Excise Taxes and Special Levies Memoranda Series

X2.3 Bonds Given as Security by Licensed Wholesalers

January 1997

Overview

This section explains the conditions under which licensed wholesalers or jobbers are required to provide and maintain security with the Department under the Excise Tax Act, and describes the type of security acceptable to the Department. All references to dollar values are in Canadian currency.

Note

This section of Chapter 2 supersedes Excise Memorandum ET 106, Bonds Given as Security by Licensed Wholesalers. Due to the number of changes, the revisions have not been side-barred.

Persons required to provide security

Licensee to give security
ss 55(3)

1. Wholesalers or jobbers applying for a wholesaler's licence ("W" licence) under the Act are required to provide the Department with acceptable security to ensure that they will keep adequate books and records, and will submit true returns of sales as required under the Act, or any regulations under the Act, and pay any tax imposed by the Act on those sales. The security provided must also cover any person who acquires from or against the licensed wholesaler or jobber the right to sell any goods which were purchased or imported exempt from excise taxes under the licence.

Amount of security required

Minimum and maximum amounts
ss 55(4)

2. A "W" licence may not remain in force unless adequate security is provided. The amount of security that must be posted is set at a minimum of $2,000 and a maximum of $25,000.

Initial amounts of security

3. Initially, the amount of security required will be calculated by doubling the amount of excise tax paid or payable on goods sold during the three months immediately preceding the month in which the application for the "W" licence is made, subject to the limits stated in paragraph 2 of this section.

Subsequent amounts of security

4. Subsequently, the amount of security required will be calculated by doubling the amount of excise tax paid or payable on the three largest monthly totals of taxable sales during the last calendar year rounded to the next highest $100, subject to the limits stated in paragraph 2 of this section.

Annual review - increase in bond

5. The amount of security provided by the wholesaler or jobber will be reviewed on an annual basis. If the review reveals that the amount on hand is inadequate, the licensee will be requested to increase the amount of security to cover the difference. Requests for an increase of security coverage will not normally be made unless the difference exceeds $500, subject to the maximum bond requirement.
ss 56(1)

6. Licensed wholesalers or jobbers required to increase the amount of their bond will be notified in writing and given sufficent time to provide the Department with the increased amount. Should the increase not be provided, the "W" licence will be cancelled and the licensee prohibited from re-applying for another "W" licence for a period of two years.

Annual review - decrease in bond

7. Where the security on hand is greater than that required, the licensee will be notified of the possibility of a reduction. The excess amount of security will not normally be reduced unless it exceeds the required amount by $500 or more.

Matured bonds

8. At the time of the annual review, all Government of Canada /Canadian National Railway Bonds will be reviewed to determine whether matured bonds are being held. Licensees will be notified in writing where the bonds have matured or will mature within the next six months.

Form of security

Form of security
ss 55(5) and (6)

Form E447

9. The security provided must be acceptable to, and in a form approved by, the Minister. The security may be provided on form E447, Wholesaler's Bond - Excise Taxes, or its equivalent. Refer to Appendix A for a copy of this form.

10. Security in Canadian funds must be in the form of certain Government of Canada Bonds, Canadian National Railway Bonds, or surety bonds from an approved guarantee company or chartered bank. Security may also be in the form of Perpetual Bonds.

Meaning of guarantee company

11. The term guarantee company means a company licensed in Canada to transact fidelity and surety classes of insurance business.

Acceptable bonds

12. Bonds acceptable to the Minister as security posted by wholesalers and jobbers include:

(a) a transferable bond guaranteed by the Government of Canada, e.g., Government of Canada Bonds and Canadian National Railway Bonds;

(b) a bond issued by a company that holds a certificate of registry to carry on the fidelity or surety class of insurance business and that is approved by the Superintendent of Financial Institutions as a company whose bonds can be accepted by the Government of Canada (The Treasury Board issues a list of approved companies on a regular basis. Information concerning this list can be obtained from any Revenue Canada tax services office.); and

(c) a bond issued by a chartered bank.

Government of Canada and Canadian National Railway Bonds

13. For Government of Canada/Canadian National Railway Bonds, both the principal and interest of these bonds must be fully registered. Bearer bonds, bonds bearing interest coupons, or bonds that do not have a maturity date are not acceptable.

Transfer of bond - Form Y76

14. To effect transfer of the Government of Canada/Canadian National Railway Bond to the Receiver General for Canada, the bond must be accompanied by a valid Government of Canada Y76 transfer form and signed by one of the following:

The form 533, Transfer Form, may also be used.

Bonds issued in name of incorporated company

15. Where the registered owner of a bond is an incorporated company, the company seal should be affixed to the bond. The signature of the person signing on behalf of the company and his/her authority to sign on behalf of the company must be attested to by a Canadian chartered bank or other financial institution acceptable to the Bank of Canada, which includes members of the Canadian Payments Association as provided for in section 4 of the Canadian Payments Association Act.

Bonds issued in name of individual other than licensee

16. Government of Canada/Canadian National Railway Bonds that have been issued in the name of an individual (other than the name in which the licence was or is to be issued) may be accepted provided that two Y76 transfer forms (or form 533) are completed and accompany the bonds. The first form serves to transfer the bond from the individual to the licensee and the second form transfers it from the licensee to the Receiver General for Canada.

17. The following information must be included on the Y76 transfer form:

Transfer from outside Canada

18. When the instrument of transfer is executed outside Canada, only financial institutions authorized by the Bank of Canada may execute the Y76 transfer form. Contact the nearest Revenue Canada tax services office for information on this subject.

Additions/deletions to Y76

19. Any additions or deletions to the Y76 transfer form must be initialled by the guarantor who originally signed the document on behalf of the financial institution.

Surety bonds

Surety bonds from a guarantee company

20. The Surety bond must be signed and sealed by the guarantee company, and signed by the insured. The signatures must be witnessed.

Limited liability company

21. Where the insured is a limited liability company, its corporate seal or a signature of an authorized officer of the company is necessary in addition to the signature and seal of the guarantee company. Proof that the officer of the company has the necessary authority must also be provided (e.g., a certified copy of the company by-laws authenticating the signature). The names of the guarantee company and the insured must be identical to those shown on the corporate seals.

Sole proprietorship or partnership

22. Where the insured is a sole proprietorship, the bond must be signed and sealed by the guarantee company, and signed by the insured. In the case of a partnership, the bond must be signed by a partner.

Endorsements

Form E448

23. All endorsements increasing or decreasing bond coverage must be signed by the insured and the guarantee company, the signatures witnessed and seals affixed thereto where applicable. The accepted and approved format is Form E448, Endorsement - Wholesaler's Sales Tax Bond, or its equivalent. Refer to Appendix B for a copy of this form.

Surety bonds from chartered banks

24. Surety bonds from a chartered bank are treated in the same way as surety bonds from a guarantee company. Refer to paragraphs 20 to 23 of this section for information on how these bonds from chartered banks are to be treated.

25. All bank bonds and amendments thereto should bear the corporate seal of the issuing chartered bank, unless the head office of that bank has provided the Department with a letter of indemnity covering bonds issued pursuant to the Act. A list of the banks holding approved letters of indemnity appears as an appendix to Customs Memorandum D1-7-1, Posting Security for Transacting Bonded Operations.

Others

Provincial insurance companies

26. Provincial insurance companies may provide bonds only for those companies operating within the province concerned. Should a wholesaler or jobber with such a bond transfer to another province, a new bond will be required.

Transfer from outside Canada

27. Where the instrument of transfer is executed outside Canada, only financial institutions authorized by the Bank of Canada may guarantee the Y76 transfer form. When it is unclear whether the guarantor is acceptable to the Bank of Canada, contact the nearest Revenue Canada tax services office.

Cancellation of bond

Cancellation of bond
ss 56(4)

28. Notwithstanding that a bond of a guarantee company given under section 55 has been cancelled, the bond is deemed to remain in force in relation to all goods in the possession of the licensed wholesaler at the time of the cancellation.

Cancellation of guarantee bonds

29. Guarantors may cancel the bond issued by them at any time upon giving 60 days written notice to the District Director in the district specified on the bond. The calculation of the 60 days will include the day of receipt by the appropriate District Director.

Failure to provide replacement security for cancelled bonds

30. Licensed wholesalers or jobbers who do not provide replacement security for cancelled bonds before the effective date of cancellation of the bond will have their licences cancelled effective on the date of the bond cancellation, and will not be permitted to re-apply for a "W" licence for a period of two years.

Appendix A

Form E447 - Wholesaler's Bond - Excise Taxes

Appendix B

Form E448 - Endorsement - Wholesaler's Sales Tax Bond

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