Excise Act Review: 5
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Part V
Proposal for a Revised Excise Framework Administration and Compliance

In addition to the broad structural changes that will establish new control features and help to protect the integrity of the domestic market, the revised excise framework for alcohol and tobacco products also includes substantive changes to key administrative functions.

Remittances, returns, collections, assessments and appeals will all be revised to reflect a modern approach to administration, with emphasis on reducing the compliance burden and increasing efficiencies for industry and government.

Remittances and Returns

The current system of remittances and returns is not efficient -- remittances and returns are due on different dates; their timing does not correspond with other taxes and charges; and there is little co-ordination with commercial accounting periods.

To improve this situation, the system of remittances and returns for excise duties will be harmonized with other taxes and commercial accounting periods. These changes are consistent with Revenue Canada's planned integrated accounting system, which anticipates the alignment of due dates of various payments.

Under the new system, returns must be filed no later than the last day of a fiscal month for excise duty that became payable during the previous fiscal month -- a fiscal month will be the same as for the GST.

For beer and tobacco products, remittances will be due at the end of the month following the month of packaging. For spirits and wine, remittances will be due at the end of the month following the month of removal from an excise warehouse.

For beer, spirits and tobacco products, the proposed changes will extend the average time for remittance. For wine, excise duty will now be remitted by provincial liquor boards, extending the average time for remittance for some vintners and provincial liquor boards.

Collections

Historically, excise officers maintained strict control over the collection of excise duty. Production equipment was kept under government lock and key, and excise stamps to be affixed to tobacco products and spirits were sold by the excise officer to the manufacturer before daily production could begin. Brewers were also required to pay duty to the excise officer each day. As a result, the Excise Act does not contain any collection tools -- if excise duty was not paid the excise officer could simply lock the plant.

Further protection of government revenues was provided by the requirement that all excise licensees post guarantee bonds as a condition of their licence. To the extent that arrears of duty were tolerated, Revenue Canada could call the guarantee bond, effectively causing closure of the establishment unless the licensee was able to obtain another bond.

Over the years, this philosophy of strict control has been gradually relaxed, culminating in regulatory changes in 1991 that allowed for monthly rather than daily remittance of excise duties. Guarantee bonds, however, have remained part of the excise duty structure but not without comment from industry. In fact, there are good reasons for reconsidering the requirement that excise licensees post a guarantee bond.

Traditionally, the amount of the bond represented a licensee's average daily remittance. With the shift to monthly remittance, however, the minimum and maximum bond amounts are rarely an accurate reflection of one month's duty. For large taxpayers, the maximum amount is less than one month's duty while for small taxpayers the minimum amount is more than one month's duty.

Even where the bond amount approximates one month's duty, Revenue Canada's current collection procedure is to work with the taxpayer in an attempt to keep production going while making arrangements for payment of outstanding duty. During the course of this process, months can go by and arrears are often in excess of the bond amount.

Based on these considerations, the proposal for a revised excise framework will contain two key changes in respect of collections -- the elimination of guarantee bonds (except in limited circumstances such as non-resident licensees) and the inclusion of a range of modern collection tools similar to those found in other tax legislation. Some examples of modern collection procedures are certificates of default, garnishment, seizure and sale of goods and chattels, and directors' liability.

Even with the inclusion of these collection mechanisms, it is anticipated that in many cases Revenue Canada's informal collection procedures will be sufficient to negotiate a payment schedule or arrange security for the payment of amounts due.

Assessments

Assessment provisions, like collection tools, do not currently exist in the Excise Act. During the time when on-site excise officers collected duties either before daily production or at the end of each business day, there was no need for a formal assessment procedure. If duties were not remitted as required, the excise officer could lock the plant until payment was made.

Today, these strict controls do not reflect the attitude of the government toward excise licensees, nor the fact that these industries are generally comprised of compliant taxpayers. In place of these antiquated provisions, modern assessment tools similar to those found in other taxing statutes are required.

The revised excise framework will be founded on voluntary compliance by excise licensees who will be expected to calculate and remit duty along with their periodic returns, without prior assessment by the Minister. To ensure that duties are properly calculated and remitted, the legislation will give broad audit and assessment powers to Revenue Canada.

Following an audit of production records, Revenue Canada will be able to raise an assessment where it is determined that the amount of duty remitted does not accurately reflect the amount of duty payable. The notice of assessment will set out the amount of duty payable or remittable, or the amount of any refund or rebate owing to the licensee. An objection to the notice of assessment may be filed in accordance with the formal assessment provisions which will be in the revised legislation.

Appeals

The existing Excise Act does not contain an appeals system. This deficiency reflects the fact that the legislation was adopted in an era prior to the development of modern tax systems.

The revised excise framework will include a judicial appeals system similar in principle to the appeals systems currently used for income tax and GST appeals. It will allow taxpayers to have certain decisions of the Minister of National Revenue reviewed by an impartial tribunal. This will provide an important safeguard for ensuring fairness in the treatment of taxpayers. In addition to the judicial appeals system, Revenue Canada will provide an administrative process for resolving disputes.

Under the new excise legislation, a taxpayer will have a right to file a notice of objection if the taxpayer disputes a particular assessment made by the Minister. After receiving the notice of objection, the Minister will review the assessment and decide whether to vacate, confirm or vary the assessment and will send a notice of decision to the taxpayer. If the taxpayer is dissatisfied with the decision, the taxpayer may commence an appeal by filing a notice of appeal.

Appeals will be heard by the Tax Court of Canada. The Court will have the power to dismiss an appeal, cancel an assessment or refer an assessment back to the Minister for reconsideration. In certain circumstances, a taxpayer will have the option to elect to have an appeal heard in accordance with the Tax Court's informal appeals procedure, which allows appeals relating to smaller matters to be dealt with more quickly and efficiently. Decisions of the Tax Court may be reviewed by the Federal Court of Appeal.

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