Regulations Amending Certain Regulations in Respect of the Taxation of Cannabis Products: SOR/2019-77

Canada Gazette, Part II, Volume 153, Number 7

Registration

SOR/2019-77 March 26, 2019

EXCISE ACT, 2001
EXCISE TAX ACT

P.C. 2019-216 March 25, 2019

Her Excellency the Governor General in Council, on the recommendation of the Minister of Finance, makes the annexed Regulations Amending Certain Regulations in Respect of the Taxation of Cannabis Products, pursuant to

Regulations Amending Certain Regulations in Respect of the Taxation of Cannabis Products

Excise Act, 2001

Regulations Respecting the Possession of Tobacco Products or Cannabis Products That Are Not Stamped

1 The Regulations Respecting the Possession of Tobacco Products or Cannabis Products That Are Not Stamped footnote 1 are amended by adding the following after section 1.2:

1.3 For the purposes of paragraph 158.11(6)(a) of the Excise Act, 2001, a person may possess cannabis products in a particular specified province that are not stamped to indicate that additional cannabis duty in respect of the particular specified province has been paid if

Stamping and Marking of Tobacco and Cannabis Products Regulations

2 Subsection 4(3) of the Stamping and Marking of Tobacco and Cannabis Products Regulations footnote 2 is replaced by the following:

(3) For the purposes of paragraph 158.05(2)(c) of the Act, the following persons are prescribed:

Excise Tax Act

Credit for Provincial Relief (HST) Regulations

3 The definition Ontario regulation in section 1 of the Credit for Provincial Relief (HST) Regulations footnote 3 is replaced by the following:

Ontario regulation means Ontario Regulation 317/10 (Rebates for First Nations in Ontario), as it read on October 17, 2018, made under the Retail Sales Tax Act, R.S.O. 1990, c. R.31. (règlement de l’Ontario)

Coming into Force

4 (1) These Regulations, except section 2, are deemed to have come into force on October 17, 2018.

(2) Section 2 is deemed to have come into force on June 21, 2018.

REGULATORY IMPACT ANALYSIS STATEMENT

(This statement is not part of the Regulations.)

Issues

On October 17, 2018, cannabis for non-medical purposes became available for legal retail sale in Canada. A cannabis excise duty framework for cannabis products was implemented in conjunction with legalization. This framework includes the coordination of cannabis taxation with the provinces and territories that was agreed upon in principle by most federal, provincial and territorial Finance Ministers in December 2017 and was formalized through the signing of Coordinated Cannabis Taxation Agreements (CCTAs) with most provincial and territorial governments. In order to ensure the proper functioning of the excise duty framework for cannabis products and to respond to issues brought to the attention of the Department of Finance Canada by taxpayers and their representatives or by the Canada Revenue Agency, certain modifications to this framework need to be made by way of regulation.

Additionally, on March 28, 2018, the Government of Ontario announced its intention to exclude off-reserve purchases of cannabis for non-medical purposes, once legalized, from an existing credit (the “Ontario Credit”) for the Ontario component of the harmonized sales tax (HST), which is generally offered by Ontario in respect of a supply of qualifying property or services made in Ontario to an Indian, a band or a council of a band (as defined in the Indian Act, R.S.C. 1985, c. I-5).

Background

Excise Duty Framework for Cannabis Products

Under the Excise Act, 2001 (the Act), an excise duty on cannabis products is imposed on cannabis products that are manufactured in Canada or that are imported into Canada. As well, an additional duty on cannabis products is imposed in coordinated provinces and territories (i.e. provinces and territories that have entered into a CCTA with Canada) under federal legislation and administration. The CCTAs are federal-provincial and federal-territorial agreements that detail the parameters, including the rates of the additional cannabis duties, agreed upon between the coordinated parties to govern the imposition of the cannabis excise duties in the coordinated provinces and territories. Among other things, the CCTAs stipulate that the tax base for the federal duty and for the additional duty in respect of the coordinated province or territory is to remain common. The Act provides that certain modifications to the excise duty framework on cannabis products may be made by way of regulation.

Ontario Credit

The HST is imposed in participating provinces under federal legislation and administration. The Comprehensive Integrated Tax Coordination Agreements (CITCAs) between the Government of Canada and each of the participating provinces detail the parameters that govern the imposition of the HST. Under the CITCAs, each participating province may exercise some flexibility in certain areas covered by the agreement, such as establishing the rate of its provincial component of the HST and limited provincial point-of-sale rebates of the provincial component of the HST. The Canada-Ontario CITCA contains provisions to accommodate Ontario’s decision to offer the Ontario Credit.

Objectives

The Regulations Amending Certain Regulations in Respect of the Taxation of Cannabis Products (the Amending Regulations) amend existing regulations made under the Act and the Excise Tax Act to

Description

The Amending Regulations include amendments to the following regulations:

Regulations Respecting the Possession of Tobacco Products or Cannabis Products That Are Not Stamped

The Regulations Respecting the Possession of Tobacco Products or Cannabis Products That Are Not Stamped identify the classes of persons who may transport unstamped tobacco products or cannabis products.

All cannabis products that leave the premises of a cannabis licensee to enter into the Canadian market for retail sale are required to have an excise stamp. For those provinces or territories participating in the coordinated excise duty framework, excise stamps have specified colours and markings indicating the provincial or territorial market in which it is intended to be sold.

Currently, the excise duty framework generally prohibits individuals, or any entity that does not have a cannabis licence from the Canada Revenue Agency (CRA), from possessing cannabis products in a jurisdiction that are not stamped for that jurisdiction (i.e. cannabis products bearing a stamp that is not the stamp of the province or territory in which the individual is located or in which the entity operates). Entities not licensed by the CRA are only authorized to possess and trade in cannabis products that are specifically stamped for the province or territory in which they operate.

Holders of a licence for sale for medical purposes

Amendments to the Regulations Respecting the Possession of Tobacco Products or Cannabis Products That Are Not Stamped provide that those entities that hold a licence for sale for medical purposes from Health Canada, as issued under section 62 of the Cannabis Act and in line with the Cannabis Regulations, are permitted to possess in a jurisdiction cannabis products stamped for a different jurisdiction.

Authorized out-of-province retailers

Where a province or territory allows retailers located in other provinces or territories to make sales of cannabis products to their residents, amendments to the Regulations Respecting the Possession of Tobacco Products or Cannabis Products That Are Not Stamped provide that these out of province/territory retailers are permitted to possess cannabis products stamped for that province or territory in the jurisdiction in which it operates. This exemption would be limited to the possession of cannabis products stamped for the jurisdictions in which the retailer is permitted to make sales. For example, if a retailer located in Province X is authorized by Province Y to also make sales of cannabis products to residents of Province Y, the retailer will be permitted to possess products stamped for either Province X or Y. That same retailer will not be permitted to possess cannabis products stamped for another province or territory participating in the coordinated excise duty framework if it is not otherwise authorized.

Possession by individuals

The Regulations Respecting the Possession of Tobacco Products or Cannabis Products That Are Not Stamped are also amended so that individuals are permitted to possess cannabis products for personal consumption in a jurisdiction that are stamped for a different jurisdiction, provided that the total amount of those cannabis products is equivalent to no more than 30 grams of dried cannabis as determined in accordance with the Cannabis Act.

Stamping and Marking of Tobacco and Cannabis Products Regulations

The Stamping and Marking of Tobacco and Cannabis Products Regulations provide rules relating to the stamping, marking and labelling of tobacco and cannabis products. Currently, only a cannabis excise stamp manufacturer, a cannabis licensee, or a person prescribed by regulations may legally possess an excise stamp that has not been affixed to a product. The Stamping and Marking of Tobacco and Cannabis Products Regulations are amended to permit a third party to possess cannabis excise stamps for the purpose of applying an adhesive to the stamps for a cannabis licensee. The liability or responsibility for the stamps would remain with the cannabis licensee while the stamps are in the possession of the third party.

Credit for Provincial Relief (HST) Regulations

The Credit for Provincial Relief (HST) Regulations facilitate the delivery of the relief offered by the Government of Ontario equivalent to the provincial portion of the HST for Indians in Ontario.

The existing definition “Ontario regulation” in the Credit for Provincial Relief (HST) Regulations refers to Ontario Regulation 317/10 entitled Rebates for First Nations in Ontario. That definition is amended consequential to Ontario’s decision, as announced by the province on March 28, 2018, to exclude off-reserve purchases of cannabis for non-medical purposes, once legalized, from the relief offered by Ontario for the provincial component of the HST. Such relief is generally available in respect of a supply of qualifying property or services made in Ontario to an Indian, a band or a council of a band (as defined in the Indian Act, R.S.C. 1985, c. I-5). Following Ontario’s announcement, Ontario made corresponding changes to the provincial regulation. As a consequence of those changes, the definition “Ontario regulation” is amended to update the date as of which the provincial regulation is to be read (in order that the definition refers to the newly modified provincial regulation).

Regulatory development

Consultation

The Amending Regulations provide for certain changes in respect of the coordinated cannabis taxation framework, as announced by Finance Ministers in December 2017 and subsequently formalized through the signing of CCTAs, and were therefore developed in consultation with provincial and territorial governments. Additionally, the Amending Regulations are designed to reflect the provincial decision by Ontario to exclude off-reserve purchases of cannabis for non-medical purposes from the Ontario Credit, as announced by Ontario on March 28, 2018, and were developed in consultation with the Government of Ontario.

The Amending Regulations were released for consultation as part of draft regulatory and legislative proposals on September 17, 2018. Six comments were received from stakeholders or their representatives in response to this release. The amendment allowing for the possession of small amounts of cannabis products in a jurisdiction that are stamped for another jurisdiction was developed in response to one of these submissions and in consultation with provincial and territorial governments. The other comments were not directly relevant to the proposals contained in the Amending Regulations.

Modern treaty obligations and Indigenous engagement and consultation

For this proposal, no impacts have been identified in respect of the government’s obligations in relation to Indigenous rights protected by section 35 of the Constitution Act, 1982, modern treaties or international human rights obligations.

Instrument choice

The Act allows for certain modifications to the cannabis excise duty regime to be made by way of regulation. Therefore, there is no alternative to regulations to implement this proposal.

Regulatory analysis

Benefits and costs

Pursuant to the Treasury Board of Canada Secretariat’s Canadian Cost-Benefit Analysis Guide: Regulatory Proposals, taxes and charges, because they constitute transfers from one group to another, are not considered to be economic costs. Furthermore, the Amending Regulations will be administered and enforced as part of the cannabis excise duty regime under the Act, so there are no incremental costs for their administration and enforcement.

Small business lens

The small business lens does not apply, because the Amending Regulations do not result in new incremental compliance or administrative costs for small businesses.

“One-for-One” Rule

Pursuant to the Treasury Board of Canada Secretariat’s Canadian Cost-Benefit Analysis Guide: Regulatory Proposals, taxes and charges, because they constitute transfers from one group to another, are not considered to be compliance or administrative costs. Accordingly, the Amending Regulations do not increase or decrease the level of administration burden imposed on business, and therefore the “One-for-One” Rule does not apply.

Regulatory cooperation and alignment

The Amending Regulations are not related to a work plan or commitment under a formal regulatory cooperation forum.

Strategic environmental assessment

In accordance with The Cabinet Directive on the Environmental Assessment of Policy, Plan and Program Proposals, a preliminary scan concluded that a strategic environmental assessment is not required.

Gender-based analysis plus (GBA+)

No GBA+ impacts have been identified for this proposal.

Implementation, compliance and enforcement, and service standards

The Amending Regulations will be implemented, administered and enforced by the Canada Revenue Agency as part of the cannabis excise duty regime.

Contacts

Gregory Smart
Sales Tax Division
Department of Finance Canada
90 Elgin Street
Ottawa, Ontario
K1A 0G5
Telephone: 613‑369‑3794

Ron Hagmann
Excise and GST/HST Rulings Directorate
Canada Revenue Agency
Place de Ville, Tower A, 9th Floor
320 Queen Street
Ottawa, Ontario
K1A 0L5
Telephone: 613‑670‑7360