Application of Rates of Excise Duty on the First 75,000 Hectolitres of Beer Brewed in Canada

Excise Duty Circular ED212-11

June 2022

This version replaces the one dated July 2018. This circular has been revised as a result of amendments to the Excise Act.

Except as otherwise noted, all statutory references in this publication are to the provisions of the Excise Act. The information in this publication does not replace the law found in the Act and its regulations.

If this information does not completely address your particular situation, you may wish to refer to the Act or relevant regulation, or contact any Canada Revenue Agency (CRA) regional excise office for additional information. These offices are listed at Contact Information – Excise Duties, Excise Taxes, Fuel Charge and Air Travellers Security Charge.

Table of Contents

• Terms and expressions used
• General
• Allocation of production volume limit
• Beer excluded from the production calculation
• Wastage allowance
• Determining the excise duty rate
• Contract production
• Bulk beer shipped between breweries
• Credit claims
• Reporting

Terms and expressions used

1. The terms and expressions explained below are used in this circular:

Alcohol strength means the percentage of absolute ethyl alcohol by volume in the beer that is produced.

Beer or malt liquor means any product (other than wine, as defined in section 2 of the Excise Act, 2001) containing more than 0.5% absolute ethyl alcohol by volume that is either:

1. a fermented liquor that is brewed in whole or in part from malt, grain or any saccharine matter without any process of distillation and that has an alcoholic strength not in excess of 11.9% absolute ethyl alcohol by volume
2. beer concentrate

Beer brewed in Canada, for the purposes of reduced rates of excise duty, means that the wort that is fermented was made by steeping and boiling raw materials in Canada.

Beer is produced, for excise duty purposes, when it is put into packages. When the beer is packaged, the amount of excise duty payable is calculated on the volume packaged.

Brewer generally means any person who conducts, works, occupies or carries on a brewery. A person who manufactures beer or uses any equipment suitable for carrying on the trade of a brewer must be licensed, regardless of the type or size of the brewery operation. For purposes of this circular, the term brewer means a licensed brewer, unless otherwise stated.

Brewery generally means any place or premises where any beer is manufactured.

Package means any container in which beer is placed for shipment, sale or consumption.

General

2. Excise duty is imposed under the Act on all beer produced in Canada, other than beer for non‑commercial use. The excise duty rates, which are included in the Schedule to the Act, are dictated by alcohol strength, as well as production volume and whether the beer is brewed in Canada or imported.

3. The regular rates of excise duty apply to the following under section 170 and are set out in Part II of the Schedule to the Act:

• beer packaged in Canada in excess of 75,000 hectolitres in a calendar year
• beer packaged in Canada that is either:
  • imported beer
  • produced from imported wort

4. The reduced rates of excise duty that apply under section 170.1 are set out in Part II.1 of the Schedule to the Act. They apply to the first 75,000 hectolitres of beer brewed in Canada (production volume limit) each calendar year by a brewer and any person related to or associated with that brewer.

5. For a listing of the regular and reduced rates of excise duty on beer, go to Excise Duty Rates.

Allocation of production volume limit

Related or associated brewers

6. A brewer may be related to or associated with one or more brewers. In that case, the reduced rates of excise duty are available only to an aggregate total of 75,000 hectolitres of beer brewed by all of the related or associated brewers, and not to each brewer in that group.

7. Pursuant to subsection 170.1(5), where brewers are related or associated, they must make an election in the form of an agreement that shows how the 75,000 hectolitre production volume limit is allocated among them and which brewer will claim production at which rates. Each brewer must file the election agreement with their regional excise office and keep a copy of the agreement on file at each brewery. Related or associated brewers may use Form RC627, Agreement Among Related or Associated Brewers for the Allocation of Production Volume Limit, as the election agreement or create their own based on the information provided in Excise Duty Circular ED212-12, Related or Associated Persons Rules for Brewers.

Brewers operating more than one licensed brewery

8. Since every separate premises must be issued a licence under subsection 14(2), some brewers operate more than one licensed brewery. Although licensed breweries operated by the same brewer (that is, the same legal entity) are not related or associated under the Act, the brewer is only allowed to use the reduced rates of excise duty for an aggregate total of 75,000 hectolitres of beer brewed at all its licensed breweries. In this case, the brewer must allocate the 75,000-hectolitre production volume limit among its breweries and keep a copy of the allocation information on file at each brewery. Form RC627 may be used for this purpose, but the brewer does not need to file the election agreement with their regional excise office. 

9. Brewers that operate more than one brewery may also be related to or associated with other brewers. In that case, they must file an election to allocate the 75,000-hectolitre production volume limit among the related or associated brewers, as discussed in paragraphs 6 and 7 of this circular.

Beer excluded from the production calculation

10. The following products may be deducted or excluded from the calculation of a brewer’s 75,000-hectolitre production volume limit provided that the brewer can substantiate the quantities claimed:

• duty-paid beer returned to process stock
• duty-paid beer destroyed
• duty-paid beer exported or deemed exported (that is, delivered to a customs bonded warehouse, a duty free shop, an accredited representative or for ships’ stores)

11. These quantities must continue to be reported on Form K50B, Excise Duty Return – Brewer.

Wastage allowance

12. All breweries are allowed the 5% wastage allowance (production loss) set out in subsection 170(2). For more information on calculating this loss allowance, refer to Excise Duty Circular ED212-5, Guidelines for Brewery Operations – Loss Allowance.

Determining the excise duty rate

13. As illustrated in the tables for beer brewed and packaged in Canada at Excise Duty Rates, the reduced rates of excise duty are linked to the various production increments for the first 75,000 hectolitres of beer brewed in Canada in each calendar year. The rate is determined using the cumulative total of all beer produced, regardless of alcohol strength (in other words, the limit is 75,000 hectolitres in total, not 75,000 hectolitres for each alcohol strength).

14. A brewer that produces beer of different alcohol strengths in a production day can calculate the excise duty payable in the manner that is the most favourable to that brewer. The brewer may apply the excise duty rate of the first increment to the beer with the highest alcohol strength and the higher excise duty rate to the beer with the lower alcohol strength, if that will result in lower overall excise duty payable by the brewer. The following example illustrates this by providing two calculation options. Semi‑annual filers must make this calculation for each calendar month rather than for the entire reporting period.

Contract production

15. For the purposes of the 75,000 hectolitres production volume limit, beer produced for persons who are not licensed must be accounted for in the production volume of the producing brewer.

16. Under subsection 170.1(4), when a brewer brews beer for another brewer pursuant to an agreement with the other brewer, the excise duty rate used is that of the brewer using the higher excise duty rate at the time of the brewing. The brewer using the higher excise duty rate must also include the quantity of beer produced in its 75,000 hectolitres production volume limit if a tiered rate is being claimed.

Bulk beer shipped between breweries

17. When beer is shipped between licensed premises for further processing and packaging, excise duty must be paid on the beer before it is shipped. The receiving brewer enters the beer received into its processing inventory and claims a credit for the duty paid on the volume received, as permitted in paragraph 5(b) of the Brewery Departmental Regulations. The receiving brewer will pay duty on the entire quantity packaged at the time of packaging.

18. The excise duty rate used by the receiving brewer and the impact on its production volume limit depend on whether any of the following apply:

• the brewers are related or associated
• the beer is transferred between different premises of the same brewer or legal entity (each premises is a separate brewery and must have a separate licence)
• the brewers operate at arm’s length

19. When the receiving brewer is related to or associated with the shipping brewer, they must both refer to the election they filed under subsection 170.1(5) to determine the applicable excise duty rate.

20. When the receiving brewery is a different premises of the same brewer, the receiving brewery must refer to the allocation of production volume limit to which that brewer agreed and which it has on file to determine the applicable rate of duty.

21. If the excise duty paid on the beer received in either situation described in the two paragraphs above was at a reduced rate and the shipper included the quantity in its production volume limit, then the receiving or packaging brewer will do all of the following:

• claim a credit equal to the excise duty paid by the shipping brewer
• pay excise duty on the quantity packaged up to the quantity received at the rate of duty used by the shipper and not include that quantity in its production volume limit
• pay excise duty on the quantity packaged that is greater than the quantity received at the rate that applies to the receiving or packaging brewer based on the election filed and include that quantity in its calculation of its production volume limit (for example, if the beer received is diluted, the final volume packaged is greater than the volume of beer received)

22. If the excise duty paid on the beer received was at the full rate, the receiving brewer will do all of the following:

• claim a credit equal to the excise duty paid by the shipping brewer
• pay excise duty on the entire quantity packaged at the rate that applies to the receiving brewer
• include the quantity in the calculation of the production volume limit

23. When brewers deal at arm’s length, the producing brewer will include the quantity of beer shipped in its production volume calculation, determine the excise duty rate based on its production level at the time of shipment, as set out in subsection 170.1(2), and pay the duty.

24. The receiving brewer will pay excise duty on the entire quantity packaged at the rate that the producing brewer paid on shipment. The receiving brewer will not include the quantity in its production volume limit.

Credit claims

25. Brewers must claim all credits in accordance with Excise Duty Circular ED212-7, Credit Entitlements.

26. Credits for quantities of beer that were included in the production volume limit consist of two components:

• the credit for the excise duty paid on the beer
• the restatement of the production volume limit for the purposes of claiming the reduced rates of excise duty, since the credit would reset the production volume threshold for each subsequent increment

27. Credit claims for bulk beer received and beer produced under contract (refer to the sections “Contract production” and “Bulk beer shipped between breweries” in this circular) must be at the actual rates paid. In addition, if the quantity of beer was included in the brewer’s annual production volume limit, then that quantity may be deducted from the limit at that rate.

Calculation of credit claims

28. In order to simplify the administration of claiming credits and to eliminate the need for multiple claims, all other credit claims are calculated as follows:

• for a month ending in the year the beer was produced, the brewer may:
  • claim the credit at the same excise duty rate that the brewer uses in the brewer’s current month for the same type of beer
  • deduct the quantity from its production volume limit
• for a month ending in a year subsequent to the year the beer was produced, the brewer may:
  • claim the credit at the excise duty rate that was last reported for the same type of beer on the brewer’s Form K50B for the year it was produced
  • not deduct the quantity from the current year’s production volume limit

Books and records

29. Brewers must maintain adequate books and records to support their credit claims, including evidence of the year the beer was produced and the rate of excise duty paid.

30. If a brewer is unable to support a credit claim, the use of reduced excise duty rates and credits may be denied, resulting in an assessment of the excise duty that would have been payable.

31. Records may include, but are not limited to, production records with excise duty rates used by related or associated brewers, records on credits/refunds and records of transactions between licensees.

Reporting

32. All brewers must file Form K50B and use Form N10, Excise Act – Application for Refund/Drawback, to claim a credit.

33. Form RC633, Monthly Beer Revenue Worksheet, and Form RC634, Monthly Beer Credit Claim Worksheet, were designed to be used as record‑keeping aids for brewers that need assistance in calculating the amount of excise duty payable each month on Form K50B or to be claimed as a credit on Form N10. Brewers may choose to use the worksheets or develop their own record-keeping documents. They must not submit any working document with their Form K50B and Form N10; however, all the information found on the worksheets or similar documents must be maintained in the brewers’ records for audit purposes to support any information reported on Form K50B and Form N10.

34. Brewers that file returns on a semi-annual basis and use Form RC633 will need to complete that form for each month, even if approved to file returns on a semi‑annual basis. To complete Form K50B, the brewer must total the six worksheets for that period and input those totals on Form K50B.

Further information