ED212-11 - Application of Rates of Excise Duty on the First 75,000 Hectolitres of Beer Brewed in Canada

From: Canada Revenue Agency

July 2018

This circular replaces the following Excise Duty Notices: EDBN6, Excise Duty Rate Changes on Beer Produced by Small and Mid-Sized Brewers, published in May 2006; EDBN8, Excise Duty Rate Changes for Beer – July 1, 2006, published in July 2006 and EDBN9, Reduced Rates of Excise Duty on Beer Brewed in Canada, also published in July 2006.

The purpose of this circular is to provide information related to the excise duty rates (“reduced rates”) that are imposed, levied and collected on the first 75,000 hectolitres of beer brewed per calendar year in Canada by a licensed brewer. It also provides information on how to calculate the amount of excise duty to be remitted.

The information in this circular is for reference purposes only and does not replace the Excise Act or its regulations. Should there be any discrepancy between the information in this circular and that contained in the Act or its regulations, the legislative provisions apply. If the information in this publication does not completely address your particular situation, you may wish to refer to the Act or appropriate regulation, or contact any Canada Revenue Agency (CRA) regional excise duty office for additional information. These offices are listed in Excise Duty Memorandum EDM1-1-2, Regional Excise Duty Offices.

All legislative references in this publication are to the Excise Act (the Act) unless otherwise specified.

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.

BeerFootnote 1 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.

For excise duty purposes, beer is produced 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.

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.

  • all beer packaged in Canada in excess of 75,000 hectolitres in a calendar year,
  • all beer that contains not more than 0.5% absolute ethyl alcohol by volume (in other words, de‑alcoholized beer), and
  • beer packaged in Canada that is
    • imported beer and
    • 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 brewerFootnote 2 may be related to or associated with 1 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 duty office and keep a copy of the agreement on file at each brewery. Related or associated brewers may use Form RC627, Agreement Among Related 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 1 licensed brewery. Although the 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, Agreement Among Related Brewers for the Allocation of Production Volume Limit, may be used for this purpose, but the brewer does not need to file the election agreement with their regional excise duty office. 

9. Brewers that operate more than 1 brewery may also be related or associated to 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.

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); and
  • beer containing not more than 0.5% absolute ethyl alcohol by volume.

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). Since de-alcoholized beer does not qualify for purposes of the 75,000 hectolitres production volume limit, the excise duty for de-alcoholized beer is always calculated using the regular rate of excise duty.

14. A brewer that produces beer of different alcohol strengths in a production day can calculate the excise duty payable in a 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.

Example (based on rates effective March 23, 2017 to March 31, 2018 provided at Excise Duty Rates)

On January 2, 2018, a brewer produces a total of 5,000 hectolitres of beer, with 3,000 hectolitres at 2% absolute ethyl alcohol by volume and 2,000 hectolitres at 5% absolute ethyl alcohol by volume. The brewer can choose the alcohol strength to which the first tiered rate will apply, so either of the two calculation options provided below is correct.

First calculation option

The following table illustrates how the brewer allocated the first 2,000 hectolitres of beer containing the lowest alcohol strength to the first production increment with the lowest excise duty rate.

First calculation option
Production increments in hectolitres (hL) More than 1.2% and not more than 2.5% absolute ethyl alcohol Rate More than 2.5% absolute ethyl alcohol Rate Duty payable
From 0 to 2,000 2,000 $1.592 0 $3.184 $ 3,184
From 2,001 to 5,000 1,000 $3.184 2,000 $6.368 $15,920

The excise duty payable using the first option is $19,104, which is calculated as follows:

[(2,000 hL × $1.592) + (1,000 hL × $3.184)] + (2,000 hL × $6.368) = $19,104

Second calculation option

The following table illustrates how the brewer allocated the beer with the highest alcohol strength to the first increment with the lower rate of excise duty and the beer with the lowest alcohol strength to the higher rate of excise duty.

Second calculation option
Production increments in hectolitres (hL) More than 1.2% and not more than 2.5% absolute ethyl alcohol Rate More than 2.5% absolute ethyl alcohol Rate Duty payable
From 0 to 2,000 0 $1.592 2,000 $3.184 $ 6,368
From 2,001 to 5,000 3,000 $3.184 0 $6.368 $ 9,552

The excise duty payable using the second option is $15,920, which is calculated as follows:

(2,000 hL × $3.184) + (3,000 hL × $3.184) = $15,920

Since it is more favourable, the brewer can choose the second calculation option and apply the lowest rate to the 2,000 hectolitres of the beer containing the higher alcohol strength (5% absolute ethyl alcohol by volume).

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.

Example (based on rates effective March 23, 2017 to March 31, 2018 provided at Excise Duty Rates)

In February 2018, Brewer A brews 5,000 hectolitres of beer at 6% absolute ethyl alcohol strength under contract for Brewer B. The 2 brewers are not related. Prior to this brew, Brewer A had produced 10,000 hectolitres and Brewer B, 60,000 hectolitres. Therefore, using each brewer’s highest excise duty rate, Brewer A’s excise duty rate is $12.736 per hectolitre, while Brewer B’s rate is $27.064 per hectolitre.

  • Since Brewer B uses the higher excise duty rate, Brewer A must apply that rate of duty, which is $27.064 per hectolitre, to the beer produced for Brewer B.
  • Brewer B will include the 5,000 hectolitres in its 75,000 hectolitre production volume limit and Brewer A will not include it in theirs.

Bulk beer shipped between breweries

17. When beer is shipped between licensed premises for further processing and packaging, the 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:

  • 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); or
  • the brewers operate at arm’s length.

19. When the receiving brewer is related or associated to 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 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:

  • 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; and
  • pay excise duty on the quantity packaged that is greater than the quantity received at the rate that applies to receiving or packaging brewer based on the election filed and include that quantity in its calculation of its production volume limit. For example, the beer received is diluted, resulting in a greater final volume packaged than received.

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

  • 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; and
  • include the quantity in the calculation of the production volume limit.

Example (based on rates effective March 23, 2017 to March 31, 2018 provided at Excise Duty Rates)

Brewers C and D are related brewers. Based on their filed election agreement, Brewer C is allocated the first 3 production increments (from 0 to 15,000 hectolitres) and Brewer D is allocated the next 2 increments (from 15,001 to 75,000 hectolitres). At the time of shipment in January 2018, Brewer C has produced 5,000 hectolitres of beer in the calendar year and Brewer D has produced 35,000 hectolitres.

Brewer C brews and ships an additional 5,000 hectolitres of bulk beer (more than 2.5% absolute ethyl alcohol) to Brewer D; Brewer D adds 900 hectolitres of water and packages 5,900 hectolitres (more than 2.5% absolute ethyl alcohol) into kegs.

  • Brewer C includes the 5,000 hectolitres in its calculation of the first 75,000 hectolitres available for the reduced rates of excise duty and pays duty on it at the rate of $12.736 per hectolitre.
  • Brewer D receives the bulk beer and claims a credit for the excise duty paid by Brewer C.
  • Brewer D will pay excise duty on the entire 5,900 hectolitres it packages as follows:
    • 5,000 hectolitres at $12.736 per hectolitre (the same quantity and excise duty rate determined by Brewer C) and not include the 5,000 hectolitres in its production volume limit; and
    • 900 hectolitres at $22.288 per hectolitre and include the 900 hectolitres in its production volume calculation.

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.

Example (based on the rates effective March 23, 2017 to March 31, 2018 provided at Excise Duty Rates)

Brewer E brews and ships 5,000 hectolitres of bulk beer (more than 2.5% absolute ethyl alcohol) to Brewer F for packaging. Brewers E and F deal at arm’s length, they are not related or associated, and they are not separate premises of the same brewer. At the time of shipment, Brewer E has produced 45,000 hectolitres of beer in the calendar year and Brewer F has produced 2,500 hectolitres.

  • Brewer E includes the 5,000 hectolitres in its calculation of the first 75,000 hectolitres brewed for the reduced rates of excise duty and pays duty on it at the rate of $22.288 per hectolitre.
  • Brewer F receives the 5,000 hectolitres and packages the beer. It claims a credit for the excise duty paid on the bulk beer by Brewer E and pays duty on the packaged beer at the same rate (offset on Form K50B).
  • Brewer F does not include the 5,000 hectolitres in its production volume limit calculation.

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 2 components:

  • the credit for the excise duty paid on the beer, and
  • 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, de-alcoholized beer and beer produced under contract (see the sections “Contract production” and “Bulk beer shipped between breweries” in this circular) must be at the actual rates paid. Also, 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, and
    • deduct the quantity from its production volume limit;
  • for a month ending in a year subsequent to the year the beer was produced,
    • the credit is claimed 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, and
    • there is no deduction 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 persons, records on credits/refunds and records of transactions between licensees.

Reporting

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

33. Form RC633, Beer Revenue Worksheet, and Form RC634, Beer Credit Claim Worksheet, were designed to be used as record‑keeping aids for brewers who 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, but they must not submit any working document with their Form K50B and Form N10. However, all the information found on the worksheets or similar in-house documents must be maintained in the brewers’ records for audit purposes to support any information reported on Form K50B and Form N10.

34. Brewers who 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 6 worksheets for that period and input those totals on Form K50B.

Further information

For all technical publications related to the Excise Act and its regulations, go to Excise Act – Technical Information.

To request a ruling or interpretation or make a technical enquiry on excise duty, contact your regional excise duty office, listed in Excise Duty Memorandum EDM1-1-2, Regional Excise Duty Offices.

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