Regulations Amending the Excise Duties on Vaping Products Regulations: SOR/2024-211

Canada Gazette, Part II, Volume 158, Number 23

Registration
SOR/2024-211 October 25, 2024

EXCISE ACT, 2001

P.C. 2024-1137 October 25, 2024

Her Excellency the Governor General in Council, on the recommendation of the Minister of Finance, makes the annexed Regulations Amending the Excise Duties on Vaping Products Regulations under sections 304footnote a and 304.3footnote b of the Excise Act, 2001 footnote c.

Regulations Amending the Excise Duties on Vaping Products Regulations

Amendments

1 Paragraphs 2(c) and (d) of the Excise Duties on Vaping Products Regulations footnote 1 are replaced by the following:

2 The headings before section 8 and sections 8 and 9 of the Regulations are replaced by the following:

Definition of qualifying vaping product

8 (1) For the purposes of subsection (2), qualifying vaping product means a vaping product that is not stamped to indicate that additional vaping duty in respect of a specified vaping province has been paid and that

January 1 to March 31, 2025

(2) For the purposes of facilitating the joining of New Brunswick, Manitoba, Prince Edward Island, Alberta and Yukon to the coordinated vaping duty system (as defined in subsection 304.3(1) of the Act), the following rules apply:

Coming into Force

3 These Regulations come into force on the day on which they are published in the Canada Gazette, Part II.

REGULATORY IMPACT ANALYSIS STATEMENT

(This statement is not part of the Regulations.)

Issues

In connection with the excise duty framework on vaping products, the Minister of Finance and the Finance Ministers of New Brunswick, Manitoba, Prince Edward Island, Alberta and Yukon have entered into coordinated vaping product taxation agreements (CVPTAs). Regulatory amendments are required to add these provinces and territories to the coordinated vaping product taxation system pursuant to the terms of the CVPTAs.

Background

A new federal excise duty framework on vaping products was implemented on October 1, 2022. The vaping excise duty framework was proposed in Budget 2022 after a public consultation that took place following Budget 2021. This framework includes the imposition of excise duties that generally apply to vaping products manufactured in Canada or imported into Canada and intended for the duty-paid market. As part of this regime, packaged vaping products must be stamped to indicate that the duty has been paid. The duty is currently being collected by the Canada Revenue Agency (CRA) and the Canada Border Services Agency (CBSA).

In Budget 2022, the federal government also invited provincial and territorial governments to join a coordinated vaping product taxation system, under which an additional vaping duty equal to the federal ratefootnote 2 would be applied. The governments of Ontario, Quebec, the Northwest Territories and Nunavut were the initial jurisdictions that agreed to join the coordinated system and formalized their participation in the system by signing CVPTAs, and the coordinated vaping product taxation system was implemented in these jurisdictions as of July 1, 2024. Subsequently, the governments of New Brunswick, Manitoba, Prince Edward Island, Alberta and Yukon have also signed CVPTAs agreeing to join the coordinated system as of January 1, 2025.

The Excise Act, 2001 (the Act) allows for an additional duty on vaping products to be imposed in coordinated vaping product taxation provinces and territories (i.e. provinces and territories that have entered into a CVPTA with the Government of Canada). The CVPTAs are federal-provincial and federal-territorial agreements that detail the parameters, including the rates of the additional vaping duties, which govern the imposition of the vaping product duties in the coordinated provinces and territories.

Among other things, the CVPTAs stipulate that the tax bases (i.e. products that are subject to the vaping product duty) for the federal vaping product duty and for the additional vaping duty in respect of a coordinated province or territory are to remain identical. The Act provides that many of the parameters of the coordinated vaping product taxation system are to be set out in regulation, including the rates for this additional vaping duty and the circumstances under which this additional vaping duty applies.

The Excise Duties on Vaping Products Regulations (the Regulations), which were published in the Canada Gazette, Part II, on May 8, 2024, set out the elements that were needed to fully implement the coordinated vaping product taxation system in the initial jurisdictions of Ontario, Quebec, the Northwest Territories and Nunavut. In particular, these Regulations set out the list of coordinated vaping provinces and territories, provide rules that are used in determining the amount of the additional duty imposed on vaping products in respect of the coordinated vaping provinces and territories under various sections of the Act, and specify the circumstances in which the additional vaping duty in respect of a coordinated province or territory is imposed.

Objective

The objective of the Regulations Amending the Excise Duties on Vaping Products Regulations (the amendments) is to formalize and give legal effect to the decisions of New Brunswick, Manitoba, Prince Edward Island, Alberta and Yukon to join the coordinated vaping product taxation system.

Description

The amendments to the Excise Duties on Vaping Products Regulations are necessary for the purposes of facilitating the joining of the five new jurisdictions of New Brunswick, Manitoba, Prince Edward Island, Alberta and Yukon to the coordinated system. In particular, the amendments add these five jurisdictions to the list of provinces and territories that are participating in the coordinated vaping product taxation system.

The amendments also set out transitional rules that specify when the additional vaping product duty for these five new jurisdictions is applicable. The additional vaping product duty for these five new jurisdictions applies in respect of the following vaping products:

Furthermore, if a vaping product that is manufactured in Canada, or imported by a vaping product licensee for stamping in Canada by the licensee, is stamped for one of these new jurisdictions after the amendments are published in the Canada Gazette, Part II, and before January 1, 2025, the additional vaping product duty in respect of that new jurisdiction will apply to the vaping product. If a vaping product that is stamped for one of these new jurisdictions and that is commercially imported is imported or released after the amendments are published in the Canada Gazette, Part II, and before January 1, 2025, the additional vaping duty in respect of the new jurisdiction will apply to the vaping product.

Finally, the amendments create a three-month transition period in these five new jurisdictions, where, from January 1, 2025, to March 31, 2025, manufacturers, importers or distributors are able to either sell federally stamped vaping products (as opposed to products bearing the stamp for the relevant jurisdiction) in one of these five new jurisdictions or remove them from the jurisdiction to another province or territory that is not participating in the coordinated vaping product taxation system. Beyond the three-month transition period, federally stamped vaping products may no longer be offered for sale in any of the five new jurisdictions, with contravention subject to enforcement action, including fines or imprisonment.

Regulatory development

Consultation

The rules set out in the amendments are designed to reflect the respective provincial and territorial decisions to join the coordinated vaping product taxation system. The system was developed in consultation with provincial and territorial governments and agreed to by Finance Ministers of the participating provincial and territorial governments and subsequently formalized by the signing of CVPTAs. The Department of Finance released the draft amendments for consultation on June 17, 2024. In response to this release, seven submissions were received from stakeholders (including manufacturers, importers, retailers, industry associations, advocacy groups and individuals) or their representatives. These submissions requested reducing the rate of excise duties on vaping products or delaying the implementation of the amendments, neither of which is possible under the terms of the CVPTAs. The other comments in the submissions were not directly relevant to the amendments.

Given that a draft of the amendments was already released for public consultations, it is unlikely that additional consultations would result in any amendments to them. Therefore, the amendments are exempt from prepublication in the Canada Gazette, Part I.

Modern treaty obligations and Indigenous engagement and consultation

The amendments do not impact Indigenous rights protected by section 35 of the Constitution Act, 1982, modern treaties or international human rights obligations.

Instrument choice

The amendments are consequential to the decision of the provinces and territories to join the coordinated vaping product taxation system. Under the CVPTAs, additional vaping duty rates in respect of the coordinated provinces and territories have been agreed to, and the federal government agreed to make regulations to implement them. Regulations are the only viable instrument to implement these amendments. As such, no other instruments were considered.

Regulatory analysis

Benefits and costs

Pursuant to the Canada’s Cost-Benefit Analysis Guide for Regulatory Proposals of the Treasury Board of Canada Secretariat, taxes and charges constitute transfers from one group to another and, therefore, they are not considered economic costs. As a result, these transfers are out of scope for cost-benefit analysis purposes.

The Regulations, as well as systems that are required to support the implementation of the coordinated system, are already in effect. Therefore, the amendments would be administered and enforced as part of the existing excise duty system for vaping products.

Accordingly, all parties (government stakeholders or otherwise) have already recently experienced a similar transition when the four initial jurisdictions joined the coordinated system on July 1, 2024. For example, government stakeholders (i.e. the CRA and CBSA) would carry minimal costs when these five additional jurisdictions are added to their existing systems (e.g. only minimal updating of forms and systems would be necessary). Similarly, third parties, including industry participants (e.g. manufacturers and importers) would carry minor costs when they update their own systems and logistics to use province- and territory-specific stamps for the five additional jurisdictions, which would be produced by a contracted third party. Any parties holding vaping excise stamps for any of the five additional jurisdictions may also be required to update the financial security amounts (if necessary) they provide to the CRA in respect of those stamps.

Deterring youth consumption is an important public health objective and youth vapers are particularly sensitive to potentially higher retail prices. Increasing the number of jurisdictions participating in the coordinated vaping product taxation system could contribute to maintaining higher retail prices on products across Canada and to reducing potential tax competition between jurisdictions, to the detriment of public health goals. As well, instead of having a different provincial or territorial vaping product tax framework in each of the respective jurisdictions, having a single tax administrator in the five additional jurisdictions will result in lower costs for the administration and compliance of vaping product tax.

Small business lens

Analysis under the small business lens concluded that the amendments would impact small businesses. The amendments would result in new incremental compliance costs for small businesses that manufacture or import vaping products. While these small businesses may carry incremental costs related to implementing the amendments (described in the “Benefits and costs” section), the coordinated vaping product taxation system minimizes the total compliance and administrative burden imposed on businesses by eliminating ongoing substantial duplicative provincial requirements that would exist if each jurisdiction had its own vaping product taxation regime with associated compliance requirements. As the initiative seeks to limit the burden experienced by stakeholders, including small businesses, no further flexibility would be provided for implementation and ongoing compliance.

One-for-one rule

The one-for-one rule does not apply, as the amendments do not impose any incremental change in administrative burden on businesses.

Regulatory cooperation and alignment

The implementation of the additional vaping duty is linked to the CVPTAs entered into between Canada and each of New Brunswick, Manitoba, Prince Edward Island, Alberta and Yukon. Under those agreements, those provinces and territories have agreed to the imposition of an additional vaping duty under federal legislation and administration.

The amendments are not linked to an international agreement.

Effects on the environment

In accordance with the Cabinet Directive on Strategic Environmental and Economic Assessment, a preliminary scan concluded that a strategic environmental assessment is not required.

Gender-based analysis plus

No gender-based analysis plus (GBA+) impacts have been identified for these amendments.

Implementation, compliance and enforcement, and service standards

The amendments come into force on the day on which they are published in the Canada Gazette, Part II, subject to the application rules that are described in the “Description” section.

The amendments will be implemented, administered and enforced by the CRA and, at the border, by the CBSA, as part of the existing excise duty system for vaping products.

Contacts

Gregory Smart
Sales Tax Division
Department of Finance Canada
90 Elgin Street
Ottawa, Ontario
K1A 0G5

Marc Rivard
Excise and Specialty Tax Directorate
Canada Revenue Agency
Place de Ville
320 Queen Street
Ottawa, Ontario
K1A 0L5