EDN55 Calculation of Cannabis Duty and Additional Cannabis Duty on Cannabis Products

September 2018 

In this publication, all legislative references to the Act are to the Excise Act, 2001 unless otherwise specified, and all references to the draft Regulations are to the draft Excise Duties on Cannabis Regulations unless otherwise specified.

Table of Contents

• Overview
• Definitions
• Imposition and payment of duty on cannabis
  • Cannabis duty
  • Additional cannabis duty
• Rates of cannabis duty and additional cannabis duty
• Adjustment rates for the additional cannabis duty in listed specified provinces
• Calculation of cannabis duty and additional cannabis duty payable
  • Step 1 – Determine the flat‑rate cannabis and additional cannabis duties
  • Step 2 – Determine the ad valorem cannabis and additional cannabis duties
  • Step 3 – Determine which of the flat‑rate and ad valorem cannabis and additional cannabis duties are greater
  • Step 4 – Determine the adjustment to the additional cannabis duty if the cannabis products are delivered to a purchaser in a listed specified province
  • Step 5 – Determine the amounts payable to be reported in Part 5 of Form B300, Cannabis Duty and Information Return
• Maintaining records and filing returns
  • Keeping records
  • Records to be maintained
  • Filing returns

Overview

As part of the Government of Canada’s efforts to legalize, regulate and restrict access to cannabis products, the Canada Revenue Agency (CRA) is responsible for administering and enforcing the new excise duty framework for cannabis products. This framework includes amendments to the Act and related regulations to impose duties, which generally apply to all cannabis products sold for both medical and non-medical purposes.

Producers who are packaging cannabis products should carefully review the information included in this notice. It provides information on how the excise duties imposed on cannabis products must be calculated.

Definitions

The following terms are used in this notice:

Additional cannabis duty means a duty imposed under section 158.2 or 158.22 of the Act, in respect of a specified province. This duty is in addition to the cannabis duty imposed under section 158.19 or 158.21 of the Act.

Base amount means, in respect of a cannabis product and a listed specified province,

• if the cannabis product is delivered or made available to a person that obtains it otherwise than by means of a purchase, the fair market value of the cannabis product;
• in any other case, the amount determined by the formula

[(A – B) – C)] × [100% ÷ (100% + D)]

where

A  is the total determined for A in the definition of dutiable amount;

B  is the flat-rate cannabis duty determined under section 1 of Schedule 7 to the Act;

C  is, in respect of the listed specified province, the amount determined under section 1 of the applicable Schedule  to the draft Regulations for the particular listed specified province; and

D  is the adjustment rate in respect of a listed specified province, as set out in section 5 of the applicable Schedule to the draft Regulations for the particular listed specified province (see the section “Rates of the adjustment to the additional cannabis duty in listed specified provinces”, in this publication).

Cannabis duty means a duty imposed under section 158.19 or 158.21 of the Act.

Dutiable amount, in respect of a cannabis product, means, other than an amount determined in a prescribed manner in prescribed circumstances, the amount determined by the formula 

A × [100% ÷ (100% + B + C)]

where

A  is the total consideration (generally the sales price) as determined for GST/HST purposes, which the purchaser is liable to pay to the vendor for the cannabis product, the container in which the product is packaged, plus any other amount, whether payable at the same time or any other time, charged for, or to make provision for, advertising, financing, commissions, or any other matter;

B  is the ad valorem cannabis duty rate (2.5%) set out in section 2 of Schedule 7 to the Act;

C  is,

• in respect of a listed specified province, the additional cannabis duty rate set out in section 2 of the applicable Schedule to the draft Regulations that applies to the province plus the adjustment rate set out in section 5 of the applicable Schedule to the draft Regulations that applies to the particular province;
• in respect of a specified province that is not a listed specified province, the additional cannabis duty rate set out in section 2 of the applicable Schedule to the draft Regulations that applies to the province; and
• in any other case, 0%.

Listed specified province means Alberta, Nunavut, Ontario or Saskatchewan, for the purposes of this notice.

Specified province means a province or territory prescribed by section 4 of the draft Regulations that has entered into an agreement with the Government of Canada for the coordination of cannabis taxation. All provinces and territories, with the exception of Manitoba, have entered into such agreements.

Imposition and payment of duty on cannabis

Cannabis duty

There are two points of imposition of cannabis duty on cannabis products produced in Canada:

• under subsection 158.19(1) of the Act, a flat-rate cannabis duty imposed at the time the cannabis products are packaged; and
• under subsection 158.19(2) of the Act, an ad valorem cannabis duty imposed on packaged cannabis products at the time the products are delivered to a purchaser (for example, a provincially-authorized distributor or retailer, or a final consumer)

The flat-rate cannabis duty is determined based on the inputs used to produce the cannabis product. For more information, see “Step 1 – Determine the flat-rate cannabis and additional cannabis duties”.

The ad valorem cannabis duty is determined based on the dutiable amount of the cannabis product. For more information, see “Step 2 – Determine the ad valorem cannabis and additional cannabis duties”.

Pursuant to subsection 158.19(3) of the Act, the cannabis duty is payable by the cannabis licensee that packaged the cannabis products, at the time of delivery to a purchaser. The cannabis duty payable is the greater of the flat-rate and the ad valorem cannabis duty, with the lesser of the flat-rate and ad valorem cannabis duty being relieved at the time the greater cannabis duty becomes payable.

Under subsection 158.19(4) of the Act, if the amount of the flat-rate cannabis duty imposed is equal to the amount of the ad valorem cannabis duty imposed, then the flat-rate cannabis duty amount is payable by the cannabis licensee that packaged the cannabis products at the time of delivery and the cannabis products are relieved of the ad valorem cannabis duty (in other words, the ad valorem cannabis duty is not payable by the cannabis licensee in this circumstance).

Additional cannabis duty

Section 158.2 of the Act provides that an additional cannabis duty on cannabis products produced in Canada is imposed in respect of specified provinces. Subsection 5(1) of the draft Regulations prescribes that the additional cannabis duty is imposed on cannabis products produced in Canada if they are for consumption, use or sale to consumers in a specified province.

For specified provinces, the amount of additional cannabis duty payable is the greater of the flat-rate and the ad valorem additional cannabis duty, with the lesser of the flat-rate and ad valorem additional cannabis duty being relieved at the time the greater additional cannabis duty becomes payable. Under subsection 158.2(2) of the Act, the additional cannabis duty is payable by the cannabis licensee that packaged the cannabis products at the time of delivery to a purchaser (for example, a provincially-authorized distributor or retailer, or a final consumer).

If the amount of the flat-rate additional cannabis duty imposed is equal to the amount of the ad valorem additional cannabis duty imposed, then the flat-rate additional cannabis duty amount is payable by the cannabis licensee that packaged the cannabis products at the time of delivery and the cannabis products are relieved of the ad valorem additional cannabis duty.

For listed specified provinces, there is a further amount payable, referred to as an adjustment to the additional cannabis duty. The adjustment rate for a listed specified province is provided in sections 5 or 6 of the applicable Schedule to the draft Regulations that applies to the province. Therefore, for listed specified provinces, subsection 5(2) of the draft Regulations provides that the additional cannabis duty payable is the sum of:

• the greater of the flat-rate additional cannabis duty and the ad valorem additional cannabis duty; and
• the adjustment to the additional cannabis duty.

The adjustment to the additional cannabis duty is determined under section 5 of the applicable Schedule to the draft Regulations for the province where the flat-rate additional cannabis duty is greater than the ad valorem additional cannabis duty. In any other case, the adjustment to the additional cannabis duty is determined under section 6 of the applicable Schedule to the draft Regulations for the province. The current adjustment rates are the same in either case.

Rates of cannabis duty and additional cannabis duty

The cannabis duty rates imposed under section 158.19 can be found in section 1 (flat-rate duty) and section 2 (ad valorem duty) of Schedule 7 to the Act.

With the exception of Manitoba, all provinces and territories have agreed to the coordinated cannabis taxation framework. The draft Regulations set out the additional cannabis duty rates in section 1 (flat‑rate duty) and section 2 (ad valorem duty) of the Schedules to the draft Regulations that apply to each particular specified province. For Manitoba, there is no additional cannabis duty payable.

The rates of cannabis duty and additional cannabis duty are indicated in the following table and apply to all provinces and territories.

Adjustment rates for the additional cannabis duty in listed specified provinces

The adjustment rates for the additional cannabis duty required when packaged and stamped cannabis products are delivered to a purchaser in a listed specified province are the following:

• Alberta, 16.8%;
• Nunavut, 19.3%;
• Ontario, 3.9%;
• Saskatchewan, 6.45%.

For more information on how these rates apply, see “Step 4 – Determine the adjustment to the additional cannabis duty if the cannabis products are delivered to a purchaser in a listed specified province".

Calculation of cannabis duty and additional cannabis duty payable

For each cannabis product delivered to a purchaser, the flat‑rate and ad valorem cannabis duty must be calculated to determine the greater amount that becomes payable upon delivery to a purchaser under subsection 158.19(3) of the Act. The flat‑rate and ad valorem additional cannabis duty must also be calculated, with the greater amount becoming payable under subsection 158.2(2) of the Act upon delivery to a purchaser. For the province of Manitoba, the additional cannabis duty calculation is not required. For listed specified provinces, a further adjustment to the additional cannabis duty must be calculated.

The following example will be used throughout this notice to illustrate the calculations required.

Step 1 – Determine the flat-rate cannabis and additional cannabis duties

For purposes of determining the amounts of flat-rate cannabis and additional cannabis duties in respect of a cannabis product, the following rules apply:

• the quantity of flowering material and non-flowering material included in the cannabis product or used in the production of the cannabis product is determined at the time the flowering and non-flowering materials are so included or used; and
• if a quantity of flowering material included in the cannabis product or used in the production of the cannabis product is an industrial hemp by-product, the particular quantity that is industrial hemp by-product is considered to be non-flowering material.

In other words, the flat-rate cannabis and additional cannabis duties are imposed on the inputs included in the cannabis product or used in the production of the cannabis product.

Step 2 – Determine the ad valorem cannabis and additional cannabis duties

The ad valorem cannabis and additional cannabis duties are imposed on packaged and stamped cannabis products at the time of delivery to a purchaser (for example, a provincially-authorized distributor or retailer, or a final consumer).

The amounts of the ad valorem cannabis and additional cannabis duties are obtained by multiplying the dutiable amount (A × [100% ÷ (100% + B + C)]) by the applicable ad valorem cannabis and, where applicable, ad valorem additional cannabis duty rates.

Step 3 – Determine which of the flat-rate and ad valorem cannabis and additional cannabis duties are greater

For each transaction, it must be determined which of the flat-rate and ad valorem cannabis duty is greater and which of the flat-rate and ad valorem additional cannabis duty is greater.

Step 4 – Determine the adjustment to the additional cannabis duty if the cannabis products are delivered to a purchaser in a listed specified province

If the cannabis products are delivered to a purchaser in a listed specified province, a further calculation must be completed to determine the adjustment to the additional cannabis duty. This calculation will differ depending on whether the flat-rate or the ad valorem additional cannabis duty is determined to be payable.

If the flat-rate additional cannabis duty is payable, the adjustment to the additional cannabis duty is determined by multiplying the base amount ([(A – B) – C] × [100% ÷ (100% + D)]) by the adjustment rate set out in section 5 of the applicable Schedule to the draft Regulations for the particular listed specified province.

If the ad valorem additional cannabis duty is payable, the adjustment to the additional cannabis duty is determined by multiplying the dutiable amount (A × [100% ÷ (100% + B + C)]) by the adjustment rate set out in section 6 of the applicable Schedule to the draft Regulations for the particular listed specified province.

Step 5 – Determine the amounts payable to be reported in Part 5 of Form B300, Cannabis Duty and Information Return

The duties on cannabis products are payable by the cannabis licensee that packaged the cannabis product at the time of delivery to a purchaser.

The cannabis duty and total additional cannabis duty payable must be reported by the licensee in Part 5 of Form B300, Cannabis Duty and Information Return, in the appropriate cannabis product section.

For each province or territory where cannabis products are stamped for that particular jurisdiction and are delivered to a purchaser, the following information must be entered in the appropriate columns on Form B300:

• under Sales ($), the total sales in dollar amount;
• under Sales (kilograms), the total sales in kilograms;
• under Cannabis duty ($), the total amount of cannabis duty payable; and
• under Additional cannabis duty ($), the total amount of the additional cannabis duty and, where applicable, the adjustment to the additional cannabis duty.

Maintaining records and filing returns

Keeping records

Every cannabis licensee is required, under subsection 206(1) of the Act, to maintain all records that are necessary to determine whether they are in compliance with the Act.

Records to be maintained

Subsection 206(2.01) of the Act states that every cannabis licensee is required to retain records relating to the amount of cannabis product produced, received, used, packaged, re-worked, sold and disposed of by the licensee. Books and records must be maintained in an appropriate form and contain sufficient information to allow for the verification of a person's compliance with the Act, including the person's liabilities and obligations with respect to cannabis duties and additional cannabis duties, or the amount of any refund the person has claimed.

With respect to the calculation of duties payable, the licensee must retain sufficient documentation to substantiate the cannabis duty and additional cannabis duty that are payable on each delivery of a cannabis product to a purchaser. This would include documentation detailing the quantities of flowering and non-flowering material in the cannabis product or used in the production of the cannabis product delivered to a purchaser, the sales price of the cannabis product delivered to a purchaser, the payment received and supporting documents to verify the place of delivery.

For more information on the requirement to maintain books and records, see Excise Duty Memorandum EDM9-1-1, General Requirements for Books and Records.

Filing returns

Under section 160 of the Act, every cannabis licensee is required to file Form B300, for each calendar month, calculate and report any cannabis duty and additional cannabis duty payable on that return, and pay any amount to the CRA.

Licensees are required to report total sales of cannabis products in dollars and quantities by province or territory on a monthly basis, as well as the cannabis duty and additional cannabis duty payable, which would include any adjustment to the additional cannabis duty.

Further information