Excise Act Review: Annex II
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Annex II
Excise Duty on Beer

Introduction

The proposal for a revised excise framework will impose a production levy on beer. The new system, however, will be significantly different in design and application from the current system, which relies on pervasive controls over the premises and equipment used to produce beer.

The focus of the proposed tax structure will be the control of ownership and possession of bulk beer, combined with a modern administrative system and an audit approach based on self-assessment and after-the-fact verification of books and records.

A. Licensees and Registrants

A.1. Excise Licensee

Under the proposed excise system, a brewer is defined as any person who ferments or packages beer or who owns beer at the time of fermentation or packaging. Any person carrying on the activities of a brewer in Canada will be required to obtain an excise licence and will be referred to as an excise licensee.

A non-resident who owns beer at the time it is produced in Canada is a brewer and will be required to be licensed and post a guarantee bond. A non-resident owner who ships bulk beer into Canada to an excise licensee for blending and packaging is not required to obtain an excise licence, but may apply to be licensed, subject to posting a guarantee bond.

There will be an exception to the licensing requirement for individuals who own beer that was made by the individual, solely for the personal use of the individual and not for commercial use. The exemption for personal use applies only to individuals -- clubs and other organizations that make beer for the personal use of their members will fall within the definition of a brewer and will be required to be licensed and pay excise duty on the quantity of beer packaged.

Excise licensees will be required to maintain books and records related to the production, processing, packaging and sale of beer. An excise licensee must also maintain records related to bulk beer that is owned by the excise licensee but is possessed by another excise licensee or an excise registrant.

A.2. Excise Registrant

An excise registrant is a person who is not an excise licensee but is registered with Revenue Canada to possess or transport bulk beer that is owned by an excise licensee; a licensed manufacturer; a province; an individual (where the beer was made by the individual for the individual's personal use and not for commercial use, and the beer is possessed by an excise registrant at the premises where it was made); or, in the case of imported bulk beer, an unlicensed non-resident.

The excise registrant does not assume liability for excise duty in respect of the bulk beer -- the owner or importer remains accountable for bulk beer that is possessed by an excise registrant.

Although excise registrants will not be required to provide notification for every movement of bulk beer, they will be required to maintain books and records that will enable Revenue Canada to verify movements of bulk beer. Registrants will also be required to maintain information on the ownership of bulk beer in their possession. In the case of imported bulk beer owned by an unlicensed non-resident, excise registrants must maintain information identifying the excise licensee or licensed manufacturer who imported the bulk beer.

A.3. Excise Warehouse Licensee

An excise warehouse licensee is a person who is authorized to acquire and store packaged beer on a duty-deferred basis in premises specified under its licence as an excise warehouse. Only beer that is for export or sale to a licensed manufacturer or to the duty-free market (i.e. duty-free shops, ships' stores or accredited representatives) may be placed in an excise warehouse.

Three classes of persons may apply for an excise warehouse licence -- excise licensees, provinces and persons who are not retailers. In general, any premises (except retail premises) used to supply packaged beer for export, the duty-free market, to licensed manufacturers or to other excise warehouse licensees, will be eligible to be an excise warehouse.

A.4. Licensed Manufacturer

A licensed manufacturer is a person licensed under the Excise Act to own and possess duty-free bulk beer or non-duty-paid packaged beer for further manufacturing or processing of products in formulations approved by Revenue Canada, or for use in a manufacturing process in which it is completely destroyed.

Discussion of the treatment of beer for non-beverage use by licensed manufacturers is found in the annex "Industrial or Non-Beverage Use of Spirits, Wine or Beer".

B. Basic Operation

B.1. Domestic Beer

Under the proposal for a revised excise framework, excise duty will be imposed and payable on the quantity of domestic beer bottled or otherwise packaged for consumption.

Excise duty will be imposed on beer and become payable by the brewer who owns the beer at the time it is packaged. Where bulk beer is taken for a taxable use by an excise licensee or licensed manufacturer without being packaged, excise duty will be imposed and become payable at the time the bulk beer is taken for use.

The excise duty will be remittable by the last day of the month following the month in which it became payable.

B.2. Imported Beer

Imported bulk beer will not be subject to either excise duty or customs duty equivalent. Like domestic beer, excise duty will be imposed and payable by the owner or importer of the beer at the time the imported bulk beer is packaged or taken for a taxable use in Canada.

Excise duty will not apply to imported packaged beer. Instead, a customs duty equivalent to the excise duty will continue to be imposed under the Customs Tariff at the time of importation. The customs duty equivalent will be payable at the time of importation and remittable according to customs rules and procedures.

Under the proposed excise system, imported bulk and packaged beer will no longer be allowed to enter a customs bonded warehouse -- regular customs duty and GST will be payable at the time of importation under normal customs rules and procedures.

B.3. Domestic and Imported Beer for Duty-Free Sale

Where domestic packaged beer is intended for export or sale to licensed manufacturers or to the duty-free market (i.e. duty-free shops, ships' stores or accredited representatives), payment of the excise duty may be deferred if the beer is placed in an excise warehouse immediately after being packaged. The customs duty equivalent on imported packaged beer destined for export or the duty-free market may be deferred if an excise warehouse licensee is the importer and the beer is delivered by a customs bonded carrier directly to an excise warehouse. Non-duty-paid beer placed in an excise warehouse will not be permitted to enter the domestic duty-paid market.

Where packaged beer is placed in an excise warehouse, liability for payment will transfer from the owner or importer of the beer to the excise warehouse licensee who has possession of the packaged beer. For imported packaged beer placed in an excise warehouse, liability for payment of the customs duty equivalent will rest with the excise warehouse licensee who imported the beer. Liability for payment of the excise duty or customs duty equivalent will transfer with possession of the packaged beer from one excise warehouse licensee to another, or to a licensed manufacturer.

C. Treatment of Bulk and Packaged Beer

C.1. Bulk Beer

Bulk beer will always be duty free. A key feature of the proposed new system will be the rules governing the ownership, possession, disposition and importation of bulk beer.

Ownership of Bulk Beer

Bulk beer may only be owned by an excise licensee; a licensed manufacturer; a province; an individual (where the beer was made by the individual for the individual's personal use); or, in the case of imported bulk beer, by an unlicensed non-resident owner. Ownership of bulk beer may be transferred from one excise licensee to another, or to a licensed manufacturer.

Where a province acquires ownership of bulk beer for commercial purposes (i.e. if a province produces or packages beer, or if it has ownership of beer that is produced or packaged on its behalf), it will fall within the definition of a brewer and therefore be required to be licensed as an excise licensee.

Possession of Bulk Beer

Under the proposed excise system, bulk beer may only be possessed by an excise licensee; a licensed manufacturer; an individual who makes beer for his or her personal use at a place of residence; a province; or an excise registrant. Persons in possession of bulk beer will be required to have evidence that the bulk beer is owned by an excise licensee; a licensed manufacturer; a province; an individual (where the beer was made by the individual for the individual's personal use); or, in the case of imported beer, an unlicensed non-resident. Where imported beer is owned by an unlicensed non-resident, the person in possession must also be able to identify the excise licensee or the licensed manufacturer who imported the beer and is accountable for the bulk beer.

Disposition of Bulk Beer

Bulk beer that is produced by an excise licensee may only be exported; sold to another excise licensee, a licensed manufacturer or a province; taken for use; or packaged.

In general, bulk beer may be sold without further processing only by the excise licensee who produced it. Where an excise licensee acquires ownership of bulk beer from another excise licensee, the beer must be blended or further processed or packaged before being sold or exported. An exception to this rule will be for bulk beer that is resold (i.e. returned) to the excise licensee that sold the beer.

The owner of bulk beer will be liable for unaccountable losses of beer that it produces, purchases or imports. The owner will not be liable for penalties on bulk beer that is stolen.

Importation of Bulk Beer

Bulk beer may only be imported by an excise licensee, a licensed manufacturer or a province.

Where imported bulk beer is owned by an unlicensed non-resident, the importer will be liable for unaccountable losses of the beer in place of the owner. In all other cases, imported bulk beer must be owned by the importer at the time of importation.

Bulk beer brought into a province by an excise licensee will continue to be subject to the blending provisions of the Importation of Intoxicating Liquors Act (IILA).

C.2. Packaged Beer

Packaged beer for the domestic market will never have duty deferred. Only beer that is intended for export or sale to a licensed manufacturer or to the duty-free market may be placed in an excise warehouse on a duty-deferred basis.

Packaged beer may be removed from an excise warehouse without the payment of duty if it is delivered to another excise warehouse. Beer may also be removed from an excise warehouse without the payment of duty if it is sold and delivered to a licensed manufacturer or the duty-free market. As well, packaged beer may be removed without the payment of duty if it is exported from an excise warehouse of the excise licensee who packaged the beer. Duty-free packaged beer that is returned unopened to the excise warehouse that sold and delivered the beer may re-enter the duty-deferred inventory of the warehouse.

Non-duty-paid beer in an excise warehouse that is not saleable may only be destroyed by the excise warehouse licensee that has possession of the packaged beer. Liability for duty will be relieved on the destruction of non-duty-paid packaged beer that is unopened.

Under the proposed excise system, a credit will be provided for duty-paid beer returned to excise licensees for destruction because of product or packaging quality concerns. A credit will be provided for beer that is destroyed, provided it is returned unopened to the premises of the excise licensee who packaged the beer. The credit will be given to the excise licensee who owned the beer at the time of packaging and who was responsible for payment of the duty.

A credit will also continue to be provided for beer that is sampled for quality control purposes. Sampling may occur only on the premises of the excise licensee who packages the beer.

An excise warehouse licensee will be liable for the duty and penalties on any unaccountable losses of packaged beer that it enters into an excise warehouse on a duty-deferred basis. The excise warehouse licensee will also be liable for duty on packaged beer that is stolen.

D. Exports

Bulk beer may only be exported by the excise licensee who owns the beer and must be shipped from the premises of the licensee who produced or processed the beer. Where bulk beer is sold or delivered to another excise licensee, the beer must be blended or further processed before being exported in bulk form.

Packaged beer may only be exported duty free from an excise warehouse of the excise licensee who packaged the beer. The excise licensee who packaged the beer must be the exporter.

Neither packaged beer nor bulk beer can be entered into a customs bonded warehouse prior to export.

E. Duty-Free Sales

Domestic and imported packaged beer may be supplied by an excise warehouse licensee without payment of duty to duty-free shops, as ships' stores or to accredited representatives. Packaged beer may also be imported directly by accredited representatives on a duty-free basis.

Under the new system, packaged beer destined for the duty-free market may no longer enter a customs bonded warehouse. Packaged beer that is supplied to the duty-free market may not enter the domestic duty-paid market.

F. Home Beer-Making and U-Brews

Under the proposed excise structure, individuals who make beer for their personal use and not for commercial use will continue to be exempt from the excise licensing requirements and from the payment of excise duty. The personal use exemption will be limited to "individuals", not "persons" -- this distinction excludes from the exemption all clubs and other organizations that might be legally defined as "persons".

Beer made at a u-brew establishment will be exempt from excise duty if the individual customer ferments and packages the beer. In these circumstances, the steps taken by the individual are comparable to home beer-making and the beer will be considered to have been made by an individual. Even if the intermediate steps such as filtering the beer are performed by the u-brew operator, the beer will be exempt from excise duty.

If, however, the u-brew operator ferments or packages the finished beer, then the u-brew operator will be considered a brewer and will be required to obtain an excise licence and pay excise duty on the quantity of beer packaged.

A key feature of the proposed excise system is the requirement that all persons who possess bulk beer other than excise licensees, licensed manufacturers or individuals who make beer for their personal use at a place of residence, be registered with Revenue Canada. Since in the course of the beer-making process, u-brew operators will have in their possession bulk beer belonging to their customers, u-brew operators will be required to be excise registrants and may only possess bulk beer that is owned by an individual and that was produced at the u-brew operator's premises.

G. Penalties

Penalty and control provisions under the new proposed excise system will focus on unauthorized ownership, possession and disposition of bulk beer. For packaged beer, penalties and controls will relate to the storage, disposition and possession of non-duty-paid beer.

Penalties will be imposed on excise licensees, excise registrants and excise warehouse licensees for offences relating to the requirement to keep books and records on the operations of their businesses with respect to the production, processing, packaging, storage, transportation or sale of beer.

Penalties will also be imposed on persons involved in diversion activities or who have unlawful ownership or possession of beer. Penalties will include seizure and forfeiture of the beer, the equipment and facilities related to its production and storage, and the vehicles used to transport it.

H. Transition

Under the proposed excise system, imported beer may no longer enter or be stored in a customs bonded warehouse. On the date of implementation of the new Excise Act, the customs duty equivalent, regular customs duty and GST on imported packaged beer held in a customs bonded warehouse will become payable under normal customs rules. However, payment of the customs duty equivalent on beer intended for sale to licensed manufacturers or to the duty-free market may be deferred if, on the implementation date of the new excise system, imported packaged beer is placed in an excise warehouse.

For imported bulk beer that is stored in a customs bonded warehouse, the regular customs duty and GST will become payable according to normal customs rules on the implementation date of the new Excise Act. Since bulk beer will be duty free under the new excise system, liability for the customs duty equivalent will be removed on imported bulk beer. Instead, excise duty will be imposed and payable when the imported bulk beer is packaged or taken for a taxable use.

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