EDN51 Questions and Answers on the Cigarette Inventory Tax

From: Canada Revenue Agency

February 2018

On February, 27, 2018, the Minister of Finance announced proposed amendments to the Excise Act, 2001, to impose a tax on duty-paid and special duty paid cigarettes held in inventory at 12:01 a.m. on February 28, 2018. Therefore, most persons who own duty-paid or special duty‑paid cigarettes at the beginning of February 28, 2018 will be subject to the cigarette inventory tax. This notice provides additional information on this tax. 

The information in this notice is for reference purposes only and does not replace the Excise Act, 2001 or its regulations. Should there be any discrepancy between the information in this notice 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 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, 2001 (the Act), unless otherwise specified.

Any commentary in this notice should not be taken as a statement by the CRA that the proposed amendments will be enacted in their current form.

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

The cigarette inventory tax will apply to

  • duty-paid and special duty paid cigarettes, that is cigarettes on which excise duty has been paid as indicated by "DUTY PAID CANADA DROIT ACQUITTÉ" on the affixed tobacco stamp and
  • imported unstamped cigarettes on which special duty under section 53 was paid by a duty-free shop.

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

The cigarette inventory tax is $0.011468 per cigarette ($2.2936 per carton of 200 cigarettes).

2. Who will pay the cigarette inventory tax?

The tax is payable by most persons who own taxed cigarettes at the beginning of February 28, 2018, which are for sale in the ordinary course of a business of the person. 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.

3. 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.

4. 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.

5. 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.

6. 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 Form B273 returns separately.

7. 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 28, 2018 (12:01 a.m.).

8. 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, 2018.

9. 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 an Indian 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.

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

10. I have an old Form B273 from 2017. Can I use it to report the cigarette inventory tax on April 30, 2018?

No, you will have to use the new Form B273, since the rate differs from 2017.

11. 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 Pamphlet RC4188, What you should know about audits.

12. 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 those offices are listed in Excise Duty Memorandum EDM1-1-2, Regional Excise Duty Offices.

Further information

For all technical publications related to the Excise Act, 2001 and its regulations, go to Excise Act, 2001 – Technical Information.

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

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