EDN37 Questions and Answers on the Cigarette Inventory Tax

From: Canada Revenue Agency

February 2014

On February 11, 2014, the Government of Canada announced amendments to the Excise Act, 2001, imposing a tax on stamped duty-paid cigarettes held in inventory at the beginning of the day on February 12, 2014. Therefore, most persons who own duty-paid cigarettes at the beginning of February 12, 2014 will be subject to the cigarette inventory tax.

This notice provides additional information on this tax.

1. Will the Canada Revenue Agency (CRA) send me an information package regarding the cigarette inventory tax?

The CRA will provide information about the cigarette inventory tax to retailers and wholesalers. However, the CRA does not have information about the particular products they sell. If you do not have any cigarettes for sale, please disregard the information package. If you do not receive the information package or the form, you may contact any CRA regional excise duty office to obtain a copy. All regional excise duty offices are listed in Excise Duty Memorandum EDM1.1.2, Regional Excise Duty Offices, on the CRA website at www.cra-arc.gc.ca/E/pub/em/edm1-1-2/README.html.

2. What products are subject to the cigarette inventory tax and how much is the tax?

The cigarette inventory tax will apply to "taxed cigarettes", that is cigarettes on which excise duty has been paid as indicated by "DUTY PAID CANADA DROIT ACQUITTÉ" on the affixed tobacco stamp.

"Cigarette" includes any roll or tubular construction intended for smoking, other than a cigar or a tobacco stick.

The cigarette inventory tax is $0.02015 per cigarette ($4.03 per carton of 200 cigarettes).

The cigarette inventory tax will not apply to cigarettes that are:

  • for delivery by a tobacco licensee to a Customs bonded warehouse;
  • for delivery by a tobacco licensee to a Canadian or foreign duty free shop;
  • for delivery by a tobacco licensee for use as Canadian or foreign ships' stores.

3. Who will pay the cigarette inventory tax?

The tax is payable by most persons who own taxed cigarettes, at the beginning of February 12, 2014. Certain retailers who do not hold more than 30,000 taxed cigarettes in a separate retail establishment are not liable to report or pay the cigarette inventory tax for that establishment.

4. What is a separate retail establishment?

A "separate retail establishment" means a shop or store of a person that is:

  • geographically separate from other places of business of the person,
  • where the person regularly sells cigarettes to consumers attending the shop or store, and
  • a retail establishment for which separate records are maintained.

For a shop or store to qualify as a "separate retail establishment", all of the conditions described above must be satisfied.

5. For purposes of determining whether or not a shop or a store is a "separate retail establishment", do separate records need to be kept on site at the shop or store?

There is no requirement for separate records to be physically kept on site at the shop or store.

6. Will persons subject to the cigarette inventory tax have to take a physical count to determine their liability?

The inventory of taxed cigarettes must be determined in a fair and reasonable manner, which may include a physical count, and be supported by appropriate books and records.

7. Who is required to file a return to report the cigarette inventory tax?

Every person who is liable to pay the cigarette inventory tax must complete and file Form B273, Excise Return – Cigarette Inventory Tax. However, GST/HST registrants who elected to file returns as separate branches or divisions may also file this return (B273) separately.

8. When is a person required to determine their inventory of cigarettes in order to calculate the amount of the tax?

The cigarette inventory tax is calculated on taxed cigarettes held in inventory at the beginning of February 12, 2014 (12:01 a.m.).

9. When is the cigarette inventory tax to be reported and remitted to the Canada Revenue Agency?

The deadline for reporting and paying the cigarette inventory tax is April 30, 2014.

10. Does the cigarette inventory tax apply to an Indian individual (or a partnership of Indian individuals, or an Indian band) situated on a reserve?

Section 87 of the Indian Act provides, in part, that the personal property of an Indian or a band situated on a reserve is exempt of tax.  If an Indian individual (or a partnership of Indian individuals, or an Indian band) owns cigarette products that are situated on reserve, they are not required to pay the cigarette inventory tax.

However, if an Indian individual (or a partnership of Indian individuals, or an Indian band) situated on a reserve owns more than 30,000 cigarettes, they should file Form B273 and report the amount of tax that would otherwise be due. In such circumstances, no payment is to be made. The reason for non-payment should be noted on Form B273.

Note

If the owner of the cigarettes is a corporation situated on a reserve, the tax exemption described above is not applicable.

11. I have an old Form B273 from 2008. Can I use the old return to report the cigarette inventory tax on April 30, 2014?

No, you will have to use the new Form B273, since the tax will only apply to cigarettes and the rate differs from 2008.

12. Will I be audited?

As part of our regular activities, the CRA selectively audits tax returns. Our objective is to ensure the fairness and integrity of our self-assessment tax system. We do this by making sure that tax returns are prepared properly.

For more information about audit see "What you should know about audits" at www.cra-arc.gc.ca/E/pub/tg/rc4188/rc4188-10e.pdf

13. Who can I contact if I have questions concerning the cigarette inventory tax?

You may contact any CRA regional excise duty office if you have questions concerning the cigarette inventory tax. All regional excise duty offices are listed in Excise Duty Memorandum EDM1.1.2, Regional Excise Duty Offices, on the CRA website.

All technical publications related to the Excise Act, 2001 and its regulations are available on the CRA website at www.cra.gc.ca/exciseduty, under the title "Excise Act, 2001 – Technical Information".

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