Qs & As on the Tobacco Products Inventory Tax

On Tuesday, May 2, 2006, the Minister of Finance tabled a Ways and Means Motion, which amends the Excise Act, 2001 to introduce a tax on excise duty paid tobacco products held in inventory. Therefore, persons who own certain duty-paid tobacco products at the beginning of July 1, 2006 will be subject to a one-time tobacco products inventory tax.

1. What products are subject to the tobacco products inventory tax?

The tobacco products inventory tax will apply to taxed tobacco, that is cigarettes, tobacco sticks, cigars and loose tobacco on which excise duty is paid as indicated by 'DUTY PAID DROIT ACQUITTE' on the tear tape or stamp.

"Loose tobacco" means loose, fine-cut manufactured tobacco for use in making cigarettes. The tobacco products inventory tax will not apply to the following tobacco products:

• in vending machines;
• delivered by a tobacco licensee to a Customs bonded warehouse;
• delivered by a tobacco licensee to a Canadian or foreign duty free shop;
• delivered by a tobacco licensee for use as Canadian or foreign ships' stores.

2. Who will pay the tobacco products inventory tax?

The tax is payable by most persons who own taxed tobacco, on July 1, 2006. Certain retailers who do not hold more than 30,000 units of these taxed tobacco products in a separate retail establishment are not liable to report or pay the tobacco products inventory tax for that establishment.

3. What is a unit of tobacco product?

A unit of tobacco product is:

• one cigarette,
• one tobacco stick,
• one cigar, or
• one gram of loose tobacco.

4. What is a separate retail establishment?

A separate retail establishment means a shop or store of a person that is:

• geographically separate from other places of business of the person,
• where the person regularly sells tobacco products to consumers attending the shop or store (not including vending machine sales), and
• for which separate records are maintained.

5. Can you give an example of how to calculate the 30,000 unit exemption? 30,000 units equals:

• 150 cartons of 200 cigarettes per carton, or
• 150 cartons of 200 tobacco sticks per cartons, or
• 3,000 packages with ten cigars in each package, or
• 150 tubs of loose tobacco each containing 200 grams.

If a separate retail establishment holds more than one type of taxed tobacco product, then the retailer must determine the inventory of all the taxed tobacco products for that establishment to determine if they are eligible for the exemption.

Example A

On July 1, 2006, a separate retail establishment has inventory of the following taxed tobacco products:

	Units
100 cartons of 200 cigarettes per carton	20,000
10 cartons of 200 tobacco sticks per carton	2,000
180 packages of 5 cigars per package	900
100 individual cigars	100
10 tubs of loose tobacco, weighing 200 grams each	2,000
Total units :	25,000

At this separate retail establishment, the retailer has inventory of 25,000 units of taxed tobacco products and is not required to file the return nor pay the tobacco products inventory tax.

Example B

On July 1, 2006, a separate retail establishment has inventory of the following tobacco products:

	Units
200 cartons of 200 cigarettes per carton	40,000
20 cartons of 200 tobacco sticks per carton	4,000
100 packages of 5 cigars per package	500
200 individual cigars	200
20 tubs of loose tobacco, weighing 200 grams each	4 000
Total units:	48,700

At this separate retail establishment, the retailer has inventory of 48,700 units of taxed tobacco products and is required to file the return and pay the tobacco products inventory tax.

6. Will persons subject to the tobacco products inventory tax have to take a physical count of the tobacco products to determine their liability?

The inventory of taxed tobacco products must be determined in a fair and reasonable manner as supported by appropriate books and records, which may include a physical count.

7. Who is required to file a return to report the tobacco products inventory tax?

Every person who is liable to pay the tobacco products inventory tax must complete and file the form B273, Excise Return - Tobacco Products Inventory Tax. However, GST/HST registrants who elected to file returns as separate branches or divisions may also file this return (B273) separately.

8. When is a person required to determine their inventory of tobacco products in order to calculate the amount of the tobacco products inventory tax?

The tobacco products inventory tax is calculated on taxed tobacco products held in inventory at the beginning of July 1, 2006 (12:01 a.m.).

9. When is the tobacco products inventory tax to be reported and remitted to the Canada Revenue Agency?

The deadline for reporting and remitting the tobacco products inventory tax is August 31, 2006.