Financial Security Requirement for Producers or Packagers of Spirits, Manufacturers of Tobacco Products and Prescribed Persons That Import Tobacco Products

Excise Duty Memorandum EDM2-2-2

May 2024

This version replaces the one dated December 2014, which was entitled Security Requirements for Certain Licensees and for Prescribed Persons Importing Tobacco Products. This memorandum has been revised to include updated information on financial security. It also cancels and replaces Excise Duty Memorandum EDM 2-2-3, Government of Canada Bonds and Surety Bonds, and Excise Duty Memorandum EDM 2-2-4, Approved Financial Institutions and Acceptable Bonding Companies. 

Except as otherwise noted, all statutory references in this publication are to the provisions of the Excise Act, 2001. 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 refer to the Act or relevant regulation, or contact your CRA regional excise office for additional information. The offices are listed at Contact Information – Excise and Specialty Tax Directorate.

Table of Contents

• Providing financial security
• Calculating financial security
  • Spirits licence
  • Tobacco licence
  • Prescribed person that imports tobacco products
• Maintaining financial security
• Releasing financial security
• Explanation of terms used in this memorandum

Providing financial security

1. A person that produces or packages spirits, manufactures tobacco products or imports tobacco products and applies for tobacco excise stamps must provide adequate financial security for each physical business location.

2. The purpose of providing financial security is to guarantee that obligations related to the activities undertaken by the person will be met, including the payment of duty.

3. The person must provide financial security in Canadian funds in the form of a bank draft, a certified cheque, a Canada Post money order or an original surety bond issued by a company that is authorized by a Canadian federal, provincial or territorial regulator to provide surety bonds within Canada. Refer to the Office of the Superintendent of Financial Institutions to identify a federally regulated property and casualty insurance company that lists surety as an authorized class of insurance, or to the relevant regulator for a province or territory.

4. Examples of an acceptable surety bond are provided on Form L702, Surety Bond for a Tobacco Licensee, Form L704, Surety Bond for a Tobacco Prescribed Person, and Form L802, Surety Bond for a Spirits License.

Calculating financial security

5. The amount of financial security required depends on the activity that is undertaken. For a new applicant, the amount of financial security required is determined using projections contained within their business plan. Calculations are based on current excise duty rates in effect. For a listing of rates of excise duty, go to Excise Duty Rates.

Spirits licence

6. The minimum amount of financial security required for a spirits licence is $5,000 and the maximum amount is $2 million.

7. The amount of financial security must be sufficient to ensure payment of duty on bulk spirits for which the person is responsible at any time. This quantity may be different from the bulk spirits that are in their physical possession. For information about responsibility for bulk spirits, refer to Excise Duty Memorandum EDM3-1-1, Producers and Packagers of Spirits.

Tobacco licence

8. The minimum amount of financial security required for a tobacco licence is $5,000 and the maximum amount is $5 million.

9. The amount of financial security must be sufficient to ensure payment of the amount of duty payable and required to be reported on the tobacco licensee’s Form B267, Excise Duty Return – Tobacco Licensee, for any reporting period.

10. If the tobacco licensee requires tobacco excise stamps, the amount of financial security required is the greater of the amount sufficient to ensure payment of duty payable on Form B267 for any reporting period or one half of the amount of duty that would be payable on all unaffixed tobacco excise stamps that the person is responsible for at any time.

Prescribed person that imports tobacco products

11. The minimum amount of financial security required for a prescribed person that imports tobacco products is $5,000 and the maximum amount is $5 million.

12. The amount of financial security must be sufficient to ensure payment of one half of the amount of duty that would be payable on all unaffixed tobacco excise stamps that the person is responsible for at any time if the stamps were affixed to tobacco products entered into the duty-paid market.

Maintaining financial security

13. The person must ensure that the financial security provided remains valid and that the amount of financial security remains adequate for the term of their licence. If the amount of financial security required increases, the person must provide the additional amount. If the amount of financial security required decreases, the person may request that the Canada Revenue Agency (CRA) return the excess amount.

14. If the financial security provided is a surety bond and there is a change in the person’s legal entity (for example, where a proprietorship incorporates) or the surety bond is voided (for example, the surety that issued the surety bond no longer operates in Canada), a new surety bond is required.

15. An original rider or endorsement to an existing surety bond is acceptable where there is a change in the person’s legal name, the physical business location, the amount of the surety bond, or the name of the surety.

16. Failure to maintain financial security may result in the suspension of the licence. Additional tobacco excise stamps will not be issued if the financial security is not adequate.

Releasing financial security

17. The CRA releases the financial security to the person once they are no longer conducting the activity for which they provided the financial security and all obligations have been met. If the person has an unpaid balance, the CRA withholds an amount of financial security sufficient to cover this liability.

Explanation of terms used in this memorandum

Person means an individual, a partnership, a corporation, a trust, the estate of a deceased individual, a government or a body that is a society, a union, a club, an association, a commission or another organization of any kind.

A surety bond is a legally binding contract entered into by three parties – a principal (that is, the licensee or prescribed person), an obligee (that is, the CRA) and a surety (that is, the bonding company that issues the surety bond).

Further information