EDM4-4-1 Losses of wine
Excise Duty Memorandum
April 2004
This memorandum explains the application of the Excise Act, 2001 to losses of wine. It also provides information on where these losses must be reported on an excise duty return.
Except as otherwise noted, all statutory references in this memorandum are to the provisions of the Excise Act, 2001. The information in this memorandum does not replace the law found in the Act and its regulations. If this information does not completely address your situation, refer to the Act or regulations or contact your regional excise office for additional information. The offices are listed at Contact information – Excise and Specialty Tax Directorate.
On this page
General
Excise duty relieved
1. The Act provides for relief from excise duty where wine is lost in certain circumstances. This relief may be available to wine licensees, licensed users, and excise warehouse licensees.
2. Additional information concerning these types of licensees is available in Memorandum EDM4-1-1, Producers and packagers of wine, Memorandum EDM4-1-2, Small producers of wine, and Memorandum EDM8-1-1, Excise warehouses.
Losses of bulk wine
Person no longer responsible (para 118(e))
3. A person who is responsible for bulk wine ceases to be responsible if it is lost and the loss is recorded in a manner authorized by the Canada Revenue Agency (CRA). As a result, the person will not be liable for excise duty on the wine.
Meaning of responsible (s 2)
4. Responsible, in relation to a person, means the person responsible for bulk alcohol in accordance with sections 104 to 121 of the Act. The person responsible for bulk wine is generally the wine licensee or licensed user who owns the wine, or who last owned it, or, where the wine was never owned by a wine licensee or licensed user, the wine licensee who produced or imported it, or the licensed user who imported it.
5. Examples of losses of bulk wine include those due to shrinkage by evaporation and those incurred in manufacturing activities (for example, fortifying, racking and aging), handling processes and in the physical transfer of wine between licensees (licensees include wine licensees and licensed users) or between a licensee and an alcohol registrant. Losses of bulk wine may also occur as a result of fire or spillage.
Contacting the CRA
6. All material losses should be reported to the licensee's regional excise office. The offices are listed at Contact information – Excise and Specialty Tax Directorate.
Substantiating losses
7. To substantiate any loss of bulk wine, a licensee's records should contain the following information:
- the reason for the loss;
- the quantity of the loss;
- the time and date of the loss; and
- any other information relevant to the loss.
Losses of packaged wine other than in prescribed circumstances
Excise duty payable (s 138)
8. Excise duty is payable on non-duty-paid packaged wine if the excise warehouse licensee or licensed user who received it cannot account for it:
- as being in the licensee's excise warehouse or the licensed user's specified premises;
- in the case of a small wine licensee (that is, one whose sales of wine are not more than 60,000 litres in their previous fiscal year), as being on consignment in a retail store operated on behalf of two or more small wine licensees, and that is not on a wine licensee's premises;
- as being removed, used or destroyed in accordance with the Act; or
- as having been lost in prescribed circumstances (refer to paragraph 11 of this memorandum).
Timing of liability (s 138(2))
9. Excise duty is payable by the excise warehouse licensee or licensed user at the time the wine cannot be accounted for.
Losses of packaged wine in prescribed circumstances
Excise duty relieved (para 138(1)(c))
10. Excise duty is not payable on packaged wine received by an excise warehouse licensee or a licensed user if the wine is lost in prescribed circumstances and the person fulfils any prescribed conditions. These circumstances and conditions are prescribed in the Losses of Bulk Spirits and Packaged Alcohol Regulations.
Losses of Bulk Spirits and Packaged Alcohol Regulations (s 3)
11. The circumstances prescribed by the Regulations relating to packaged wine are losses through breakage where:
- at the time of the breakage, the wine was in its original unopened container(s) in an excise warehouse, or in the specified premises of a licensed user, and the warehouse licensee or licensed user keeps records that substantiate the breakage; or
- the breakage occurred during a physical transfer of the packaged wine between excise warehouses or between an excise warehouse and the specified premises of a licensed user.
Reporting
Losses of bulk wine
12. All losses of bulk wine should be reported on a person's applicable monthly return as follows:
- Form B265, Excise Duty Return – Wine Licensee, on page 3 under "Reductions to bulk wine inventory / Wine removed for other purposes: Non-duty-paid (specify)". Specify the reason for the loss and the quantity lost.
- Form B263, Excise Duty Return – Licensed User, on page 4 under "Reductions to inventory / Removed for other purposes (specify)". Specify the reason for the loss and the quantity lost.
Losses of packaged wine other than in prescribed circumstances
13. Losses of packaged wine that cannot be accounted for as having been incurred in prescribed circumstances should be reported on a person's applicable monthly return as follows:
- Form B262, Excise Duty Return – Excise Warehouse Licensee, on page 4 under "Reductions to inventory: duty-paid / Wine removed for other purposes (specify)". Specify the reason for the loss and the quantity lost. Include the excise duty payable on this loss on line 7, 8 or 9 of page 1 of the return.
- Form B263, on page 4 under "Reductions to inventory / Removed for other purposes (specify)". Specify the reason for the loss and the quantity lost. Include the excise duty payable on this loss on line 6, 7 or 8 of page 1 of the return.
Losses of packaged wine in prescribed circumstances
14. Losses of packaged wine accounted for as having been incurred in prescribed circumstances should be reported on a person's applicable monthly return as follows:
- Form B262, on page 4 under "Reductions to inventory: non-duty-paid / Breakage". Specify the quantity lost.
- Form B263, on page 3 under "Reductions to inventory / Removed for other purposes (specify)". Specify the reason for the loss (that is, breakage) and the quantity lost.
Maintaining records and filing returns
Keeping records (ss 206(1))
15. Every licensee and/or registrant under the Act is required to maintain all records that are necessary to determine whether they are in compliance with the Act.
16. The failure by a licensee and/or registrant to adequately account for wine lost while in their possession may result in an assessment or enforcement action, as provided for in the Act.
17. Additional information on the requirement to maintain records is available in Memorandum EDM9-1-1, General requirements for records.
Offences and penalties
Failure to comply
18. If a person fails to comply with the restrictions of their licence or registration, they may be guilty of an offence or subject to a penalty under the Act.
19. Additional information on offences and penalties is available in Memorandum EDM1-6-1, Administrative penalties under the Excise Act, 2001.
Further information
For all technical publications related to excise duties, go to Excise duties technical information.
For information on how to make a general or technical enquiry on excise duties, go to Contact information – Excise and Specialty Tax Directorate.
For information on how to request a ruling or interpretation related to excise duties, go to Requesting an excise and specialty tax ruling or interpretation.