Regulations Amending the Excise Duties on Cannabis Regulations: SOR/2019-264

Canada Gazette, Part II, Volume 153, Number 14

Registration

SOR/2019-264 June 25, 2019

EXCISE ACT, 2001

P.C. 2019-954 June 22, 2019

Her Excellency the Governor General in Council, on the recommendation of the Minister of Finance, pursuant to sections 304 footnote a and 304.1 footnote b of the Excise Act, 2001 footnote c, makes the annexed Regulations Amending the Excise Duties on Cannabis Regulations.

Regulations Amending the Excise Duties on Cannabis Regulations

Amendments

1 Subparagraph 2(b)(i) of the Excise Duties on Cannabis Regulations footnote 1 is replaced by the following:

2 (1) Subparagraph 3(1)(a)(i) of the Regulations is replaced by the following:

(2) Paragraphs 3(1)(b) and (c) of the Regulations are replaced by the following:

(3) Subparagraph 3(1)(d)(i) of the Regulations is replaced by the following:

(4) Paragraph 3(1)(e) of the Regulations is replaced by the following:

(5) Subparagraph 3(1)(f)(i) of the Regulations is replaced by the following:

(6) Subparagraph 3(1)(g)(i) of the Regulations is replaced by the following:

(7) Subparagraph 3(1)(h)(i) of the Regulations is replaced by the following:

(8) Subparagraph 3(1)(i)(i) of the Regulations is replaced by the following:

(9) Paragraphs 3(1)(j) and (k) of the Regulations are replaced by the following:

(10) Subparagraph 3(1)(l)(i) of the Regulations is replaced by the following:

3 Sections 1 to 4 of Schedule 1 to the Regulations are replaced by the following:

1 Any cannabis product produced in Canada or imported: the amount equal to

2 Any cannabis product produced in Canada: the amount obtained by multiplying the dutiable amount for the cannabis product by

3 Any imported cannabis product: the amount obtained by multiplying the value of the cannabis product by

4 Any cannabis product taken for use or unaccounted for: the amount obtained by multiplying the fair market value of the cannabis product by

4 Sections 1 to 4 of Schedule 2 to the Regulations are replaced by the following:

1 Any cannabis product produced in Canada or imported: the amount equal to

2 Any cannabis product produced in Canada: the amount obtained by multiplying the dutiable amount for the cannabis product by

3 Any imported cannabis product: the amount obtained by multiplying the value of the cannabis product by

4 Any cannabis product taken for use or unaccounted for: the amount obtained by multiplying the fair market value of the cannabis product by

5 Sections 1 to 4 of Schedule 3 to the Regulations are replaced by the following:

1 Any cannabis product produced in Canada or imported: the amount equal to

2 Any cannabis product produced in Canada: the amount obtained by multiplying the dutiable amount for the cannabis product by

3 Any imported cannabis product: the amount obtained by multiplying the value of the cannabis product by

4 Any cannabis product taken for use or unaccounted for: the amount obtained by multiplying the fair market value of the cannabis product by

6 Sections 1 to 4 of Schedule 4 to the Regulations are replaced by the following:

1 Any cannabis product produced in Canada or imported: the amount equal to

2 Any cannabis product produced in Canada: the amount obtained by multiplying the dutiable amount for the cannabis product by

3 Any imported cannabis product: the amount obtained by multiplying the value of the cannabis product by

4 Any cannabis product taken for use or unaccounted for: the amount obtained by multiplying the fair market value of the cannabis product by

7 Sections 1 to 4 of Schedule 5 to the Regulations are replaced by the following:

1 Any cannabis product produced in Canada or imported: the amount equal to

2 Any cannabis product produced in Canada: the amount obtained by multiplying the dutiable amount for the cannabis product by

3 Any imported cannabis product: the amount obtained by multiplying the value of the cannabis product by

4 Any cannabis product taken for use or unaccounted for: the amount obtained by multiplying the fair market value of the cannabis product by

8 Sections 1 to 4 of Schedule 6 to the Regulations are replaced by the following:

1 Any cannabis product produced in Canada or imported: the amount equal to

2 Any cannabis product produced in Canada: the amount obtained by multiplying the dutiable amount for the cannabis product by

3 Any imported cannabis product: the amount obtained by multiplying the value of the cannabis product by

4 Any cannabis product taken for use or unaccounted for: the amount obtained by multiplying the fair market value of the cannabis product by

9 Sections 1 to 4 of Schedule 7 to the Regulations are replaced by the following:

1 Any cannabis product produced in Canada or imported: the amount equal to

2 Any cannabis product produced in Canada: the amount obtained by multiplying the dutiable amount for the cannabis product by

(a) in the case of dried cannabis, fresh cannabis, cannabis plants and cannabis plant seeds, 7.5%; and

(b) in any other case, 0%.

3 Any imported cannabis product: the amount obtained by multiplying the value of the cannabis product by

4 Any cannabis product taken for use or unaccounted for: the amount obtained by multiplying the fair market value of the cannabis product by

10 Sections 1 to 4 of Schedule 8 to the Regulations are replaced by the following:

1 Any cannabis product produced in Canada or imported: the amount equal to

2 Any cannabis product produced in Canada: the amount obtained by multiplying the dutiable amount for the cannabis product by

3 Any imported cannabis product: the amount obtained by multiplying the value of the cannabis product by

4 Any cannabis product taken for use or unaccounted for: the amount obtained by multiplying the fair market value of the cannabis product by

11 Sections 1 to 4 of Schedule 9 to the Regulations are replaced by the following:

1 Any cannabis product produced in Canada or imported: the amount equal to

2 Any cannabis product produced in Canada: the amount obtained by multiplying the dutiable amount for the cannabis product by

3 Any imported cannabis product: the amount obtained by multiplying the value of the cannabis product by

4 Any cannabis product taken for use or unaccounted for: the amount obtained by multiplying the fair market value of the cannabis product by

12 Sections 1 to 4 of Schedule 10 to the Regulations are replaced by the following:

1 Any cannabis product produced in Canada or imported: the amount equal to

2 Any cannabis product produced in Canada: the amount obtained by multiplying the dutiable amount for the cannabis product by

3 Any imported cannabis product: the amount obtained by multiplying the value of the cannabis product by

4 Any cannabis product taken for use or unaccounted for: the amount obtained by multiplying the fair market value of the cannabis product by

13 Sections 1 to 4 of Schedule 11 to the Regulations are replaced by the following:

1 Any cannabis product produced in Canada or imported: the amount equal to

2 Any cannabis product produced in Canada: the amount obtained by multiplying the dutiable amount for the cannabis product by

3 Any imported cannabis product: the amount obtained by multiplying the value of the cannabis product by

4 Any cannabis product taken for use or unaccounted for: the amount obtained by multiplying the fair market value of the cannabis product by

14 Sections 1 to 4 of Schedule 12 to the Regulations are replaced by the following:

1 Any cannabis product produced in Canada or imported: the amount equal to

2 Any cannabis product produced in Canada: the amount obtained by multiplying the dutiable amount for the cannabis product by

3 Any imported cannabis product: the amount obtained by multiplying the value of the cannabis product by

4 Any cannabis product taken for use or unaccounted for: the amount obtained by multiplying the fair market value of the cannabis product by

Transitional Provision

15 In applying subsection 5(2) of the Excise Duties on Cannabis Regulations for the purpose of determining the amount of duty imposed under subsection 158.2(1) of the Excise Act, 2001 after April 30, 2019 on any cannabis product that is packaged before May 1, 2019, Schedules 1 to 12 to those Regulations are to be read as they did on April 30, 2019.

Repeal

16 These Regulations are deemed never to have come into force and are repealed if

Coming into Force

17 If Bill C-97, introduced in the 1st session of the 42nd Parliament on April 8, 2019 and entitled the Budget Implementation Act, 2019, No. 1, receives royal assent and if, on the day of royal assent, section 86 of that Act reads as section 86 of Bill C-97 did on April 8, 2019, then these Regulations are deemed to have come into force on May 1, 2019.

REGULATORY IMPACT ANALYSIS STATEMENT

(This statement is not part of the Regulations.)

Issues

Under the Cannabis Act, three new classes of cannabis products will become available for legal retail sale later this year, namely edible cannabis, cannabis extracts and cannabis topicals. On March 19, 2019, the Minister of Finance announced as part of Budget 2019 new tetrahydrocannabinol-based excise duty rates that will apply in respect of these three classes of cannabis products, including cannabis oils. Under the terms of the Coordinated Cannabis Taxation Agreements (CCTAs) that Canada has entered into with most provincial and territorial governments, regulations are required to make corresponding changes to the rates of excise duties that apply in respect of those provinces and territories.

Background

An additional duty on cannabis products is imposed in coordinated provinces and territories (i.e. provinces and territories that have entered into a CCTA with Canada) under federal legislation and administration. The CCTAs are federal-provincial and federal-territorial agreements that detail the parameters, including the rates of the additional cannabis duties, agreed upon between the coordinated parties to govern the imposition of the cannabis duties in the coordinated provinces and territories. Under the CCTAs, generally, the amount of additional duty in respect of a province or territory is equal to three times the amount of the federal duty, plus the amount of a sales tax adjustment if one has been requested by the province or territory. Coordinated provinces and territories that do not impose a general sales tax, or that have a general sales tax rate that is lower than the highest prevailing provincial general sales tax rate in Canada, can request under the CCTAs, subject to certain conditions, that Canada apply a sales tax adjustment in determining the amount of the additional cannabis duty in order to account for all or part of this difference in sales tax rates. The Excise Act, 2001 (the Act) provides that the rates for this additional duty are to be set out in regulation.

Objective

Amendments are being made to the Excise Duties on Cannabis Regulations (the Regulations) to change the rates of additional excise duty in respect of the coordinated province and territories that apply in respect of cannabis products that are edible cannabis, cannabis extracts and cannabis topicals.

Description

For each coordinated province or territory, the additional cannabis excise duty rates for that province or territory are set out in a separate Schedule to the Regulations. Pursuant to existing sections 1 to 4 of each of those Schedules to the Regulations, the amount of additional duty in respect of a province or territory on a cannabis product, before any sales tax adjustment that may apply, is equal to the greater of

Sections 1 to 4 of each of those Schedules to the Regulations are amended in order to ensure that the amount of additional duty in respect of a province or territory on a cannabis product, before any sales tax adjustment that may apply, continues to be three times the amount of federal duty in respect of the cannabis product. For cannabis products that are dried cannabis, fresh cannabis, cannabis plants and cannabis plant seeds, the determination of that amount of additional duty, as described above, remains unchanged. For all other cannabis products, such as oils, edibles, extracts and topicals, that amount of additional duty is now equal to the amount obtained by multiplying the number of milligrams of total tetrahydrocannabinol (THC), as defined in section 2 of the Act, of the cannabis product by the specified rate per milligram of total THC. The rate is $0.0075 per milligram of total THC in the cannabis product.

As well, consequential amendments are made to other provisions of the Regulations due to the renumbering of the provisions of those Schedules to the Regulations and due to the addition of the definition “THCA” to section 2 of the Act. “THCA” is defined in section 2 of the Act to mean delta-9-tetrahydrocannabolic acid.

These amendments are deemed to have come into force on May 1, 2019, and apply as of that day. However, for the purpose of determining the amount of duty imposed on or after that day under subsection 158.2(1) of the Excise Act, 2001 on any cannabis product produced in Canada that is packaged before that day, Schedules 1 to 12 to the Regulations are to be read as they did on April 30, 2019. Therefore, for cannabis products produced in Canada that are packaged before May 1, 2019, and are delivered to a purchaser on or after that day, the rates of excise duty that apply on April 30, 2019, will apply in respect of those cannabis products in determining an amount of additional duty in respect of a coordinated province or territory.

Regulatory development

Consultation

The proposed changes to the Regulations were released on March 19, 2019, as part of Budget 2019. The coordinated provinces and territories were consulted on the proposed changes; no significant concerns were raised and no comments were received from stakeholders since the release of the draft changes. While no formal consultations were undertaken on these amendments, Finance Canada officials did receive feedback informally from cannabis industry stakeholders who requested and indicated support for a THC-based tax for cannabis oils.

Modern treaty obligations and Indigenous engagement and consultation

For this proposal, no impacts have been identified in respect of the Government’s obligations in relation to Indigenous rights protected by section 35 of the Constitution Act, 1982, modern treaties or international human rights obligations.

Instrument choice

Under the CCTAs, additional cannabis duty rates in respect of the coordinated provinces and territories have been agreed to and Canada agreed to propose regulatory changes to implement them. Therefore, there is no alternative to regulations to implement this proposal.

Regulatory analysis

Costs and benefits

The amendments to the Regulations are needed as a result of the introduction of new THC-based federal excise duty rates that will apply in respect of three classes of cannabis products through the Budget Implementation Act, 2019, No. 1. Under the CCTAs, Canada is obliged to prescribe the corresponding additional cannabis duty rates through regulatory amendments. While the Act and the amendments to the Regulations will result in the collection of excise duties on three new classes of cannabis products, they do not impose new regulatory compliance costs on businesses or Canadians because taxes and charges constitute transfers from one group to another and thus are not considered in the calculation of incremental impacts.

The amendments to the Regulations will be administered and enforced as part of the existing cannabis excise duty regime under the Act. Administration and enforcement activities are not expected to require additional resources in addition to the resources allocated for the existing regime, so there are no incremental costs for the Government of Canada associated with the amendments.

Small business lens

The small business lens does not apply, because these amendments do not result in incremental compliance or administrative costs for small businesses.

“One-for-One” Rule

Overall, the coordinated cannabis taxation framework minimizes the administrative burden imposed on businesses by avoiding ongoing substantial duplicative provincial and territorial requirements.

The “One-for-One” Rule does not apply as there is no incremental change in the administrative burden on business.

Regulatory cooperation and alignment

The amendments to the Regulations are not related to a work plan or commitment under a formal regulatory cooperation forum.

Strategic environmental assessment

In accordance with The Cabinet Directive on the Environmental Assessment of Policy, Plan and Program Proposals, a preliminary scan concluded that a strategic environmental assessment is not required.

Gender-based analysis plus

No gender-based analysis plus (GBA+) impacts have been identified for the amendments to the Regulations.

Implementation, compliance and enforcement, and service standards

The amendments to the Regulations will be implemented, administered and enforced by the Canada Revenue Agency and, at the border, by the Canada Border Services Agency as part of the cannabis excise duty regime.

Contacts

Gervais Coulombe
Sales Tax Division
Department of Finance Canada
90 Elgin Street
Ottawa, Ontario
K1A 0G5
Telephone: 613‑369‑3773

Ron Hagmann
Excise and GST/HST Rulings Directorate
Canada Revenue Agency
Place de Ville, Tower A, 9th Floor
320 Queen Street
Ottawa, Ontario
K1A 0L5
Telephone: 613‑670‑7360