Excise Duty Memoranda Series

4.1.2 Small Producers of Wine

April 2004
Revised March 2005*

Overview

Disclaimer

* Revised paragraphs are indicated with a side bar in the margin.

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Table of Contents

• Small wine producers
• Transitional period
• Post-transitional period
• Calculation of the $50,000 small producer threshold
• Sale price of wine
• Monitoring monthly sales
• Exceeding the $50,000 small producer threshold
• Warehousing wine
• Contracting out bottling activities
• Keeping records and filing returns
• Appendix – Calculating the threshold

Small wine producers

Meaning of
“small producer” of wine
para 135(2)(b)

1. [Wine licensees are considered to be “small producers” of wine for a fiscal month in a particular fiscal year if:

• their total sales of wine packaged in Canada during the previous fiscal year did not exceed $50,000, and
• their total sales of wine packaged in Canada during the particular fiscal year, before the fiscal month, did not exceed $50,000.]

5. Wine that is produced and packaged by a licensee at any time during the period the licensee qualifies as a small producer will not be subject to excise duty, regardless of when it is sold.

Wine licence required

6. Every small producer of wine is required to have a wine licence, and is required to fulfil all of the obligations associated with holding that licence, such as maintaining adequate books and records and filing monthly returns, except that they are not required to pay excise duty on wine they produce and package.

7. Additional information relating to the requirements and obligations of producers and packagers of wine is provided in Excise Duty Memorandum 4.1.1, Producers and Packagers of Wine.

Transitional period

Small Manufacturers or Producers Exemption Regulations
para 2(1)(a)

8. Before July 1, 2003, wine producers whose value of wine that they produced and sold, or produced for their own use, did not exceed $50,000 per calendar year were not required to operate under an excise tax licence and were exempt from paying excise tax on wine they produced.

Transitional period
ss 309(2)

9. For a transitional period from July 1, 2003 to June 30, 2004, the $50,000 small producer threshold will be calculated on the same basis as it was under the former excise tax. To facilitate a smooth transition to the Excise Act, 2001 regime, the CRA will permit producers of wine to continue to base this calculation on the calendar year during this transitional period.

Based on calendar year sales

10. During the transitional period, if a wine licensee's sales in each of its previous and current calendar years do not exceed the $50,000 small producer threshold, the wine the licensee produces and packages during the current fiscal month will be exempt from excise duty.

11. However, if a wine licensee's sales of wine exceed the threshold during a calendar year before the current fiscal month, the licensee will no longer qualify as a small producer and all wine the licensee produces and packages beginning in that fiscal month will become subject to excise duty.

Post-transitional period

Based on fiscal year sales

12. Effective July 1, 2004, the $50,000 small producer threshold calculation will be based on the fiscal year of the licensee. If, as of a particular fiscal month, neither a licensee's previous fiscal year's sales nor the current fiscal year's sales, before that fiscal month, exceed $50,000, the wine produced and packaged in that fiscal month will be exempt from excise duty.

13. However, if a wine licensee's sales of wine during the fiscal year before the current fiscal month exceed the threshold, the licensee will no longer qualify as a small producer and all wine the licensee produces and packages beginning in that fiscal month will become subject to excise duty.

Calculation of the $50,000 small producer threshold

Total sales

14. Although the $50,000 small producer threshold calculation is based on a licensee's total sales of wine packaged in Canada, it is the wine that is produced and packaged (not sold) in a fiscal month that is exempt from excise duty.

Calculation must include all sales

15. The $50,000 small producer threshold calculation must include all sales the licensee makes of wine packaged in Canada, including sales upon which excise duty has been exempted or relieved under the Act (e.g., for export, sale to duty free shops, or delivery for use as ships' stores).

Sale price of wine

Inclusions

17. For purposes of calculating total sales of wine, the sale price of wine includes the following:

• amounts charged as price, plus any excise tax (before July 1, 2003) and excise duty (on or after July 1, 2003) payable;
• amounts that the purchaser is liable to pay the licensee by reason of, or in respect of the sale, including subsequent amounts;
• any amounts charged to the purchaser for packaging materials and containers; and
• amounts charged to the purchaser for contract wine production and/or packaging.

Exclusions

18. The sale price of wine does not include:

• the 7% Goods and Services Tax (GST);
• the 15% Harmonized Sales Tax (HST);
• provincial taxes;
• cash discounts taken; or
• volume discounts and rebates.

GST/HST inclusive figures

19. For purposes of the small producer calculation, a licensee who sells wine on a GST-included basis may deduct the GST from the sales by multiplying them by 7/107 or 0.0654 after excluding any provincial taxes that may apply. A licensee who sells wine on an HST-included basis may deduct the HST from the sales by multiplying them by 15/115 or 0.1304.

Monitoring monthly sales

20. Small producers of wine are responsible for monitoring their sales records to determine if they continue to qualify as small producers of wine.

21. The Appendix to this memorandum contains two examples of calculating the $50,000 small producer threshold, one based on a calendar year and one based on a fiscal year.

Exceeding the $50,000 small producer threshold

When a licensee ceases to be a small producer

22. A wine licensee who exceeds the $50,000 small producer threshold will no longer qualify as a small producer and wine produced and packaged after the fiscal month during which the licensee first exceeded the threshold will be subject to excise duty.

23. At a minimum, wine produced and packaged for the remainder of that fiscal year (Year 1) and the next fiscal year (Year 2) would be subject to excise duty. The wine licensee could qualify for the small producer exemption again in Year 3 if the $50,000 small producer threshold is not exceeded in Year 2.

Warehousing wine

27. If the wine licensee exceeds the small producer's threshold, the licensee must pay excise duty on all wine they package in subsequent months at the time of packaging unless the wine is immediately entered into an excise warehouse.

28. Additional information on excise warehouses is available in Excise Duty Memorandum 8.1.1, Excise Warehouses.

Contracting out bottling activities

Keeping records and filing returns

Keeping records
ss 206(1)

30. Every small producer of wine is required to maintain all records that are necessary to determine whether they are in compliance with the Act.

31. Additional information on the requirement to maintain books and records is available in Excise Duty Memorandum 9.1.1, General Requirements for Books and Records.

34. Additional information on how to complete form B265 and when and where to file the return is available in Excise Duty Memorandum 10.1.6, Completing an Excise Duty Return – Wine Licensee.

Appendix – Calculating the threshold

Example 1 –
transitional period

35. This example covers the transitional period of July 1, 2003 to June 30, 2004, and the threshold is calculated on a calendar year basis. The wine licensee started operations in November 2002; the licensee's fiscal year is from November 1 to October 31; and the licensee's fiscal months are calendar months.

Based on calendar year sales

Calendar month	Sales	Cumulative sales
November 2002	$ 1,500	$ 1,500
December 2002	$ 1,500	$ 3,000

New calendar year

Calendar month	Sales	Cumulative sales
January 2003	$ 5,000	$ 5,000
February 2003	$ 3,000	$ 8,000
March 2003	$ 3,000	$ 11,000
April 2003	$ 4,000	$ 15,000
May 2003	$ 4,000	$ 19,000
June 2003	$ 4,500	$ 23,500
July 2003	$ 5,500	$ 29,000
August 2003	$ 6,000	$ 35,000
September 2003	$ 6,000	$ 41,000
October 2003	$ 6,500	$ 47,500
November 2003	$ 7,000	$ 54,500
December 2003	$ 5,000	$ 59,500

New calendar year

Calendar month	Sales	Cumulative sales
January 2004	$ 4,000	$ 4,000
February 2004	$ 6,000	$ 10,000
March 2004	$ 6,500	$ 16,500
April 2004	$ 11,000	$ 27,500
May 2004	$ 12,500	$ 40,000
June 2004	$ 13,000	$ 53,000

36. For the fiscal month of July 2003, the licensee is considered to be a small producer because the 2002 calendar year sales and current calendar year (2003) sales did not exceed the $50,000 threshold. The licensee exceeds the threshold during November 2003 and therefore ceases to qualify as a small producer as of December 1, 2003.

37. The licensee files monthly excise duty returns but is not required to pay excise duty on wine produced and packaged up to November 30, 2003. All wine the licensee packages on or after December 1, 2003, will be subject to excise duty. As well, for the period January 1, 2004 to June 30, 2004, the licensee will not qualify as a small producer because the 2003 calendar year's sales exceeded the $50,000 threshold.

Example 2 –
post-transitional period

38. This example covers the period from July 1, 2004 to June 30, 2005, when the threshold must be calculated on a fiscal year basis. The wine licensee started operations in November 2002; the licensee's fiscal year is from November 1 to October 31; and the licensee's fiscal months are calendar months.

Based on fiscal year sales

Fiscal month	Sales	Cumulative sales
November 2002	$ 1,500	$ 1,500
December 2002	$ 1,500	$ 3,000
January 2003	$ 2,000	$ 5,000
February 2003	$ 3,000	$ 8,000
March 2003	$ 3,000	$ 11,000
April 2003	$ 4,000	$ 15,000
May 2003	$ 4,000	$ 19,000
June 2003	$ 4,500	$ 23,500
July 2003	$ 5,500	$ 29,000
August 2003	$ 6,000	$ 35,000
September 2003	$ 6,000	$ 41,000
October 2003	$ 8,000	$ 49,000
Total 2002/2003		$ 49,000

New fiscal year

Fiscal month	Sales	Cumulative sales
November 2003	$ 7,000	$ 7,000
December 2003	$ 5,000	$ 12,000
January 2004	$ 4,000	$ 16,000
February 2004	$ 6,000	$ 22,000
March 2004	$ 6,500	$ 28,500
April 2004	$ 11,000	$ 39,500
May 2004	$ 12,500	$ 52,000
June 2004	$ 13,500	$ 65,500
July 2004	$ 14,000	$ 79,500

39. For the fiscal month of July 2004, the licensee will evaluate the 2002/2003 fiscal year's sales and the 2003/2004 fiscal year's sales up to the end of June 2004 (i.e., $65,500) to determine if the small producer threshold has been exceeded. The 2002/2003 fiscal year's sales did not exceed the $50,000 threshold. However, sales from November 2003 through to the end of May 2004 did exceed the $50,000 threshold; therefore, all wine the licensee produces and packages on or after June 1, 2004, will be subject to excise duty.

40. The licensee will not qualify as a small producer during the 2004/2005 fiscal year, because sales for the 2003/2004 fiscal year exceeded the $50,000 threshold. Therefore, all wine the licensee produces and packages in the 2004/2005 fiscal year will be subject to excise duty.

41. For the 2005/2006 fiscal year, the licensee will evaluate the 2004/2005 fiscal year's sales. If the total sales for that period do not exceed $50,000, the licensee will again qualify as a small producer for the month of November 2005 and will evaluate their status each month thereafter. If the total sales for that period do exceed $50,000, all wine the licensee produces and packages during the 2005/2006 fiscal year will be subject to excise duty.