3.1.1 Producers and Packagers of Spirits

From: Canada Revenue Agency

January 2013

NOTE: This version replaces the one published in November 2012. Clarifications were made to the following paragraphs: 8(b), 17, 33 and 44.

The Excise Act, 2001 (the "Act") requires a person to obtain a spirits licence in order to produce or package spirits. This memorandum provides an overview of the obligations and entitlements of spirits licensees.

Disclaimer:
The information in this document does not replace the law found in the Act and its regulations. It is provided for your reference. You may also wish to refer to the Act and its regulations, or contact any Canada Revenue Agency regional excise duty office for additional information. These offices are listed in Excise Duty Memorandum EDM1.1.2, Regional Excise Duty Offices.

Requirement for a spirits licence

Meaning of "spirits"
s 2

1. "Spirits" means any material or substance containing more than 0.5% absolute ethyl alcohol by volume, excluding wine, beer, vinegar, denatured alcohol, specially denatured alcohol, fusel oil or other refuse produced as a result of the distillation process or an approved formulation. Also excluded from the definition of spirits is any product that is not consumable as a beverage that contains, or is manufactured from, beer, vinegar, denatured alcohol, specially denatured alcohol, fusel oil or other refuse produced as a result of the distillation process or an approved formulation.

Spirits licence
ss 14(1), 70(2), s 75, 76 and 94

2. A spirits licence authorizes a person (i.e., a "spirits licensee") to produce or package spirits in Canada. A spirits licence also allows a spirits licensee to import, export, denature, possess and transport bulk spirits.

Meaning of "produce"
s 2

3. To "produce" spirits means to bring spirits into existence by distillation or by any other process, or to recover spirits. Spirits produced through distillation are considered to have come into existence at the earliest point at which they can be reasonably measured after leaving the column of a still.

Production of high alcohol beers or malt liquors

4. Beer or malt liquor of alcohol strength greater than of 11.9% is excluded from the definition of "beer" in section 4 of the Excise Act and falls within the definition of spirits. This means that all producers of such high alcohol beer or malt liquor are now considered to be producing spirits even though the product is produced without distillation. In addition, all importations of fermented liquor that was previously classified as beer or malt liquor, with an alcohol content by volume that exceeds 11.9%, are treated as importations of spirits.

Meaning of "packaged"
s 2

5. To package spirits means to place them into a container with a capacity of not more than 100 litres, which is ordinarily sold to consumers without being further repackaged into smaller containers. Packaging of spirits also includes the marking of a special container of spirits.

Prohibition − production and packaging of spirits
ss 60(1)

6. A person is prohibited from producing or packaging spirits unless they have a spirits licence. Unlike the production of wine and beer for personal use, there is no exemption for a person to produce spirits for personal use.

Exception
ss 60(2)

7. A spirits licence to produce or package spirits is not required in the following specific circumstances:

  1. the packaging of spirits from a marked special container by an individual (i.e., a purchaser) at an authorized bottle-your-own premises; or
  2. the production of spirits for the purpose of the analysis of the composition of a product containing absolute ethyl alcohol or as a consequence of such analysis.

No entitlement to licence
s 77 and 131.2, ss 14(2) and 14(3)

8. A person is not entitled to a spirits licence solely because they are deemed to have:

  1. packaged spirits by marking a special container;
  2. produced spirits by blending spirits with wine;
  3. produced spirits by blending a material or substance, other than spirits or wine, that contains absolute ethyl alcohol with wine or spirits; or
  4. produced spirits for the purpose of or as a consequence of the analysis of the composition of the substance containing absolute ethyl alcohol.

Meaning of "mark" and "special container"
s 2

9. A marked special container, in respect of spirits, is a container of a capacity greater than 100 litres but not more than 1,500 litres, which has been marked in a prescribed form and manner to indicate that it is intended for delivery to and for use by a registered user, or at bottle-your-own premises.

10. Additional information on marked special containers is available in Excise Duty Memorandum EDM3.8.1, Special Containers of Spirits. Additional information on the blending of spirits and wine is available in Excise Duty Memorandum EDM3.1.2, Licensed Users.

Information displayed on container
s 87 and the Regulations Respecting the Information to be Displayed on Alcohol Containers and their Packaging

11. All spirits licensees who package spirits must ensure that immediately after the spirits are packaged, the spirits container (e.g., bottles) and any packaging encasing that container display:

  1. the name and address of the spirits licensee who packaged the spirits; or
  2. their licence number.

12. For more information on the requirements on information to be displayed on containers of spirits, refer to Excise Duty Memorandum EDM3.2.3, Labelling of Containers of Spirits.

Security
para 23(3)(b)

13. A person applying for or renewing a spirits licence is required to provide and maintain security in a form satisfactory to the Canada Revenue Agency (CRA). The amount of security required for a spirits licence is not less than $5,000 and not more than $2 million. It must be sufficient to ensure payment of all amounts for which the licensee is or will be responsible under the Act. For information on security refer to the following Excise Duty Memoranda:  EDM2.2.2, Security Requirements for Licensees, EDM2.2.3, Surety Bonds and EDM2.2.4, Approved Financial Institutions and Acceptable Bonding Companies.

Obtaining a spirits licence

14. Instructions and requirements for obtaining a spirits licence are provided in Excise Duty Memorandum EDM2.2.1, Obtaining and Renewing a Licence.

Regulations Respecting Excise Licences and Registrations
s 4

15. A spirits licence is valid for a maximum period of two years. The licensing letter issued by the regional excise duty office will specify the effective date and expiry date of the licence.

Obtaining other licence types

16. Depending upon the activities of a spirits licensee, the licensee may be required to possess other types of licences. For example, a spirits licensee may require an excise warehouse licence, a wine licence, or a user’s licence.

Excise warehouse licence
s 19 and 124

17. Excise duty must be paid on spirits at the time they are packaged unless they are immediately entered into an excise warehouse, as spirits licensees are not permitted to possess non-duty packaged spirits. Excise duty does not have to be paid until the packaged spirits are removed from the excise warehouse. Therefore, spirits licensees often possess a separate excise warehouse licence to store non-duty-paid packaged spirits.

18. Additional information on the types of licences and the activities that may be performed under those licences is available in Excise Duty Memorandum EDM2.1.1, Licence Types.

Possession and transportation of spirits

Bulk spirits
ss 70(2)

19. A spirits licensee may possess and transport bulk spirits that are produced or imported by a spirits licensee. A person who possesses an alcohol registration may also transport or store bulk spirits on behalf of a spirits licensee.

Alcohol registrants

20. Additional information on the transportation or storage of bulk spirits by alcohol registrants is available in Excise Duty Memorandum EDM3.1.4, Alcohol Registrants.

Possession of a still

Prohibition
s 61

21. A person is prohibited from possessing a still or other equipment suitable for the production of spirits with the intent of producing spirits unless the person:

  1. possesses a spirits licence;
  2. has a pending application for a spirits licence; or
  3. possesses the still or equipment solely for the purpose of producing spirits for the purpose or as a consequence of the analysis of the composition of a substance containing absolute ethyl alcohol.

Meaning of "pending application"

22. An application is considered pending when a person has submitted all information and documentation required to obtain a spirits licence to the CRA. This includes a fully completed Form L63, Licence and Registration Application − Excise Act, 2001, a detailed business plan, a list of premises to be covered by the licence, and the required security.

No intent to produce spirits

23. It is not prohibited to possess a still that is to be used for purposes other than the production of spirits, such as the purification of water. There is no licence or registration required under the Act to possess a still for uses other than the production of spirits.

Determining the volume of alcohol

ss 148(1)

24. Spirits licensees are required to determine the volume and absolute ethyl alcohol content of alcohol in a manner specified by the CRA using approved instruments. The CRA has approved several types of instruments for this purpose, including thermometers, hydrometers, and mass flow measuring systems. However, each individual instrument that a spirits licensee uses for excise duty purposes must also be approved by the CRA.

25. Information relating to specifications and procedures to follow in determining the volume and alcohol strength is available in Excise Duty Memorandum EDM1.1.5,  Instrument Certification.

Imposition, responsibility and liability for excise duty on bulk spirits

Imposition and responsibility
s 104 and 122

26. The person who is responsible for bulk spirits is liable for the excise duty on them. Excise duty is imposed on spirits at the time they are produced in Canada. At that time, an excise duty liability is established and the person responsible for the bulk spirits at that time is liable for the duty. An additional duty liability equivalent to excise duty is imposed on imported bulk spirits at the time they are imported. Generally, the spirits licensee who owns the bulk spirits is responsible for them. However, there are occasions when a spirits licensee does not own the bulk spirits. If a spirits licensee does not own the bulk spirits, then the responsibility falls on the spirits licensee or licensed user who last owned them. If no licensee ever owned the bulk spirits, then the responsibility falls on the spirits licensee who imported or produced them or the licensed user who imported them.

Liability for excise duty
s 124, 126, 127 and 140

27. The person responsible for the bulk spirits is liable for the excise duty on them until such time as that excise duty is paid or relieved, or when the responsibility or liability for the spirits is transferred. Excise duty becomes payable at the time the spirits are packaged, taken for use or cannot be accounted for. The responsibility and the accompanying excise duty liability may be transferred when the bulk spirits are sold to another licensee. Alternatively, the spirits may be packaged and immediately entered into an excise warehouse and the excise warehouse licensee becomes liable for the excise duty on the spirits.

Relief of excise duty
s 109, 132, 145 and the Losses of Bulk Spirits and Packaged Alcohol Regulations

28. Excise duty may be relieved if the bulk spirits are taken for analysis or destroyed in an approved manner, denatured into denatured alcohol or specially denatured alcohol, exported, used or lost in specific circumstances and conditions as set out in the Losses of Bulk Spirits and Packaged Alcohol Regulations.

29. For additional information on losses of spirits, including unaccounted losses and prescribed losses, refer to Excise Duty Memorandum EDM3.4.1, Losses of Spirits.

Rates of excise duty
s 122 and 123, Schedule 4

30. The rates of excise duty applicable to spirits are included in Excise Duty Memorandum EDM1.5.1, Rates of Excise Duty. For historical purposes, rates from July 1, 2003 have also been included in that memorandum.

Special duty
s 133, Schedule 5

31. There is also a special duty on imported spirits delivered to or imported by a licensed user. The special duty rate is $0.12 per litre of absolute ethyl alcohol.

Delivering imported spirits to a licensed user
ss 133(2)

32. When a spirits licensee imports bulk spirits and delivers them to a licensed user, the special duty is always paid by a spirits licensee regardless of whether the spirits licensee is responsible for or owns the spirits.

Spirits taken for analysis or destroyed

33. For a spirits licensee to be relieved of the liability on bulk spirits that are taken for analysis or destroyed, the method used must be approved by the CRA. Generally licensees submit a written request for approval to the local regional excise duty office specifying particular information. For example, the location and method of destruction, whether the approval is for a specific circumstance or for all destructions, the controls in place, etc. In addition, a licensee must maintain adequate records to support the claim.

34. Contact your local regional excise duty office for further information and to have your methodology approved before destroying or analyzing spirits. You may refer to Excise Duty Memorandum EDM1.1.2, Regional Excise Duty Offices for a listing of these offices.

Maintaining records and filing returns

Keeping records
ss 206(1)

35. Every person who possesses a licence under the Act is required to maintain all records that are necessary to determine whether they are in compliance with the Act.

36. Additional information on the requirement to maintain books and records is available in Excise Duty Memorandum EDM9.1.1, General Requirements for Books and Records.

Filing returns and making payments
ss 160(1)

37. Every spirits licensee is required to file Form B266, Excise Duty Return – Spirits Licensee for each reporting period, and to calculate and remit any excise duty payable on that return. The return and payment is due by the last day of the fiscal month after the reporting period. A licensee who possesses more than one licence is required to file a separate return for each licence. For example, a spirits licensee who also possesses an excise warehouse licence is required to file Form B262, Excise Duty Return – Excise Warehouse Licensee, in addition to their B266 return.

Reporting period and semi-annual filing
s 159.1 and 160

38. Unless otherwise authorized, the reporting period of a licensee is a fiscal month. However, certain licensees may elect to have a reporting period that is a fiscal half-year instead of a fiscal month. This request can be done by completing Form B284, Election or Revocation of an Election for Semi-Annual Reporting. Once authorized by the CRA this would allow a spirits licensee to file their return on a fiscal half-year basis.

39. Additional information on how to apply for semi-annual reporting periods and the conditions and requirements that must be met by the licensee is available in Excise Duty Notice EDN40, Semi-Annual Reporting Period for Certain Licensees.

Determining fiscal months
ss 159(1)

40. Where a licensee has determined a fiscal month for GST/HST purposes, the same fiscal month applies for purposes of excise duty. Where such a fiscal month has not yet been determined, a person may choose a fiscal month using established GST/HST rules, or use a calendar month.

Branches or divisions filing separate returns
ss 164(1)

41. Spirits licensees that have branches or divisions with distinct operations under their spirits licence may apply to the CRA for authority to file separate returns for each branch or division. This request can be done by completing Form B269, Application or Revocation of the Authorization to File Separate Excise Duty Returns and Refunds Applications for Branches or Divisions.

42. Additional information with respect to the filing of returns, remitting excise duty and paying the correct amounts of excise duty is available in Excise Duty Memorandum EDM10.1.1, Returns and Payments. Information and instructions on how to complete the spirits licensee’s excise duty return is contained in Excise Duty Memorandum EDM10.1.7, Completing an Excise Duty Return − Spirits Licensee.

Claiming refunds

Application
ss175(1)

43. A spirits licensee who paid an amount as excise duty, interest or other amount payable under the Excise Act, 2001 in circumstances where the amount was not payable, whether it was paid by mistake or otherwise, may apply to receive a refund of that amount. A refund or a deduction of excise duty can only be claimed by submitting a completed Form B256, Application for Refund/Deduction.

Restrictions
ss189(4)

44. A refund shall not be paid to a spirits licensee until that licensee has filed with the CRA or the Canada Border Services Agency all returns or other records that are required to be filed under the Excise Act, 2001, the Air Travellers Security Charge Act, the Customs Act, the Excise Act, the Excise Tax Act and the Income Tax Act.

45. Additional information concerning the process and the legislative requirements for obtaining a refund or a deduction is available in Excise Duty Memorandum EDM10.3.1, Refunds.

Enforcement

Failure to comply

46. If a person fails to comply with the conditions or requirements of their licence, they may be subject to a penalty or face charges under the Excise Act, 2001.

All of the excise duty memoranda are available on the CRA Web site at www.cra.gc.ca/exciseduty, under "Excise Act, 2001 – Technical Information".

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