Excise Duties on Vaping Products Regulations: SOR/2024-70

Canada Gazette, Part II, Volume 158, Number 10

Registration
SOR/2024-70 April 19, 2024

EXCISE ACT, 2001

P.C. 2024-395 April 19, 2024

Her Excellency the Governor General in Council, on the recommendation of the Minister of Finance, makes the annexed Excise Duties on Vaping Products Regulations under sections 304footnote a and 304.3footnote b of the Excise Act, 2001 footnote c.

Excise Duties on Vaping Products Regulations

Definition

Definition of Act

1 For the purposes of these Regulations, Act means the Excise Act, 2001.

Additional Vaping Duty

Specified vaping provinces

2 For the purposes of the definition specified vaping province in section 2 of the Act, the following provinces are prescribed:

Section 158.58 of Act — prescribed circumstances

3 For the purposes of section 158.58 of the Act, a duty in respect of a specified vaping province is imposed under that section on vaping products manufactured in Canada, or imported, if

Subsection 158.6(2) of Act — prescribed circumstances

4 For the purposes of subsection 158.6(2) of the Act, a duty in respect of a specified vaping province is imposed under that subsection on vaping products if

Subsection 158.61(2) of Act — prescribed circumstances

5 For the purposes of subsection 158.61(2) of the Act, a duty in respect of a specified vaping province is imposed under that subsection on vaping products that cannot be accounted for if

Calculation of additional vaping duty

6 For the purposes of section 158.58 and subsections 158.6(2) and 158.61(2) of the Act, the amount of duty imposed under those provisions in respect of vaping products and a specified vaping province is equal to the amount determined in respect of the vaping products under Schedule 8 to the Act.

Transition

July 1 to September 30, 2024

7 For the purpose of facilitating the implementation of the coordinated vaping duty system (as defined in subsection 304.3(1) of the Act), subparagraph 158.42(1)(a)(ii), subsection 158.44(2) and paragraphs 158.45(1)(c) and 158.46(d) of the Act do not apply before October 2024 in respect of

Related Amendments

Regulations Respecting the Possession of Tobacco, Cannabis or Vaping Products That Are Not Stamped

8 The Regulations Respecting the Possession of Tobacco, Cannabis or Vaping Products That Are Not Stamped footnote 1 are amended by adding the following after section 1.3:

1.31 For the purposes of subsection 158.44(2) of the Excise Act, 2001, a person may possess vaping products in a particular specified vaping province that are not stamped to indicate that additional vaping duty in respect of the particular specified vaping province has been paid if

Stamping and Marking of Tobacco, Cannabis and Vaping Products Regulations

9 Paragraph 4.11(1)(a) of the Stamping and Marking of Tobacco, Cannabis and Vaping Products Regulations footnote 2 is replaced by the following:

Coming into Force

Publication

10 (1) Subject to subsections (2) and (3), these Regulations come into force on the day on which they are published in the Canada Gazette, Part II.

Application after June 2024

(2) Section 3 applies in respect of

July 1, 2024

(3) Sections 4, 5 and 8 come into force on July 1, 2024.

REGULATORY IMPACT ANALYSIS STATEMENT

(This statement is not part of the Regulations.)

Issues

The new federal excise duty framework on vaping products was implemented on October 1, 2022. In connection with this new framework, the Minister of Finance and the Finance Ministers of the participating provincial and territorial governments entered into coordinated vaping product taxation agreements (CVPTAs). Regulations are required to implement the coordinated vaping product framework pursuant to the terms of the CVPTAs.

Background

A new federal excise duty on vaping products was implemented on October 1, 2022. The duty was proposed in Budget 2022 after a public consultation that took place following Budget 2021. The duty is currently being collected by the Canada Revenue Agency (the CRA) and the Canada Border Services Agency (the CBSA).

In Budget 2022, the federal government also invited provincial and territorial governments to join a coordinated vaping product taxation framework, under which an additional vaping duty equal to the federal ratefootnote 3 would be applied. The governments of Ontario, Quebec, the Northwest Territories, and Nunavut have agreed to join the coordinated framework and formalized their participation in the framework by signing the CVPTAs.

The Excise Act, 2001 (the Act) allows for an additional duty on vaping products to be imposed in coordinated vaping product taxation provinces and territories (i.e. provinces and territories that have entered into a CVPTA with the Government of Canada). The CVPTAs are federal-provincial and federal-territorial agreements that detail the parameters, including the rates of the additional vaping duties, which govern the imposition of the vaping product duties in the coordinated provinces and territories.

Among other things, the CVPTAs stipulate that the tax bases for the federal vaping product duty and for the additional vaping duty in respect of a coordinated province or territory are to remain identical. The Act provides that the rates for this additional vaping duty, and the circumstances under which this additional vaping duty applies, are to be set out in regulation. As well, in order to ensure the proper functioning of the additional vaping duties on vaping products, the Act provides that exceptions may be made by regulation to the general prohibition set out in the Act against possessing vaping products in a province or territory that are stamped for a different jurisdiction, and that the amount of financial security (i.e. an amount of money required to be maintained with the Canada Revenue Agency) for vaping stamp possession is to be determined by way of regulation.

Objective

The objective of the Excise Duties on Vaping Products Regulations (the Regulations) is to formalize and give legal effect to the decision of provinces and territories to join the coordinated vaping product taxation framework.

Description

The Regulations establish rules relating to the additional vaping duties that apply in respect of coordinated provinces and territories. In particular, the Regulations provide rules that are used in determining the amount of the additional duty imposed on vaping products in respect of the coordinated provinces and territories under various sections of the Act.

The Regulations also specify the circumstances in which the additional vaping duty in respect of a coordinated province or territory would be imposed. Generally, for vaping products manufactured in Canada and for commercial importations of vaping products, an additional vaping duty would be imposed if the vaping products are for consumption, use or sale to consumers in a coordinated province or territory. For vaping products that are imported by an individual for their personal use, an additional duty would be imposed if the individual is resident in a coordinated province or territory.

The Regulations set out that the additional vaping duty would apply in respect of any vaping product that is stamped on or after July 1, 2024, or that is imported or released under the Customs Act on or after that day. In order to facilitate the implementation of additional vaping duties in respect of the coordinated provinces and territories, the Regulations provide for a three-month transition period during which vaping products that are stamped before July 1, 2024, or that are imported or released under the Customs Act before that day, may be disposed of, sold, offered for sale, purchased and possessed up until September 30, 2024.

The Regulations also make related amendments to various other regulations in respect of the federal excise duty framework on vaping products.

Out-of-province distributors

The Regulations Respecting the Possession of Tobacco, Cannabis or Vaping Products That Are Not Stamped are amended to permit a particular person (e.g. a wholesale distributor) to possess vaping products that are stamped for a province or territory outside the jurisdiction in which the particular person is located. This exemption would be limited to vaping products that are to be sold or offered for sale by the particular person or by another person to consumers in another province or territory and, if the other province or territory is a coordinated province or territory, that are stamped to indicate that additional vaping duty in respect of the other province or territory has been paid. For example, if a distributor located in Province X makes sales of vaping products to residents of Province Y, it could possess products stamped for Province Y on its premises in Province X.

Possession by individuals

The Regulations Respecting the Possession of Tobacco, Cannabis or Vaping Products That Are Not Stamped are also amended to permit individuals to possess in a jurisdiction vaping products for personal consumption that are stamped for a different jurisdiction.

Security required for vaping stamp possession

The Stamping and Marking of Tobacco, Cannabis and Vaping Products Regulations are amended to provide that the amount of financial security required for the possession of vaping excise stamps is $2 per stamp for vaping excise stamps for a coordinated province or territory and $1 per stamp for vaping excise stamps for other jurisdictions.

Regulatory development

Consultation

The rules in the Regulations relating to the additional vaping duties that apply in respect of coordinated provinces and territories are designed to reflect the respective provincial and territorial decisions to join the coordinated vaping product taxation framework. The framework was developed in consultation with provincial and territorial governments and agreed to by Finance Ministers of the participating provincial and territorial governments and subsequently formalized through the signing of CVPTAs. The Department of Finance released the draft Regulations for consultation on December 20, 2023. One submission was received from a stakeholder in response to this release. The stakeholder requested a delay in the implementation of these regulations, which is not possible under the terms of the CVPTAs. The other comments in the submission were not directly relevant to the Regulations.

Given that a draft of the Regulations was already released for public consultations, it is unlikely that additional consultations would result in any amendments to the Regulations. As such, the Regulations are exempt from prepublication in the Canada Gazette, Part I.

Modern treaty obligations and Indigenous engagement and consultation

The Regulations do not impact Indigenous rights protected by section 35 of the Constitution Act, 1982, modern treaties or international human rights obligations.

Instrument choice

The Regulations are consequential to the decision of the provinces and territories to join the coordinated vaping product taxation framework. Under the CVPTAs, additional vaping duty rates in respect of the coordinated provinces and territories have been agreed to, and the federal government agreed to make regulations to implement them. Regulations are the only viable instrument to implement this proposal. As such, no other instruments were considered.

Regulatory analysis

Benefits and costs

Pursuant to the Treasury Board of Canada Secretariat’s Canadian Cost-Benefit Analysis Guide: Regulatory Proposals, taxes and charges, because they constitute transfers from one group to another, are not considered to be economic costs.

The Regulations will be administered and enforced as part of the existing vaping excise duty regime under the Act, so there are no incremental costs for their administration and enforcement. There would be minor costs related to adopting the new regime. Government stakeholders (i.e. CRA and CBSA) would incur minimal costs to update forms, systems, and training materials, as well as outreach strategies to prepare industry and other parties for the proposed changes. Third parties, including industry participants (e.g. manufacturers and importers) would incur minor costs to update their own systems and logistics to use province- and territory-specific stamps, which would be produced by a contracted third party. Any parties holding vaping excise stamps for coordinated provinces and territories would also be required to update the financial security amounts (if necessary) they provide to the CRA in respect of those stamps.

Small business lens

Analysis using the small business lens concluded that the Regulations would impact small businesses. The Regulations would result in new incremental compliance costs for small businesses that manufacture or import vaping products. While these small businesses may incur incremental costs related to implementing the Regulations (described in the “Benefits and costs” section), the coordinated vaping product taxation framework minimizes the total compliance and administrative burden imposed on businesses by eliminating ongoing substantial duplicative provincial requirements that would exist if each jurisdiction had its own vaping product taxation regime with associated compliance requirements. As the initiative seeks to limit the burden experienced by stakeholders, including small businesses, no further flexibility would be provided for implementation and ongoing compliance.

One-for-one rule

The one-for-one rule does not apply, as the Regulations do not impose any incremental change in administrative burden on businesses.

Regulatory cooperation and alignment

The implementation of the additional vaping duty is linked to the CVPTAs entered into between Canada and each of Ontario, Quebec, the Northwest Territories, and Nunavut. Under those agreements, those provinces and territories have agreed to the imposition of an additional vaping duty under federal legislation and administration.

The Regulations are not linked to an international agreement.

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.

Implementation, compliance and enforcement, and service standards

The Regulations generally come into force on the day on which they are published in the Canada Gazette, Part II. Notably, certain provisions linked to the imposition of the additional duty apply as of July 1, 2024, the day on which the additional duty in respect of Ontario, Quebec, the Northwest Territories, and Nunavut takes effect.

The Regulations will be implemented, administered and enforced by the CRA and, at the border, by the CBSA, as part of the existing vaping excise duty regime.

Contacts

Gregory Smart
Sales Tax Division
Department of Finance Canada
90 Elgin Street
Ottawa, Ontario
K1A 0G5
Telephone: 343‑572‑4625

Marc Rivard
Excise and Specialty Tax Directorate
Canada Revenue Agency
Place de Ville
320 Queen Street
Ottawa, Ontario
K1A 0L5
Telephone: 613‑222‑2820