Tax & Trade Blog

In Part 1 of this Series, we explored CRA’s recent increased taxation and audit activity in Canada’s Vaping Industry.  In Part 2 of this Series we explored Health Canada’s imminent ban on flavoured vaping products.  These three initiatives have created an unhappy trifecta that may signal major business difficulties for many vaping manufacturers, importers and retailers in 2025, and in our final Report, we raise concerns about the Government’s policy choices.

The Hazy Logic of Canada’s Regulatory Policy

One the one hand, Health Canada’s expected ban on flavoured vapes is focused on protecting vulnerable citizens (youth) and is laudable.  Similarly, CRA’s continued levels of high taxation in this industry help support Canada’s massive spending levels, helping reduce the significant debt we are already leaving to future generations.  At this level these policies seem to make sense.  On another level they also look rather suspect.

Canada’s federal and provincial taxes of “vaping products” is really a vaping duty imposed under the Excise Act, 2001(the “Vaping Duty” and “EA 2001”), and the CRA is in charge of administering that excise duty – Including related audit activities.

CRA appears to be ramping up its audit activity in this area, now issuing proposed and final assessments under the taxing provisions in EA 2001 sections 158.57, 158.58 and 158.61.

"Reverse and rebill" situations are very common in the Oil, Gas and Petrochem industry, especially in situations where goods are delivered in one reporting period but invoiced (or reversed and rebilled) in another reporting period because of formula-based pricing. There are a number of other situations where it is also necessary to "true-up" commercial invoice previously issued, and the GST/HST reporting and remittance requirements in these situations are counterintuitive.

Unwary businesses often face subsequent CRA assessments for taxes not collected, with the CRA taking the position that taxes were required to be collected on the issuance of both invoices unless proper credit note steps are taken.