- News Release 2001-095 -

Backgrounder

Effective November 2, 2001, federal taxes on tobacco products will increase as part of the federal government’s comprehensive strategy to improve the health of Canadians by discouraging tobacco consumption.

1. Excise Tax Increase on Cigarettes

Federal excise taxes on cigarettes will increase by:

• $2.00 per carton in Quebec;
• $1.60 per carton in Ontario; and
• $1.50 per carton in the rest of Canada.

This will bring the federal excise tax on cigarettes to a uniform rate of $6.85 per carton of cigarettes for sale in all provinces and territories. An excise duty of $5.50 per carton also applies to all cigarettes for sale in Canada, bringing the total federal excise levies to $12.35 per carton.

Consequential amendments will be made to the Excise Tax Act to remove provisions relating to the differential rates of excise tax that previously applied to cigarettes for sale in different provinces.

2. Federal Excise Tax Increase on Tobacco Sticks and Fine-Cut Tobacco

Federal excise taxes will increase by $1.50 per 200 grams of fine-cut tobacco and $1.50 per carton of tobacco sticks. As federal taxes on these products are already applied at uniform rates across Canada, these increases will apply equally to products for sale in all provinces and territories. (The tax increases on fine-cut tobacco outlined in this backgrounder apply to all manufactured tobacco products other than cigarettes and tobacco sticks).

3. Tax on Exports of Tobacco Products

The tobacco export tax is an excise tax imposed on exports of Canadian-produced cigarettes, tobacco sticks and other manufactured tobacco products. The export tax is two-tiered, with different rates for exports up to a threshold of 1.5% of a tobacco manufacturer’s annual production and for exports above the threshold.

The current tax on exports of tobacco products up to 1.5% of a manufacturer’s production is $10 per carton of cigarettes, $7 per 200 tobacco sticks and $6 per 200 grams of fine-cut tobacco. This export tax will increase by $1.50 per carton of cigarettes and tobacco sticks and $1.50 per 200 grams of fine-cut tobacco. The tax on exports up to the 1.5% threshold is refundable to the foreign importer and domestic Canadian manufacturer upon proof of payment of foreign taxes.

Exports of tobacco products over 1.5% of a manufacturer’s production are subject to excise duty and excise tax totalling $22 per carton of cigarettes, $16 per 200 tobacco sticks and $12 per 200 grams of fine-cut tobacco. This tax will increase by $4 per carton of cigarettes and $3 per 200 grams of fine-cut tobacco. No refund is provided of the tax on exports over the 1.5% threshold.

4. Tax on Tobacco Products Delivered to Duty-Free Shops and Sold as Ships’ Stores

Excise tax and excise duty are imposed on Canadian-manufactured cigarettes, tobacco sticks and fine-cut tobacco products delivered to duty-free shops in Canada and abroad, or sold as ships’ stores to air carriers and operators of marine vessels in international service. Imported tobacco products delivered to a duty-free shop in Canada are subject to an excise tax equal to the sum of the excise duty and tax imposed on domestically produced tobacco products sold to duty-free shops.

The sum of the current excise tax and duty on these tobacco products is $10 per carton of cigarettes, $7 per carton of tobacco sticks and $6 per 200 grams of fine-cut tobacco. The excise tax will increase by $1.50 per carton of cigarettes and tobacco sticks and $1.50 per 200 grams of fine-cut tobacco.

Canadian duty-free shop operators who pay the tax on imported tobacco products may claim a refund of the tax in respect of the first carton of foreign-produced cigarettes sold to a non-resident.

5. Duty on Traveller’s Tobacco Products

A duty is imposed on tobacco products imported by a returning resident under the traveller’s allowance. This duty applies to tobacco products that could otherwise be imported exempt from all duties and taxes under the traveller’s allowance by returning residents after an absence of more than 48 hours.

The current duty on traveller’s tobacco is $10 per carton of cigarettes, $7 per carton of tobacco sticks and $6 per 200 grams of fine-cut tobacco. The duty on traveller’s tobacco will increase by $1.50 per carton of cigarettes and tobacco sticks and $1.50 per 200 grams of fine-cut tobacco.

The duty is payable by the traveller at customs upon arrival in Canada. It is not payable on stamped Canadian tobacco products on which duty and tax have already been paid.

This duty does not apply to tobacco products imported by non-resident travellers under the traveller’s allowance.

6. New Tax Rates

The following table sets out the sum of federal excise duties and taxes on tobacco products after implementing the increases in the rates of excise tax outlined above.

New Tax Rates (Effective November 2, 2001)

7. Revenues

The tobacco tax changes outlined above will increase federal revenues by $240 million per annum.

Impact on Consumer Prices (Carton of Cigarettes)

Prices are based in part on an estimate of current product cost, which does not necessarily reflect diverse selling conditions across the country.

Figures are for illustrative purposes only – the appropriate statutory authority should be consulted for legislated rates.

- News Release 2001-095 -