Canada, for vaping products or vaping substances that are manufactured in Canada, and (2) importation into Canada, for vaping products or vaping substances that are imported into Canada. It is not a point-of-retail sale tax, but rather a front-end excise duty imposed earlier in the supply chain.
Vaping duties are calculated primarily on a per-millilitre basis for both vaping substances and products, as set out in Schedule 8 to the Excise Act, 2001.
Administration of these vaping excise duties is carried out by the Canada Revenue Agency (“CRA”) through a licensing and registration system that requires all manufacturers and importers of vaping products, and in certain cases wholesalers, to be licensed and registered before engaging in regulated activities. The CRA also has broad audit, assessment, and enforcement powers, including the authority to assess unpaid duty, impose penalties and interest, seize non-compliant products, and pursue offence provisions for serious or repeated non-compliance.
Vaping Duties Licensing Requirements – With limited statutory exceptions, any person engaged in the manufacture or importation of vaping products or vaping substances for stamping must be licensed before carrying on those activities. An importer who imports vaping products into Canada for export or for sale to an accredited representative also requires an Excise Warehouse Licence.
All licensees are subject to ongoing filing, remittance, and record-keeping obligations, including the filing of prescribed excise returns and the maintenance of books and records sufficient to substantiate duty-paid status and product movements. Failure to comply with licensing or ongoing compliance obligations may give rise to assessments, penalties, product seizures, and, in serious cases, criminal liability.
Stamping, Marking, and Movement of Vaping Products – Following the point of manufacture or importation, duty-paid vaping products must generally bear a vaping excise stamp evidencing compliance, and unstamped products are subject to seizure and forfeiture. With limited exceptions, manufacturers and importers of vaping products are required to register under the vaping excise stamping regime in order to purchase and apply vaping excise stamps.
Vaping products are generally prohibited from entering the duty-paid market unless they have been properly packaged and the package bears all prescribed information.
There are very limited statutory exceptions permitting the prescribed movement or storage of unstamped vaping products, including rules governing the removal of vaping products from licensed excise warehouses.
Provincially: Vaping Product Taxation
Overview – Effective July 1, 2024, vaping products are subject to additional provincial-level taxation through a coordinated federal–provincial vaping duty framework. Under this framework, an additional vaping duty, equal to the applicable federal vaping duty rate, applies to vaping products that are destined for consumption, use, or sale to consumers in a participating vaping province.
Where vaping products are destined for sale in a participating vaping province, a province-specific vaping excise stamp must be affixed to the package.