Tax & Trade Blog

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.

As we questioned the tax and health policies of Canada’s regulations on vaping products here, we note the Department of Finance’s position on non-alcoholic beer, which has been duty-free from an excise tax perspective since July 2022.  This is an example of good tax policy, focussing on promoting the adoption of safer, healthier alternatives by reducing the tax burden on substitutable products.  It contrasts to the current approach to vaping products, which involves taxing them at high rates, almost comparable to those applied to smoking products.

Excise Duty on Alcoholic Beer

In Canada, excise duty is imposed under the Excise Act on all beer produced for commercial purposes, with rates dictated by alcohol strength, production volume, and whether the beer is brewed domestically or imported.

When a Canada Revenue Agency (the “CRA”) audit concludes and a Proposed Assessment issued, it is presented in a “Statement of Proposed Audit Adjustment”.  This document outlines the CRA’s Assessment of the additional taxes owed.  At this stage, significant work needs to take place to try and understand the basis for the Proposed Assessment and attempt to rebut the CRA’s Assessment position. 

Because CRA is the “elephant in the room” (and typically does what it wants to do), where an Assessment is finalized and raised, it is a very signification matter, for the following reasons.

In a previous blog, and Part 1 of this Series, we discussed CRA’s recent audit activity focussed on Canada’s Vaping Industry,  which is significantly impacting vaping licensees, and leading to a number of different assessments for duty liability under the under the Excise Act, 2001.  An even more serious governmental focal point, however, is likely to be Health Canada’s proposed regulatory ban on flavoured or sweetened vaping substances and products, which appears to be another significant storm brewing for the industry.

Part II of this series on the vaping industry focuses on this issue, its regulatory history, and the expected cataclysmic event it may entail for the economic viability of many of these businesses.