Excise Act Review: Annex III
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Annex III
Excise Duty on Wine

Introduction

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

The focus of the proposed tax structure for wine will be the control of ownership and possession of bulk wine, 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 vintner will be defined as any person who ferments or packages wine, or who owns wine at the time of fermentation or packaging. Any person carrying on the activities of a vintner in Canada will be required to obtain an excise licence and will be referred to as an excise licensee.

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

There will no longer be an exception to the licensing requirement for small manufacturers -- all vintners will be required to obtain an excise licence even where the value of the wine that they manufacture and sell does not exceed $50,000 in a calendar year. There will continue to be an exception to the licensing requirement for individuals who own wine 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 wine for the personal use of their members will fall within the definition of a vintner and will be required to be licensed and pay excise duty on the quantity of wine packaged

Excise licensees will be required to maintain books and records related to the production, processing, packaging and sale of wine. An excise licensee must also maintain records related to bulk wine that is owned by the 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 who may possess or transport bulk wine that is owned by an excise licensee; a province; a licensed manufacturer; an individual (where the wine was made by the individual for the individual's personal use and not for commercial use, and the wine is possessed by an excise registrant at the premises where it was made); or, in the case of imported bulk wine, an unlicensed non-resident.

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

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

A.3. Excise Warehouse Licensee

An excise warehouse licensee is a person who is authorized to acquire and store packaged wine on a duty-deferred basis in premises specified under its licence as 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 wine to two or more retail stores or other excise warehouse licensees will be eligible to be an excise warehouse.

An excise warehouse licence will also be issued to a person in respect of a warehouse used to supply wine to the export or duty-free markets, or to licensed manufacturers.

A.4. Licensed Manufacturer

A licensed manufacturer is a person licensed under the Excise Act to own and possess duty-free bulk wine or non-duty-paid packaged wine 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 wine for non-beverage use by licensed manufacturers is found in the annex entitled, "Industrial or Non-Beverage Use of Spirits, Wine or Beer".

B. Basic Operation

B.1. Domestic Wine

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

Excise duty will be imposed on wine and become payable by the vintner who owns the wine at the time it is packaged. Where bulk wine 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 wine is taken for use.

The payment of excise duty may be deferred if, immediately after packaging, the wine is placed in an excise warehouse. Liability for payment of excise duty will transfer from the owner of the wine to the excise warehouse licensee who has possession of the packaged wine. Excise duty will be payable when the wine is removed from the excise warehouse unless it is exported, sold to a licensed manufacturer or the duty-free market, or transferred to another excise warehouse.

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

B.2. Imported Wine

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

Imported packaged wine will be subject to a customs duty equivalent to the excise duty on domestic wine. The customs duty equivalent will be payable at the time of importation according to customs rules, unless the importer is an excise warehouse licensee and the packaged wine is delivered by a customs bonded carrier directly to an excise warehouse. For imported packaged wine that enters an excise warehouse, customs duty equivalent will be administered in the same manner as the excise duty on domestic product (i.e. the duty will be payable when the packaged wine is removed from an excise warehouse).

Imported bulk and packaged wine may not enter a customs bonded warehouse. The regular customs duty and GST will be payable at the time of importation under normal customs rules and procedures.

C. Treatment of Bulk and Packaged Wine

C.1. Bulk Wine

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

Ownership of Bulk Wine

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

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

Possession of Bulk Wine

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

Disposition of Bulk Wine

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

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

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

Importation of Bulk Wine

Bulk wine may only be imported by an excise licensee, a province or a licensed manufacturer. Imported bulk wine acquired by an excise licensee must be blended, processed or packaged before being resold.

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

C.2. Packaged Wine

Packaged wine is wine that has been bottled or otherwise packaged for consumption. The excise duty or customs duty equivalent on packaged wine will be imposed and payable at the time of packaging or importation unless the wine is placed in an excise warehouse immediately after packaging or importation, in which case payment of the excise duty or the customs duty equivalent will be deferred.

Under the proposed new structure, packaged wine may be removed from an excise warehouse without payment of duty if the wine is for delivery to another excise warehouse. Packaged wine may also be removed from an excise warehouse without payment of duty if it is sold and delivered to a licensed manufacturer, duty-free shops, accredited representatives or for use as ships' stores. As well, packaged wine may be removed from an excise warehouse without payment of duty if it is exported from an excise warehouse of the excise licensee who packaged the wine.

Packaged wine that is returned unopened to the excise warehouse that sold the wine may re-enter the duty-deferred inventory of the warehouse. If excise duty was paid on the returned packaged wine, a credit may be claimed by the excise warehouse licensee.

Excise warehouse licensees will be liable for the duty and penalties on any unaccountable losses of packaged wine entered into an excise warehouse. The excise warehouse licensee will also be liable for duty on packaged wine that is stolen.

D. Exports

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

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

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

E. Duty-Free Sales

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

Under the proposed new excise system, packaged wine destined for the duty-free market may not enter a customs bonded warehouse. Packaged wine that is supplied to the duty-free market may not enter the domestic duty-paid market.

F. Home Wine-Making and U-Vins

Individuals who make wine will be exempt from the excise license requirements and from the payment of excise duty as long as the wine is made by the individual for his or her personal use and not for commercial use. The personal use exemption will be limited to "individuals", not "persons". As a result, clubs and other organizations that might be legally defined as "persons", will not qualify for the personal use exemption.

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

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

A key feature of the proposed framework is to require all persons who possess bulk wine other than excise licensees, licensed manufacturers or individuals who make wine for their personal use at a place of residence, to be excise registrants. Since in the course of the wine-making process u-vin operators will have in their possession bulk wine belonging to their customers, u-vin operators will be required to be excise registrants. U-vin operators will be permitted to possess bulk wine, which is owned by an individual, at the u-vin premises where the wine was produced.

G. Penalties

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

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 wine.

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

H. Transition

Under the proposed new excise structure, a rebate of excise tax will be available for excise tax paid on domestic packaged wine that is stored by a person who is an excise warehouse licensee on the date of implementation of the new Excise Act.

Under the proposed new excise structure, imported wine may no longer enter or be stored in a customs bonded warehouse. On the date of implementation of the new Excise Act, the excise tax, regular customs duty and GST on imported packaged wine held in a customs bonded warehouse will become payable under normal customs rules and procedures. Payment of the excise tax may be deferred if, on the implementation date, the imported packaged wine is placed in an excise warehouse. Payment will then follow the rules of the new Excise Act.

For imported bulk wine 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. The new excise duty will not be imposed until the bulk wine is packaged or taken for a taxable use.

Wine that has been packaged at a Canadian winery but has not yet been delivered to a purchaser will be subject to excise duty on the implementation date. However, payment of the excise duty may be deferred if, on the implementation date, the packaged wine is placed in an excise warehouse. Payment of the excise duty will then follow the rules of the new Excise Act.

For those wineries that are now defined as small manufacturers by the Excise Tax Act, excise duty will not be imposed on existing inventories of packaged wine. Excise duty will be imposed on wine which is packaged on and after the implementation date according to the rules of the new Excise Act. Bulk wine owned by a winery that is now defined as a small manufacturer by the Excise Tax Act will be subject to excise duty, which will be imposed when the bulk wine is packaged or taken for a taxable use according to the rules of the new Excise Act.

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